There’s a ‘unique’ opportunity in art, which has beat the S&P 500 over 25 years, asset manager says

Jean-Michel Basquiat’s Pyro is displayed to the press during the preview for Sotheby’s Frieze Week Contemporary Art Auctions at Sotheby’s on September 27, 2019 in London, England.

Tristan Fewings | Getty Images Entertainment |

LONDON — Contemporary art as an investment has outperformed the S&P 500 over the last 25 years, and one asset manager argues that it still presents a “unique” opportunity for investors. 

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Contemporary art has offered an annual return of 14% over the last 25 years, as of December 2020, versus a 9.5% annual return from the S&P 500, according to the Citi Global Art Market chart, cited by fine art investment company Masterworks. 

Looking ahead, John Plassard, deputy director at asset manager Mirabaud, told CNBC’s “Squawk Box Europe” on Thursday that there was “a lot of growth to come” from contemporary art. 

He described it as “one asset that seems to have stood the test of time and escaped the grip of volatility” and said it was an “often-misunderstood investment theme” in a note earlier this month. 

His arguments in favor of the asset class include the fact that contemporary art has seen fewer periods of losses than global equities, gold and the U.S. housing market. 

Over the last quarter-century, contemporary art — defined as works created from 1945 onwards — recorded losses in only 4% of cases, over 3-year investment periods, according to analysis cited in Mirabaud’s note. In contrast, the S&P 500 and global equities were in the red 24% of the time, U.S. housing incurred losses in 20% of cases and gold fell 40% of the time. 

Plassard also pointed out that contemporary art has a low correlation to more traditional investments, meaning it is unlikely to rise and fall with those assets. 

“Art has also low correlation with other classes so it’s a unique investment and you have minimum losses — if you choose the right one of course,” he told CNBC. 

And because it’s a real asset, it can offer a level of protection against the risk of rising inflation, Plassard added, which is something which has been a major concern for investors of late

Overall, he said that contemporary art offered a way to diversify investments, but that it does involve “risks and costs depending on the means chosen to acquire a work.” 

The cost of insurance can be high, for example, and there is also the risk of forgery, theft or damage. In addition, the value of a piece of art can fluctuate depending on whether the artist remains in style.

Ways to invest in art

There are a number of different ways to invest in the space, according to Plassard. First of all, investors can simply buy a work of contemporary art — although this can be tricky as buyers either have to bet on unknown artists, or pay dearly for a more established name.

Art funds are another option, Plassard said, which allow investors to own parts of pieces of art. For instance, Masterworks is a fund manager that acquires artwork at auctions, then creates a holding company to store, promote and resell the pieces at a profit. It registers the holding company with the U.S. Securities and Exchange Commission and issues shares, Plassard explained. 

Blockchain technology has also created the tokenization of art, Plassard said, alluding to nonfungible tokens (NFTs) which can offer investors another way to buy a part of a piece of art. 

Artwork can be “defragmented” into thousands of digital tokens and then issued to buyers, he said, adding that the digitization of the artwork into exchangeable tokens makes it more of a liquid asset. NFTs boomed in the first-quarter of the year, with total sales of tokens topping $2 billion in the first quarter. 

Investors can also buy shares in the companies that provide information on the art market and sell works online, like ArtMarket. However, Plassard said in the note that these companies “face very strong competition, which, among other things, explains their sharp declines.”

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