HEDGING A PORTFOLIO WITH ART

Posted on in Editorial by Sonja
 

 

Investors have long used bonds as a way to diversify and hedge a stock portfolio — often defaulting to a typical 60% stocks and 40% bonds allocation. In the past, this strategy was generally successful, yielding a sizable return with moderate risk. During the 1990s, a 60/40 portfolio returned 14.14% with volatility of 9.00%, according to data collected from Morningstar. However, more recently this strategy has lost some of its effectiveness, with returns of only 6.59% and volatility edging up even further to 9.14% (Assuming returns on the S&P 500 and Barclays US Aggregate Bond Index). During the same time, this 60/40 portfolio had a correlation of 0.99 to a portfolio that was invested entirely in stocks.

 

Because alternatives tend to have lower correlation to stocks and low-to-negative correlation to bonds, they can be an attractive diversifier. This characteristic can help to reduce the impact of market volatility, smoothing returns during turbulent periods for traditional investments. Investing in fine art as an alternative asset can hedge against swings and risks in traditional investments, as art investments have almost no correlation with other financial markets.

 

By integrating differentiated sources of return such as alternatives, investors can decrease their reliance on traditional market performance and potentially lessen their overall portfolio risk. It should be noted that diversification strategies do not ensure profits or protect against losses in declining markets. However, in general, alternatives rely less on broad market trends and more on the strength of each specific investment.

 

Arthena Index Performance

Looking specifically to art as an investment in 2017, it is a great time to be an investor. By selecting the right mix of art, (or letting Arthena do it for you,) it’s simpler than ever to capitalize on art’s intrinsic low market correlation and higher than average returns. At Arthena, we specialize in giving investors access to collections of art we select through our quantitative approach. Arthena has the ability to source and recognize asset class works of art. Our funds target the fastest growing sectors and return, on average, 13.4% year over year. We partner with seasoned, international art world specialists to help you find the perfect and most informed opportunity that will complement your existing portfolio. Keep track of your collection online and take part in our exclusive member benefits, including storage, insurance, an extensive calendar of events, and access to a global roster of galleries, museums and art fairs.

 

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