Blue Chip Art Investments

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Contributor, Benzinga
July 28, 2023

While investing in stocks represents the most broadly accessible manner to build wealth, they’re also everywhere; hence the term, “common stock.” As well, the process of shifting digits from one side of the ledger to another is cold, calculated and sanitary. For those who are looking to add true culture to their portfolio, nothing comes close to blue-chip art investments.

Over the years, the confluence of demand and technology has opened access to the exclusive, rarefied arena of fine art investments. With a careful approach, you may be able to extract significant profits from blue-chip art investments. But, how can you make the most of this asset class, buy into a blue chip artist that once seemed untouchable, bypass the traditional auction house and buy more than a blue chip stock or two?

Best Platforms to Invest in Blue Chip Art

Best for Art Investing: Masterworks

Masterworks is an investment platform that allows individual investors to buy shares of some of the most sought-after artwork on the market. An art collector cannot spend all their time at an art gallery or auction, but the team at Masterworks brings those forums to you.

Investors can buy shares in current art offerings as well as trade shares on the platform's secondary market. Artwork on the Masterworks platform has appreciated at an average rate of 14% annually. Masterworks allows investors to buy shares in legitimate blue-chip artwork instead of buying directly from an art gallery.

However, the art sales team charges an annual fee of 1.5% along with 20% of the profits. There is no account minimum but minimum buy-ins can vary as you attempt to diversify your investment portfolio.

Pros

  • Low fees helps you spend more on the art and less on the platform
  • The platform keeps a low percentage of the profits from sales, meaning you keep more in your pocket

Cons

  • There’s no guarantee that your favorite artworks will be featured

Best for Selection of Private Art Funds: Artemundi

Artemundi was started with the idea that it could help clients grow their art portfolios in this asset class without focusing on blue chip art, buying into the most expensive niches of the art world or over-investing in the fine art market. Here, you can invest in art in unique ways and leverage technology to make the most of every investment. The platform cuts down on fees as much as possible, and has an expert team that knows the Impressionist, Modern, Post-War and Late 20th Century art markets very well.

Founded in 1989, there have been billions of dollars in transactions handled by the service, and the firm is also using blockchain technology to better security artwork and provide for a more unique investment experience.

To that end, the platform uses ASTs or Art Security Tokens to provide a lower barrier to entry. This means that investors can purchase “shares” in artwork, further bolstering the portfolio. Plus, this makes it easier for investors to track where their money is going, because fractional ownership is simpler to track and allows you to buy into several artworks at once.

Pros

  • Purchasing shares in artwork is much easier than trying to select and buy art outright
  • The platform specializes in more modern art that you might not normally see

Cons

  • Private art funds might be too pricey or too esoteric for your tastes

Best for Post-War and Contemporary Art: Anthea Art Investments

Anthea Art Investments offers two platforms: CAIO and CAIF.

The Contemporary Art Investment Fund (CAIF) is a fund that allows for investment in post-war artists, lesser known artists and young or emerging artists. The fund could include art, paintings, sculptures and even photographs from the Post-War period (after 1945).

The Contemporary Art Investment Opportunities fund is a recent addition to the Anthea stable, allowing for tax-advantaged art investment across a wide range of artworks. In either case, it’s much easier to buy in because investors need not make whole purchases of artwork.

Pros

  • There’s more than one way to buy into the platform
  • You can even buy into sculptures, photographs, etc.

Cons

  • This selection of art funds might seem too advanced for certain investors

Best for Pooled Art Funds: The Fine Art Group

  • Private Accounts
  • Co-Investments
  • Pooled Investments

You can open a private account at any time and work with the team to build an art collection. Co-investments allow you to buy into artwork with another investor, ensuring that the two of you share the risk that comes with that investment. This is why you need to check the price tag on your art before you invest because you may want to pool funds with multiple people.

Finally, pooled investments allow a group of investors to buy into artwork, ensuring that each person owns a small percentage of each piece. Yes, these accounts will own artwork wholly, but you may feel safer investing here because you will own a much larger percentage of the investment.

Pros

  • You can pool fund sto buy massive artworks at a price that’s right for you
  • The team is filled with experts who can help broker deals that are often hard to uncover

Cons

  • Pooling art funds may be difficult if you’re not sure with whom you might partner

What is “Blue Chip” Art and How Does it Work?

