Liquid assets are always an important part of a portfolio, and a new exchange-traded fund is putting the emphasis on the liquid part.

The Spirited Funds/ETFMG Whiskey and Spirits ETF (WSKY) debuted Wednesday and focuses primarily on companies that derive the majority of their revenue from producing and marketing whiskey and spirits. It is the brainchild of a company called Spirited Funds, in partnership with ETF Managers Group, which is best known for bringing to market thematic funds such as the PureFunds ISE Cyber Security ETF (HACK) and The Restaurant ETF (BITE)

WSKY includes names such as Pernod Ricard, Diageo, Brown Forman, Kirin Holdings and others, and Sam Masucci, chief executive officer of ETF Managers Group, says this is the first ETF to focus on spirits.

There is strong demand for top-shelf liquor, Masucci says. Citing data from the Distilled Spirits Council of the United States, high-end premium and super-premium bourbon and Tennessee whiskey brands saw revenues increase 50% and 155%, respectively, between 2010 and 2015, with total U.S. spirits sales at $72 billion in 2015.

“Even in a sluggish economy, people are still investing in whiskey and bourbon, where they want to pay up for that premium brand, and that’s very interesting from an investment standpoint,” Masucci says.

David Bolton, president and chief executive officer of Spirited Funds, says not only is U.S. demand strong, but so is global demand for spirits. India is the top market for Scotch whiskey, he says.

“It made sense for investors worldwide to have the opportunity to participate in the revenue chain rather than just spending dollars into it,” he says.

Bolton says the idea for the Spirited Funds/ETFMG Whiskey and Spirits Index, the basis for the ETF, came from his knowledge of the economic impact of bourbon on Kentucky, where he grew up and still lives. His research into the spirits category confirmed the idea of a potential investment.

The fund falls under the consumer discretionary category and is considered a growth investment, Masucci says. It has an expense ratio of 75 basis points and was seeded with $2.5 million. It is market-capitalization weighted and rebalances quarterly.

The geographic tilt is international, Bolton says, with only 15% of the fund’s companies based in the U.S.

There are 23 companies in the fund, and its prospectus says firms must have a market cap of at least $100 million and meet minimum standards in terms of liquidity and length of time listed. Companies are divided into core and non-core companies. Core companies have a whiskey distillery and produce alcoholic beverages. They are weighted at a minimum of 85% of the index.  Non-core firms are luxury-goods companies with at least $500 million in annual whiskey and spirits sale. Soft-drink companies involved in whiskey distribution or that derive the majority of their revenues from the provision of mixers, are also part of the ETF. 

The largest holding by weight is Diageo Plc, at 24.21%, as of late September.

Nicholas M. Pollacchi, chief executive officer of The Whisky Dog, who for 12 years has helped people acquire rare whiskey for private tastings and collections, agrees there’s “massive demand” for whiskey, especially in the past 10 years.

Not only has that demand inspired the new ETF, but it also motivated one hedge fund to start up a fund that collects rare bottles—the Platinum Whisky Investment Fund.

Pollacchi says many investors are drawn by the rise in single-bottle prices over the past few years. For example, Balvenie Tun 1401 Batch 1, a limited edition whiskey that originally sold for $350 a few years ago, now can sell for $1,500 to $2,000.

But Pollacchi said there’s a difference between investing in whiskey the product and a drinks company. While there are some well-run companies like Pernod Richard and Brown Forman, both which are in the ETF, others are struggling, he says. And he adds many of these companies hold other names besides whiskey in their beverage portfolios. Some of the brands sell well, some don’t.

“It’s not like I can just invest in Johnnie Walker,” he said.

But Bolton says the diversification of the fund is one of its strengths. “If interest in whiskey goes down, other spirits like vodka and gin can offset that,” he says.

Investing in whiskey itself is much like buying art or vintage cars, Pollacchi says. Just because a bottle of 10-year old Macallan (owned by the privately held company Erdington) might fetch double or triple the price in a few years, demand for whiskey varies not only by the distillery but also by individual bottles themselves. Stocks may not see the same sort of growth potential as select bottles.

“Investing into whiskey is a passion-driven investment . . . When we build private whiskey collections, we do it in a way to not only let them grow in value, but so you can build a collection you want, rather than say I have a lot of whiskey somewhere and hopefully someday it will pay off,” Pollacchi says. "To me that removes that passion."