There are many ways into alcohol investing, but among the most promising methods out there are Exchange Traded Funds (ETF).
Whisky is generating a great deal of attention right now, as investors take notice of its potential. Perhaps the most stand-out figure was from the 2020 Knight Frank’s Wealth Report, which showed incredible 564% growth in the value of rare whisky over the last ten years.
On top of that, the Rare Whisky Apex 1000 – a benchmark index for rare whisky – jumped an impressive 6.7% in 2020. Demand for collectible Japanese whisky climbed higher still, with the RW Japanese 100 up 18.7% for the year.
Today, such healthy returns have left many investors looking for ways to enjoy a slice of the action themselves.
What are alcohol ETFs?
Alcohol ETFs are bought and sold on a stock exchange. They hold a range of assets like stocks and bonds, or sometimes commodities like gold bars.
The products are typically less expensive than other types of funds. This is because they can they simply track and replicate the performance of a range of assets. That could be a particular index—like the FTSE 100 or the S&P 500—or a particular theme—like technology or sustainable energy.
ETFs are also perhaps the easiest products to access, too. This is because they don’t have the—often very large—minimum investment requirements that other funds do.
ETFs can be traded all day just like any other stock. Mutual funds, by contrast, can only be traded once per day after markets close. This makes it easier to buy, sell, and take precautions such as stop-loss limits.
There are a huge variety of ETFs out there that cater to the requirements of different kinds of savvy investors.
Critically, that includes whisky enthusiasts.
Investing in alcohol
An excellent place for would-be whisky investors to begin might be through the so-called ‘vice ETFs’ out there that offer exposure to sectors like alcohol, tobacco, gambling, and marijuana. This is similar to the concept of a ‘sin stock’ – the name given to stocks associated with these supposedly immoral activities.
The AdvisorShares Vice ETF (NYSEARCA: VICE) is one example. This ETF invests in various vice industries, like gambling and tobacco, with a 22% sector allocation for alcohol. Year-to-date, shares in this vice ETF have jumped 23%. Meanwhile, they are up an impressive 46% on a five-year basis.
Holdings in the AdvisorShares Vice ETF include Diageo(LON: DGE), which owns the Johnnie Walker whisky brand, and Jack Daniel’s whiskey owner Brown-Forman (NYSE: BF.B | NYSE:BF.A).
Regardless of whether its whisky or whiskey, the makers of these spirits both have worldwide distribution, extremely well-known brands, and strong dividend histories.
They also proven resilience to recessions, as seen by the rapid recovery in Diageo’s shares of late, which are already trading above pre-pandemic levels.
As a managed fund, the AdvisorShares Vice ETF has a 0.60% management fee. This is much lower than the several percentage points that more traditional equity funds can sometimes hit.
Another vice ETF option is the Invesco Dynamic Food & Beverage ETF (NYSEARCA: PBJ), up 16% year-to-date and at a five-year high in April. Its top holdings include Brown-Forman as well as Corona beer owner Constellation Brands (NYSE: STZ | NYSE: STZ.B). This ETF is based on the Dynamic Food & Beverage Intellidex Index and has a 0.50% management fee.
Bottom line is, these vice ETFs have the added benefit over dedicated whisky/whiskey of including a range of sectors. This offers greater diversity and exposure to a variety of vices including alcohol.
Another way into investing for whisky fans is through the Single Malt Fund. This is a fund that primarily invests in limited edition bottlings of whisky. The company’s prospectus has approval from Sweden’s financial supervisory authority and the fund is listed on Stockholm’s Nordic Growth Market.
The Single Malt Fund has close commercial bonds with the whisky industry. This allows the fund to act as an interface between whisky investors and the whisky industry, including distilleries.
Another appealing option is the VFund, a multi-strategy fund focusing on whisky. It benefits from both industry knowledge as well as direct access to China’s booming premium whisky market.
VFund invests not only through direct investments by acquiring casks and premium Scotch whisky bottles, but also though equity investment in businesses relating to whisky.
The right path?
Each of the avenues to alcohol investing have their own strengths and could appeal to all kinds of investors. When considering the variety of funds on offer, investors should think about whether they want to invest in alcohol specifically or are looking for greater diversity.
The barrier for ETFs is lower. They also offer exposure to other vices, but they might not have enough of a dedicated alcohol focus for some. Especially for someone looking to get into whisky specifically
Meanwhile, for the whisky-minded investor, the Single Malt Fund and VFund might offer more of a golden opportunity.