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Investing in art funds can bring steady returns and diversification to any portfolio. However, the substantial upfront cost of purchasing art can leave most people feeling excluded from this asset class. That’s where art funds come in. You don’t need to be part of the ultra-wealthy to invest in art. Instead, art funds make investing in art more accessible.
If you’re wondering if investing in art funds is a good fit for your portfolio, you’ve come to the right place. We’ll go over the ins and outs of investing in art as well as the most important factors to consider before moving ahead with this alternative investment.
Why Invest in Art?
There’s more than one reason to invest in art. For starters, art is beautiful to look at — it can brighten your space and uplift your mood. It’s also alluring and usually a great conversational piece. But aside from personal reasons, art has financial benefits as well.
According to the 2019 Deloitte Luxembourg Art and Finance Report, art collectors increasingly view artwork as an important component of their total wealth. About 81% of all collectors surveyed expressed their desire for wealth managers to incorporate art and collectibles into their offerings. This figure was up from 66% in 2017 and constitutes the highest reading since the report was launched in 2011.
Many people are attracted to art as an investment because it holds value well and doesn’t typically correlate with stock market or bond market swings. This means that during market downturns, artwork can be a great way to hedge against risk. Many portfolio managers and fund managers incorporate art for diversification purposes and to protect capital.
Art can also deliver stellar returns for investors. In fact, some studies suggest that the art market is on par with and occasionally even outperforms the stock market. This is partly due to art’s relative stability in contrast to the stock market’s upswings and downturns. The Mei Moses All Art Index displays how the global art market has achieved consistent gains throughout the years — even surpassing the S&P 500 at times.
Art can also be a great leverage tool. Some lenders may be willing to grant you loans based on the value of your artwork collection or art fund holdings. Interest rates for these types of loans also tend to be lower than those for home loans or personal loans. In a 2019 Art & Finance Report by Deloitte estimated that the global value of art-secured loans in the U.S. was between $21 billion and $24 billion — with private art owners and collectors accounting for between 90% to 92% of the overall lending market.
Despite the many benefits, there are significant risks associated with investing in art. For starters, even though art tends to hold its value as an asset class and is less prone to volatility, there’s never a guarantee that an investment will deliver returns. On top of this, it can be difficult to choose an artist or select one type of art piece to purchase.
It’s unlikely to discover the next big artist right off the bat, especially before they've earned a reputation with galleries and auction houses and start commanding high prices for their works. Most of the time, you’ll have to wait years before your artwork appreciates. And even if your art investment delivers returns, it may take some time before you can translate those earnings into cash. Art is notoriously illiquid, especially in comparison to stocks and bonds. If you do buy art, don’t expect to be able to sell it and earn cash quickly.
Finally, owning art comes with many hidden fees. There are maintenance fees required to ensure a piece keeps its integrity. If you’re storing art in your home, you'll have to be aware of temperature, humidity, sunlight and various other influences that could degrade the work. In other cases, you may have to opt for a storage company to keep the work in a climate-controlled environment, which can result in additional fees. You’ll also have to pay to have your artwork appraised and determine its value.
Most importantly, you’ll face high fees whenever you want to liquidate your holdings and cash in on your investment. Art brokers and auction houses can be expensive and ultimately eat into your returns.
What is an Art Fund?
Art funds are privately-held investment funds that acquire and manage works of art with the aim of generating returns. Art funds are generally managed by a professional art investment management or advisory firm who receives a management fee and a portion of any returns delivered by the fund.
Art funds can be a great way to invest in art without actually owning a piece of art outright. In this way, art funds minimize the risks and upfront costs of investing in individual works of art but still offer the same diversification and stability benefits.
Art funds are structured similarly to other investment funds. They allow investors to partially own and reap the benefits of a particular asset without footing the entire cost and risk outright. Instead, an experienced fund manager is responsible for acquiring art on behalf of its investors. When the firm acquires a piece of artwork, it will store it, maintain it and hopefully resell it for a profit.
Investing in artwork through this manner is not only more affordable, but also allows for greater liquidity. Investors can buy and sell shares of art funds far more easily and at less cost than physical pieces of art.
Can You Partially Own a Work of Art?
Yes. Incorporating art funds into your portfolio is one way to partially own a work of art. With an art fund, investors pool their capital together for a fund manager to acquire, manage and sell artwork for a profit. In this way, everyone has less exposure to the risks and costs of owning individual pieces, while still maintaining the capacity to generate returns.
Is Art a Short-Term or Long-Term Investment?
Art is generally a long-term investment. It can be a great asset to hold during recessions, especially because it doesn’t correlate with stock market performance and tends to hold its value relatively well. However, don’t expect to see any major gains in the short-run. Most of the time, it takes several years to generate returns on an art piece, especially when taking into account fees and costs.
Popular Art Investment Funds
Art investment funds can be a great opportunity for anyone looking to incorporate art into their portfolios but don’t want to deal with the hassle and risks of owning pieces outright. Take a look at some popular art funds.
Who Should Invest in Art Funds?
Most of the time, you do need large sums of capital to be able to buy whole art pieces and create a collection on your own. However, art funds make investing in art more accessible for everyday investors and the general public.
While some art funds do impose minimum investment requirements, they are often similar or less than the price of an individual piece of art — plus they have the added benefit of providing exposure to multiple works all at once.
Overall, art funds can be a great investment opportunity for people looking to diversify their portfolios with a relatively stable asset class that shows little correlation to stock and bond markets.
Benzinga Best Art Funds
Want to get in on art funds but don’t know how to begin? Benzinga has done the research on the best art funds so you don’t have to. These art funds can be a great starting point for both new art investors and seasoned experts alike.
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Art Funds as a Worthwhile Investment
Investing in art can seem daunting, but it doesn’t have to be. Art funds open the doors to this asset class by lowering investment minimums, offering exposure and a hands off approach to art investing. As with any investment class, make sure to conduct your own research to determine what you’re comfortable with and the associated risks.
Frequently Asked Questions
Is art worth investing in?
Art can be a great investment opportunity for people looking to diversify their portfolios with a relatively stable, tangible asset that doesn’t correlate with stock and bond markets. However, the high upfront costs, low liquidity and general lack of knowledge may deter some investors from venturing into art. Art funds can be a great middle ground and helps to mitigate some of the most common drawbacks to art investments.
How do you buy art that will go up in value?
It can take years to develop the expertise required to identify up-and-coming artists and pieces that will go up in value on your own. Another option is to work with a curator, art fund manager or art fund to get in on art that is well positioned to appreciate.
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