Art as an Asset Class Outperforms
You have heard the recent news of a $4 purchased David Bowie piece of art at a Canadian landfill selling for $90, 000. Whether it is for a decorative esthetic or a soulful inclination you would like to adorn your property with some art but in today’s economic climate you are wondering if it’s the right investment decision. Well, contemporary art has considerably outperformed the S&P over the last 25 years.[i] [1]Contemporary art has witnessed a 14% annualized return versus a 9.5% annualized return for the S&P 500 Total Return.[ii]
Unbeknownst to your initial reasoning to purchase art you would be making a prudent investment decision. Regardless of the pandemic the post-war and contemporary art market has shown considerable resiliency putting forward a strong performance of 15.1% return in 2020 amidst significant volatility across asset classes, with the price performance remaining exceptionally strong (Masterworks.io). Auction houses, galleries and dealers shifting to online sales saw total sales increase 511% (ArtTactic). Market share for post-war and contemporary art continues to gain market share reaching an all-time high in 2020 taking 55% share of transaction volume (UBS, ArtBasel).
Yes, art is distinctly different to other material pursuits such as houses, equities, etc. Your lauding the features of your newly acquired art work to friends who have purchased investment properties or other assets will leave you feeling like an unrequited lover even though it can be argued you have made a superior investment choice. A hugely attractive feature of art as an asset is not only its long-term performance but it’s very low correlation relative to traditional asset classes. Art does not fluctuate in pricing due to movements (especially negative) of the S&P 500; global equities, US Corporate Bonds; US Housing; and gold. In fact it has demonstrated a superior correlation of <.1. Art has shown itself as the best of all asset classes.[i] Investors looking for solid, uncorrelated returns given the market conditions and demand for hard-money assets make art an exceptional asset class.
Art investors are – even if inadvertently – strategically minded economically. Another important feature is that art outperforms during high inflation adding to its superiority as an asset class. While the U.S. Fed is committed to low interest rates, investors are preparing for the real possibility of higher inflation in 2021. Contemporary art has consistently demonstrated robust real returns in high inflation periods, and is well situated for a “lower for longer” real rate environment.
Contemporary Art vs. Selected Assets – High Inflation[ii]
Average real return for periods during which inflation was equal to or higher than 3.0%
One contemporary artist’s paintings doing extraordinarily well are those of Jean-Michel Basquiat. Basquiat’s paintings featuring full figures are highly desired by collectors evidenced by comparable paintings such as ‘Red Skull (1982)’ selling for as high as $21, 594,014 in 2017. Although guarantees cannot be given, similar paintings have appreciated 21.8% per year historically.[iii] KAWS (aka Brian Donnelly) exemplifies the continued success of Pop culture in the art market with fans such as Pharrell Williams, Justin Bieber and many Asian collectors with 58% of his works being sold in Asia. KAWS started as a graffiti artist and the 2019 Artnet Intelligence Report reports that in 2017 his average sale price almost doubled, from $42,272 to $82,063. In November 2018, five KAWS pieces sold for more than $1 million, and as of 2019 his art has earned over $50 million dollars at auction.
So should you feel guilty investing in art versus another investment asset? Art is undeniably an excellent means to diversify your portfolio while enjoying the timeless beauty of the work as it appreciates in value for you.
[i] Masterworks analysis. FRED (St. Louis Federal Reserve). MSCI Database. Yahoo Finance. Index shown through 2020. Index data updated as of December 31st, 2020.
[ii] Internal Masterworsk anyalsis, FRED (St. Louis Federal Reserve). MSCI Database, Yahoo Finance, BLS (Bureau of Labor Statistics), Index shown through 2020, Index data updated as of December 31, 2020.
[iii] www.MasterWorks.ioi] Repeat-Sale Pair Index of Post-War and Contemporary Art (as defined by the applicable auction house) using Standard & Poor’s CoreLogic Case-Shiller Home Price Indices Methodology
[ii] The Standard & Poor’s CoreLogic Case-Shiller Home Price Indices Methodology results in a value-weighted index. Auction results realized in a currency other that U.S. dollars have been converted using exchange rates provided by FRED (St. Louis Federal Reserve) at the time of the most recent sale. The adjustment is made to account for long-term exchange rate trends that would otherwise distort artworks’ performance.