The average investor is very familiar with standard stocks and bonds, ETFs and mutual funds. They also understand that diversification across a range of assets and different classes of securities can help mitigate risk while increasing returns. It used to be that most financial advisors would advise individual investors on a stock-bond portfolio split. Today, the digitization of finance has enabled far wider access to alternative asset classes. Art is one category that is quickly emerging as an investment opportunity that is readily available to anyone.
According to Deloitte’s 2017 Art & Finance Report. U.S. total investment in art is expected to reach $2.7 trillion by 2026. Simultaneously, the 2018 Art 100 Index by Art Market Research, indicates that art achieved a 10.6% return in 2018, outpacing many other investment categories.
In fact, 88% of wealth managers think that art should be a wealth offering. However, only 11% of wealth managers surveyed offer an art investment fund product in-house. This is in part due to the lack of transparency in the art market and the fact it has been historically difficult to access.
There is further empirical evidence of the benefits of investing in art. One example is the British Rail Pension Fund which invested roughly 3 percent of its holding, or about $70 million into fine art and collectibles in an effort to diversify its portfolio and hedge against inflation durin a period from 1974 into the 1980s. It did so successfully, strategically buying and selling artwork, generating as much as $65.6 million in just one night in 1989 (in addition to $48 million in previous sales).
More than three decades later, the risk associated with traditional assets per the S&P 500 bond index is enhancing art’s appeal as an investment, which can offer stability in the case of an economic downturn.
But not all art is the same. Deloitte posits that safe haven art, such as old masters or impressionists, are similar to safer investments such as bonds and real estate.
Technology is leveling barriers to entry.
The lack of liquidity and price transparency have long plagued the art market. But technology is advancing to counter these challenges. Blockchain technology, for example, is being used to more securely track provenance. The digitization of sales prices is also helping to make the industry more transparent, with prices widely available on sites like ArtNet.com. Additionally, technology and the application of artificial intelligence is helping investors to analyze risks and spot trends like never before.
Real assets or items with tangible value, such as artwork, fine wine, precious metal, or high-value collectibles really start to make sense in the tech-fueled investment marketplace. Fine art tends to be among the most highly valued of this asset class. And there are a variety of ways to tap into it. For instance, digital marketplace Masterworks allows investors to purchase an interest in a painting, much like one would purchase shares of a publicly-traded company.
Fractionalization of art provides a point of entry that anyone may access.
The Ultimate Alternative Asset Class
The fact is, art is the ultimate alternative investment, as it is completely non-correlated to the public markets and has delivered consistent positive returns over the decades. This even applies during downturns. While the S&P declined 5.1% in 2018, the art market returned 10.6%, and was called “the best investment of 2018” by the Wall Street Journal.
In some regard, buying a work of art by a particular artist is akin to buying stock in a company, where blue-chip artists and companies share two key attributes: high-quality and assured liquidity. But there’s a marked difference in performance.
Comparing the ArtPrice 100, an index which considers at the most important artists selling at auction, to the S&P 500 over the last 18 years, the art side has actually outperformed the stock market by an impressive 250%!
And they aren’t making any more of it. Da Vinci and Picasso haven’t been producing any new works for a while, and they never will again. That fact only helps to further drive up demand and prices.
Art may not be the first asset class most investors think of when considering alternative investments, but it may well be the most reliable and lucrative over the long haul.
Masterworks is the first company to allow investors to buy shares of great masterpieces by artists like Picasso, Monet, and Warhol, similar to the way investors purchase shares in public companies. Founded in 2017 by Scott Lynn, Masterworks is the first company to allow investors to buy shares of great masterpieces by artists like Picasso, Monet, and Warhol.