In the stock market, blue-chip equities refer to high-quality publicly-traded companies, organizations with an established track record and a history of delivering reliable returns for shareholders, even during down periods. Notable examples include these top 10 blue-chip stocks.

Of course, blue chips contrast sharply with penny stocks, which are highly speculative “investment” vehicles — more like gambling — that can really go either way. The allure of penny stocks, though, is their ability to get rich quickly, sometimes overnight. On the other hand, the blue chip’s calling card is its consistency and leveraging the math of compounding interest to generate wealth over time.

It’s a similar philosophy with blue-chip art investments, which refer to highly revered creations that are often associated with household names. These fine art pieces command hefty price tags, typically in the 6-to-8-digit range due to their “investment grade” status.

True, you can walk into a metropolitan art gallery and fork over an amount less than 6 digits for artwork that an unknown artist created. However, the chances of you hitting it big is very slim — akin to gambling on penny stocks.

While you may not get supremely wealthy with blue-chip art investments, they are exactly that — investments, not pot shots in the dark. Remember, you might have found someone you like at an art fair like Basel, but the collector base is overwhelming. You can avoid high art prices and buy into an art piece you love from one of the brokers you see above.

Of course, you might think that fine art as an investment vehicle is exclusively limited to the rich. However, with platforms like Masterworks, they facilitate a pool of investor dollars to seek out quality fine art pieces for eventual profit distribution.

If you’re interested in diversifying your portfolio in this exclusive arena, you should consult Benzinga’s Masterworks Review.

Should You Consider Blue Chip Art Investments?

Before you set out on learning how to invest in artwork, you should first consider whether the concept itself is right for you. Some folks, after spending considerable sums of money, realize a bit too late that alternative investment vehicles do not fit their overall strategy.

And this segues into another point: As an alternative platform, blue-chip art investments incorporate some concepts that are similar with the equities market. However, if your investing experience is limited only to publicly traded stocks, you will need to spend time educating yourself on fine art basics before adding this investment asset.

Finally, art as an investment features distinct opportunities and risks. Obviously, art doesn’t pay dividends or generate revenue and earnings. Therefore, many creation-based investments have somewhat of an all-or-nothing value proposition. A work of art is often seen as something art investors fight over when, in fact, art marketplaces can help you buy in with less money and either share those investments or pool your funds.

Patience Is Crucial

Art as an investment is taking off like wildfire. A perfect example is the report from Benzinga that the Palm Beach Hedge Fund Association Announces a Strategic Partnership with Masterworks.io.

But before you venture out as a connoisseur in the fine arts, you must first understand that patience is crucial. Yes, in some cases, you can make a killing with blue-chip art investments. However, it may take years before you realize a profit.

You don’t want to choose Andy Warhol, Oliver Gingold, Damien Hirst, Banksy, Mark Rothko, Keith Haring, Pablo Picasso or other blue chip artists that you like. You’re looking for the best overall investment.

Interestingly, FINRA reported that stock trading on margin hit an all-time high in January 2021. This indicates that patience is not necessarily a virtue right now. You should have the opposite mentality when approaching art as an investment, however.

Diversification Keeps You Running

Any good financial advisor will tell you that diversification of your portfolio is critical for long-term success. As you already know, nobody in this investing business has a crystal ball. Instead, the smart approach is to spread your bets across various names. This way, you can make steady profits while minimizing downside risks.

Naturally, this concept is all the more pertinent when dealing with blue-chip art investments. Like stocks, art is a numbers game. Some pieces will knock it out of the park while others may be range-bound for years. Diversification takes some of the edge off the fine art market’s volatility and ambiguity.

Consider Opportunity Costs

Investors must recognize the concept of opportunity costs and consider it before hitting the “buy” button on fine art. Mainly, if you hold up your money in this sector, you lose the opportunity to put that money to potentially better use elsewhere.

Because some works of art may require decades to realize a substantive profit, you must engage this sector with a clear and sober mind.

Bolster Core Investments First

On a related note, prospective art buyers should really consider bolstering their core investments to a satisfactory level before even thinking about blue-chip art investments. The reason? Fine art is an ancillary market.

