What is... | November 8, 2010

What is art investing?

The very act of getting a return from paintings and sculpture is something of an art form in itself. Research finds art can be a good investment but it also carries significant risk and should only be considered by those who can afford to take the chance of loss.

Unlike other alternative investment classes - such as stamps and wine - studies suggest price movements in the art market correlate with global equity markets, rather than act as a hedge.

In the black - or in the red?
Dutch researchers created an Art Market Index (examining art investing over 24 years) and published results in the paper Art as an Investment. Another study Art and Money, which was also issued this year, looked at the art market over the last 200 years. Both found a relationship between ups and downs in the share market and ups and downs in the art market. However, like artworks, the art market has several elements to its composition. And the well-regarded Mei Moses Fine Art Index found not all collecting categories reacted in tandem to the changing economic climate in the first half of this year - and it went on to say impressionist works and the post war and contemporary collecting categories had a "growing positive momentum".

In the eye of the beholder: cheaper investments may be best
An article in the Financial Times cites Mike Moses, a retired New York University professor who devised the Mei Moses index, as saying investors reap the best returns by purchasing the cheapest art sold at auction. The quarterly Arts and Antiques Market Survey from the United Kingdom's Royal Institution of Chartered Surveyors found agents were more positive in the third quarter of this year about ceramics and oils and watercolours and less positive about the prices of contemporary art at auction.

More than meets the eye
Buying art might be riskier than buying relatively safe assets such as bonds - and specialist knowledge is needed. Even specialists may differ on the value of individual pieces. News agency Bloomberg outlined the role of appraisers in valuing art works and noted the difficulties in getting agreement between experts. Often buyers may hope an artist becomes better known over time - and that the style of art remains popular with investors to help with the ease of selling (or liquidity). But there is no guarantee this will happen. An article on newswire Reuters highlights potential pitfalls when it suggests arranging insurance and adequate storage for artworks (adding to investment costs) and seeking advice on tax implications of trading.

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Phil Thornton
Phil Thornton

Lead consultant at Clariti Economics