INVESTMENT GRADE ART VS. THE STOCK MARKET

Posted on in Editorial
 

 

Investing in investment grade art versus the stock market share one underlying trait - trading. There are a multitude of reasons why a traditional investors may choose to invest through the stock market over an alternative asset, such as art. However, what they negate to see is the potential art assets have over stocks for long term investments.

Due to its high liquidity, the stock market provides both long and short term investment opportunities. On the other hand, the art market is comparatively a lot less liquid, due to its limited quantity.

Let’s compare the investment opportunities for both markets. In the stock market, economists estimate a range from 7-12% on long term returns. From the inception of the stock market in 1926, the average annual return up until 2015 was at 11.69%.  Looking closer, the S&P 500’s one year annual return was increased by a mere +4.72% over the past year. Top performers such as the FANGs, all four companies (Facebook, Amazon, Netflix, and Google) averaged an 83% increase during 2015 - but that is just 4 out of the 2800 companies listed on the New York Stock Exchange. Despite great returns in a single year, investing in the FANGs alone will not provide sufficient portfolio diversification or a store of wealth during times of economic uncertainty.

 

FANG Performance (2012 - current)

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Source: Bloomberg

 

The art market on the other hand, is a great alternative for a store of wealth and diversification. Why? The art market has a low correlation to the stock market. The art market has averaged 17.5% in annual returns over the past few years. Furthermore, top performing artists at auction has outperformed the stock market over the past ten years. Take Impressionist Claude Monet, rated third best performing artist in 2015 by artprice.com. Over the past 10 years, his price index increased by approximately +133%. Similarly, Cy Twombly, who placed seventh in the same report, increased his price index by +188% over the past ten years. Furthermore, the art market took 16 months to return to prerecession levels while the S&P 500 has taken six years.

 

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Many traditional investors have identified the cons of investing in alternative assets. Such as art being a heterogeneous good, its illiquidity, and the market’s lack of transparency. Unlike the financial market, art market data lacks readily accessible data online and sophisticated platforms which are comparable to the Bloomberg Terminal or the Thomas Reuters Eikon. Because of this, investors are wary of investing in the art market due to its seemingly high speculative nature.  

However, through the combination of traditional art valuation and Arthena’s proprietary analytics, investing in art is no longer speculative. Arthena targets works by artists that have shown appreciation over the past 5 years using regression analysis, and are projected to grow by 20% +/- YoY over the next five, or the lifetime of the fund. Arthena targets works that range in price from 10K to 200K USD. Works under 200K have the highest liquidity and account for 98% of the transactions in the art market.

Like a hedge fund, Arthena identifies specific market segments and artists that have shown impressive historical performance and creates buy orders to acquire said works. We acquires works at auction for increased price transparency to the benefit of our investors and our methodology.



 

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