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The Limitations Of The Knight Frank Wealth Index For Whisky Investment

The Knight Frank Wealth Report is released each year in the spring and includes The Luxury Investment Index. Credit: Knight Frank (knightfrank.com/wealthreport)

If you invest in high value assets or premium property you have probably heard of Knight Frank. Chances are if you’ve got an interest in whisky you have probably been delivered targeted adverts about whisky investment, which are likely to mention fabled 582% returns. You may also be aware that those figures are based on data from the 2019 Knight Frank Luxury Investment Index (KFLII).

While the whisky portion of the KFLII is interesting, its use in general whisky investment is somewhat limited by the scope of what it covers. Unfortunately it is also often misquoted with the intention to mislead.

The Knight Frank Wealth Report and Luxury Investment Index

The Knight Frank Wealth Report is released annually around March, it summarizes and analyzes the past 12 months of investments, especially premium house prices, but also other “investments of passion” that constitute the KFLII.

The KFLII is a weighted index that is currently made up of 11 different luxury investments of passion. An annual summary of the performance of the KFLII is released each year as part of Knight Frank’s Wealth Report. The assets that contribute to the KFLII are regularly reviewed for suitability. For example whisky was introduced in the 2019 report (which looks at 2018 data) handbags joined in 2020 and stamps were dropped in 2021.

It is important to note that the Knight Frank Rare Whisky Index looks at the 100 rarest and most expensive bottles in the world. That means the index represents a biassed sample of an already super niche part of the market.

Examining the performance of whisky in the Knight Frank report can be interesting, but it is only really relevant for collectors and investors who want to look at the past performance of a micro-view of the market. Even then it needs to be used with caution and understanding.

The Limitations of Index’s

As whisky investment has become more widespread, so too has the interest in and need for analysis of the market and how it has changed. While the Knight Frank Rare Whisky Index receives a lot of press, it is just one of the indexes and market analysis reports that are available. It is also important to understand its limitations—and the limitations of all indexes.

What is an index?

An index is a sample of the market that is used to act as an indicator of performance. They can be representative of a whole market, or a section of it. But they are still just a representation.

The 2024 Wealth Report shows the ten year performance for ultra rare and ultra expensive whisky dropped to 280% and the 12 month performance dropped to -9% in 2023. That’s compared to 373% and 3% respectively in 2022. However if you start to dig down into that data you can start to see further variations, as discussed by Andy Simpson the report:

“The worst performing 50 bottles lost 26% of their combined value, the remaining 50 bottles gained 5%, with the 20 best performers increasing by a respectable 20%.”

That means hypothetically if you owned one bottle you may have gained between 5% and 20%, or lost 26% compared to the preceding year. If you bought all 100 bottles in 2022 you would have lost 9% on average. But that is only compared to the 2022 values. It doesn’t show longer variations and if you bought all 100 bottles in 2013 you still would have made 280% on average.

Even the use of single bottle indexes have limitations as they are looking at the average result of all sales. It is just as important to understand where, and when, to sell a bottle in order to get the best return.

This is where working with an expert can help you understand the market and make educated choices on when to buy and sell. This is something that the team over at Mark Littler Ltd can help with.

The KFLII is a weighted index that is currently made up of 11 different luxury investments of passion. An annual summary of the performance of the KFLII is released each year as part of Knight Frank’s Wealth Report. Credit: Knight Frank (knightfrank.com/wealthreport)

When Not To Use The Knight Frank Index

It is important to be clear that the Knight Frank Luxury Investment Index very specifically looks at ultra rare bottles of whisky. Any mention of this index in relation to casks is strictly misleading and in the UK it goes against the 2024 legislation released by the ASA governing the advertisement of whisky cask investments. Unfortunately that legislation doesn’t cover advertising and companies elsewhere. That means for buyers in the USA and elsewhere you need to take extra care to ensure you understand the potential and limitations of the data you’re being presented with.

The reason for the ban on using the Knight Frank data in relation to casks is pretty obvious when you break it down. It’s not relevant to use the historic returns of a sample of ultra rare, ultra high value bottles of whisky to indicate the potential for casks of whisky, which are a young, bulk product. We’d argue it’s akin to using the value of house prices in central London to sell bricks; the latter can increase in value when used correctly, they can even be used to make the former, but bricks alone do not create a multi-million pound property. 

If you would like more information on whisky cask and bottle investment then please head across to the Mark Littler website. You will find lots of free resources to explore at your leisure.

Hannah Thompson

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