Understanding the remarkable resilience and performance of contemporary art as an investment
Art investment is not based on speculation alone; it’s grounded in historical data and trends that provide valuable insights into its performance.
Long-Term Appreciation
Historical data shows that, on average, the art market has appreciated. Certain artists and art movements have consistently demonstrated value growth, making art an attractive option for long-term investors.
Market Trends
Art market trends often reflect broader economic and cultural shifts. Investors can identify potential growth areas by analysing these trends and strategically allocate resources. Trends in contemporary art, emerging artists, and specific mediums can guide investment decisions.
Indexes and Benchmarks
Art market indices, such as the Mei Moses All Art Index and the Artprice Global Index, provide quantitative data on art market performance. These benchmarks can help investors assess the market’s movements and returns.
Deloitte estimates that the total global value of art and collectables is approximately $1.7 trillion (Deloitte), with only 3-4% being traded annually. This makes the asset class comparable in size to other major private markets, most of which have hundreds or thousands of transactions.
Three key factors drive art market appreciation:
- Secular growth in purchasing power among the global ultra-high-net-worth community.
- Decreasing available supply as museums and permanent collections acquire the artwork.
- Tangible, mobile, internationally marketable store of value that can be sold across locales/currencies.
Contemporary art has proven to be an attractive alternative asset class with absolute solid return potential. From 1995 to 2020, it has shown an annualised price appreciation of 14.0%. This mid-teens appreciation rate makes a compelling case for including art in an investor’s portfolio.
Art exhibits a low correlation with other asset classes, making it a strong option for capital preservation. This is due to several factors that drive art market returns, such as the purchasing power of high-net-worth individuals, the general illiquidity of art, and the global nature of the asset class. These factors contribute to the lack of correlation between art and equities, bonds, and tangible assets.
Contemporary art has demonstrated a low loss rate, with realised losses occurring only about 8% of the time over a 2-year investment horizon. The maximum net loss during this period was 11.4%. These low loss rates can be attributed to low transaction volumes during unfavourable market conditions. The lack of correlation, combined with Contemporary art’s strong preservation of capital characteristics, makes it an attractive asset class for risk diversification. It can help improve the downside protection of a portfolio.
The UBS Global Family Report 2020 found that family offices allocated 3% to art, on par with gold and other precious metals. Knight Frank’s The Wealth Report 2012 and Credit Suisse’s 2020 report noted a global average of 5% allocated to art and collectables. Also, an average of 23% of wealth managers surveyed in Knight Frank’s report saw an increase in their clients’ spending on tangible investments of passion during the pandemic, such as art and classic cars. A recent Citibank report also suggests a 3-5% allocation to art as an alternative asset class.
According to the Citibank Art Market Report, contemporary art has seen an annual return of 14% over the last 25 years versus 9.5% from the S&P 500, surpassing recent escalated inflation rates. This makes art a particularly attractive and lucrative asset class, as returns on contemporary art have consistently outpaced traditional investment options such as stocks and bonds.
Looking to build your contemporary art portfolio?
To discuss how Zurani Advisory can assist you, please contact Benjamin Tomkins, Founder and Chief Executive Officer, Zurani. You can reach him via email at benjamin@zurani.com or telephone +971 58 593 5523.
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