How to inflation-proof portfolio with art

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Buying Rembrandt or Picasso is not the first thing the average investor thinks when suffering from inflation. In the gravitational pull of gold, works of art fly under the radar of most traders. They usually see it as a “subjective” asset rather than a “safe” asset. But when it comes to the economic value of good artwork, it’s useful to see the big picture.

Analysts at trading platform Masterworks cite data from 1973 to 1981, when US inflation was around 9% each year, claiming that art outperforms gold during peak inflation. .. During that period, the average annual growth rate of gold was 31.1%, while the average annual growth rate of the art market calendar year was 33.2%.


Most recently, between 2000 and 2018, the Artprice 100 (a major index of the top 100 artists on the market) achieved an annual growth rate of 8.9%, while the S & P 500 averaged 3.4%.

Big returns — if you can get them. For decades, the art market has been out of reach for most private investors. Considered as a reserve for wealthy collectors, it has been enveloped in the mysteries of suffocating auction houses, elusive aesthetic tendencies, and insider knowledge.

The good news for the people on the main street is that Masterworks will break down the barriers to entry into this monopoly market and democratize access to its massive revenues.

Masterworks is an art investment fund that buys artwork on behalf of a group of investors. Thus, it is inherited from old art funds such as The Skin of the Bear (La Peau de l’Ours) in France in the early 20th century, which promoted artists such as Picasso, Matisse and Gauguin.

But as a digital platform, Masterworks can further subdivide collective ownership into fractions of the percentage. This means that regular buyers will be able to buy some of the artwork like a company stock, which will dramatically reduce the barriers to entry.

Masterworks’ research team crawls the database to analyze recent sales revenues in the art market and identify up-and-coming artists.

The fund then selects specific artwork and purchases the original in physical form. It then securitizes the asset through a SEC (Securities and Exchange Commission) submission and lists it on the platform so that users can buy the stock.

Investors can wait a few years for the artwork to be resold before receiving a portion of the earnings (after Masterworks cuts the annual membership fee by 1.5% plus 20%). Otherwise, you can sell your stock in the secondary market of Masterworks, which acts as a stock market. Due to the infrequent trading frequency of stock exchanges, artwork may not always be cleared quickly.

In 2019, Citi acquired data edited by Masterworks of sales from auction houses such as Sotheby’s, Christie’s and Philips, and between 1985 and 2018, art easily surpassed inflation, “ all periods”. It has been found to be an excellent storehouse of wealth.

So why is art resistant to inflation?

Part of the reason is that art is generally protected from fluctuations in other markets.

According to the report, other types of investments (commodities, real estate, etc.) are vulnerable to knock-on effects from other sectors of the highly interconnected economy, but art performance rises and falls. Far from being isolated from.

Citi writes that this is “the most attractive investment quality of art in the long run.”

In other words, those timeless masterpieces actually belong to their own (asset) class.

However, that does not mean that the art market itself is unaffected by severe price fluctuations.

The average annual rate of return seems to be strong in the long run, but it fluctuates significantly from year to year. According to Citi, this is especially true for contemporary art, with an annual volatility of 25.8% in this category, measured by deviations from the average.

These price fluctuations may be too great for some private investors to get angry. But they also remind us of another unpredictable yet visually exciting asset class.

The quiet turmoil of Masterworks art trading ran in parallel with the surge in non-fungible tokens (NFTs), prompting a comparison between the two.

“Masterworks seems to be trying to create a platform that is very similar to NFT spaces, except for legal artwork,” Chad Budy, Senior Investment Advisor at Aptus Wealth Management, told Wealthof Geeks.

“I think apps like Masterworks will appeal to demographics that are different from NFT spaces and rare art collectors. In terms of age, a crowd of over 50 people and some tech savvy but art praise. “”

In a recent interview, the company’s chief investment officer, Allen Sukholitsky, said there was some distance between NFT and Masterworks operations. The main difference is that NFTs are primarily for digital art, while his platform invests in good artwork that physically exists.

But that doesn’t mean that the platform has closed the NFT door permanently.

“But our business is constantly evolving, which means who knows? In the future, we’ll see the NFT market as part of it,” he added.

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