While there’s nothing like art to give your portfolio color and culture, this is a luxury that you should indulge only when you have established your core holdings. In other words, don’t build your house from the ceiling down.

Intensive Research

Investment advisors always stress performing due diligence before buying a stock. The same applies to fine art investments but to a much higher scale.

With popular blue-chip stocks, everybody and their grandma has an opinion on the topic. Put another way, you’ll never be short of research material and analysis from multiple sources.

But fine art remains a high brow and exclusive market despite its burgeoning popularity. Therefore, you must be prepared to do intensive research before participating in this space.

Have a Collector’s Mindset

A post from Stanford Graduate School of Business in 2013 made an excellent observation. Researchers state that “you should buy paintings if you like looking at them, but not to make money.”

That’s not to say that you can’t make money. You should know, however, that arguably most people who invest in fine art have a collector’s mindset. If the piece in question doesn’t perform that well, they don’t feel an overwhelming sense of loss.

Again, the point stands — make sure you’ve established your core holdings first before diving into fine art.

Prepare for the Headaches

If you decide to buy art directly, you’ve got to realize that ownership of quality pieces will require maintenance and management. This ranges from proper storage environment, security protocols and insurance to guard against unthinkable calamities.

Blue Chip Art vs the Stock Market

Perhaps counterintuitively, blue-chip art investments tend to be more stable than benchmark equities indices like the S&P 500. For instance, between 2008 and 2009, the global art market value dropped over 36% whereas the S&P 500 shed only 22%. However, in 2010, global fine art had jumped 44% while the S&P gained only 19%.

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In the end, the S&P’s dramatic rise has provided the superior return profile. Nevertheless, the volatility of stocks could mean that future corrections may take a while to recover from. In contrast, fine art valuations stay relatively stable once it has found its price threshold.

Does a Financial Crisis Affect Art Investments?

Like any investment sector, a financial crisis is the last thing anybody wants. As demonstrated above, the global art market value slipped double digits during the onset of the Great Recession.

On the flipside, however, the premium end of the blue-chip art market may be at least partially insulated from economic downturns. When you’re at this level to fork over millions of dollars for fine art, a recession may not necessarily dampen sentiment.

Therefore, select works from blue-chip art offer a resilience that you can’t find, even among benchmark equities indices such as the Dow Jones or the S&P 500. When you’re playing with this market, you’re rolling with the biggest powerbrokers in the business — and they essentially operate in a different paradigm compared to the average Joe.

Benefits of an Art Portfolio

While building an art portfolio has many nuances and risks that you don’t find in other investment classes, this segment provides benefits that are unique.

  • Individuality: It’s boring to trade with everyone else. By investing in art, you go against the grain and are able to express individuality that you wouldn’t be able to with regular stocks and bonds.
  • Stability: While forecasting an individual artwork’s performance is a hit-or-miss affair, the blue-chip art market as a whole is relatively stable. As an exclusive arena, you may experience insulation from economic downturns.
  • Potentiality: Though you shouldn’t engage the blue-chip art market as a get-rich-quick scheme, a possibility exists of outsized returns. That’s because of simple supply and demand: You only have so much of revered quality artwork available.
  • Status: While you shouldn’t invest in a status symbol, it’s nice to have gorgeous art in your home or office that can start a conversation, beautify your world and subtly indicate your level of success.

A Viable Alternative for the Discerning Investor

When it comes to investing, fine art is the final frontier because of its cultured and exclusive status. Further, demand for quality pieces that resonate with prospective buyers can fetch a serious premium. However, do your homework. Art can provide alternative diversification for your portfolio but you should not enter this market lightly.

Frequently Asked Questions

Q

Is it safe to invest in blue chips?

A

Safe is a relative term in investing but the broader blue-chip art market features fundamentals that give it stability, even during rough economic periods.

Q

Is art a good option for investments?

A

It very well can be. However, you should buttress your core holdings first before thinking about this ancillary market.

Q

Why are paintings so costly?

A

Simply, supply and demand — there are only so many pieces available, especially if the artist in consideration has passed on.

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About Joshua Enomoto

His distinct writing style of distilling convoluted data into relatable and compelling narratives has earned him recognition among several investment-related publications.