Fast Growing Whiskey Market Prompts The Launch Of Whiskey And Spirits ETF

The ETF Managers Group and Spirited Funds recently rolled out a first-of-its-kind ETF that targets companies that produce alcoholic beverages. The Spirited Funds/ETFMG Whiskey & Spirits ETF (WSKY) covers publicly traded companies across the globe that are engaged in the production of whiskey and/or spirits. According to the prospectus, the initial universe of Index constituents consists of “companies that are whiskey and/or spirits distilleries, breweries, and vintners, and related luxury goods companies engaged in the sale of whiskey or the production and sale of mixers for use with premium spirits.” The index excludes stocks that have a market capitalization of less than $100 million, insufficient liquidity, have been listed on an exchange recently, or are not listed on a developing or emerging markets exchange. Companies are also classified as ‘Core’ or ‘Non-Core.’  Core companies would include those that operate a whiskey distillery and are primarily engaged in the production of whiskey and/or spirits, while non-core are those that are not categorized as core, with each core company having a weight of at least 4.9%, and each non-core company not exceeding 4.9%. As of September 22, 2016, the Index had 23 constituents, 20 of which were foreign companies, and the three largest stocks and their weightings were Diageo (NYSE:DEO) (24.21%), Pernod Ricard (10.52%), and Thai Beverage (6.07%).

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This ETF enables investors to gain from the fast-growing high-end whiskey and spirit market. In the US alone, the whiskey market has witnessed tremendous growth in the past few years and has been a strong sales driver of the U.S. spirits market, as the demand for American Whiskeys is flourishing. Modernized alcohol laws have expanded consumer access and choice. Furthermore, a return of the cocktail culture has aided the shift in consumer preferences from beer to more complex and premium spirits, mainly whiskey. Demand for American whiskeys – Bourbon, Tennessee, and Rye – is booming in the U.S. and abroad, reflected in the 7.8% revenue increase seen in 2015 and over 50% witnessed in the last five years. This has been a boon to American farmers, as well as boosting exports. Both Irish Whiskey and Single Malt Scotch continued their rapid growth with revenues up 19.9% and 13.5% in 2015, and 159.4% and 85.8% since 2010. The growth of micro-distilleries is also generating excitement in the spirits category. These are up from 92 in 2010, to over 750 in 2015. Better macro-economic conditions have helped to increase the demand for expensive whiskey, which has contributed heavily towards revenue growth. Another factor that has aided in the rapid increase in this market is the effort by trade association DISCUS and spirit manufacturers into pushing states in the U.S. to allow sale on Sundays. Furthermore, 45 states have also allowed some form of distilled spirits tastings. Innovations in products have also proved to be profitable. Flavored whiskey, such as Jack Daniel’s Tennessee Honey and Fireball Cinnamon Whiskey, are attracting more consumers.

In the overall spirits market, the sale of High End and Super premium spirits has far exceeded the growth of Value brands. This shows a growing interest in the top tier of the marketplace. Super premium whiskeys were particularly popular with American consumers, with luxury Bourbon, Scotch, Canadian, and Irish whiskeys all recording double-digit growth. Millennials of legal drinking age have been driving innovation and premiumization. This further aids in the growth in revenue of alcoholic beverage manufacturers. According to the fund management, this trend is not expected to change anytime soon. David Bolton, President and CEO of Spirited Funds states that “We believe we’re at year 5 of a 25-40 year supercycle that could see continued growth in consumer demand for whiskey and spirits.” This new fund, the first to provide exposure to the global industry, offers investors access to an overall alcohol industry with sales of over $1 trillion per year.

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