Hedging a turbulent stock market with art – Wealth Management | Candle Made Easy

Investors currently looking for ways to protect against global stock market volatility, cryptocurrency tanking, record supply-side inflation, and geopolitical risk may find that blue-chip art is the answer.

Art has historically proven to be an excellent investment opportunity, outperforming the S&P 500 since 2000. Jean Michel Basquiat and Yayoi Kusama.

The great auction results in May show that the importance of art, particularly contemporary art, continues to grow in the global economy. Citibank reports that contemporary art has returned 14% over the past 25 years versus an annual return of 9.5% for the S&P 500. There are a number of reasons why art is performing well despite adverse global market conditions. According to a recent Bloomberg article, “There are few true inflation hedges… But art can serve as an inflation hedge in almost any setting.” In an interview with MarketWatch, Scott Minerd, global chief investment officer of Guggenheim Partners, said he did Would rather put money in real estate or art than stocks given $10,000 and a five year investment horizon. Lower minimum amounts, such as those offered through fractional investments, can allow retail investors to build a portfolio of artworks just like a high-end art collector would.

Yieldstreet’s Art Investment team believes that diversification is an important investment principle for any successful art fund; As with any investment, diversification can reduce concentration risk. Investing in a portfolio of artworks from different artists, genres and eras allows for diversification not only from public markets, but also within art as an asset class. As Sotheby’s Head of Private Sales (America’s), Courtney Kremers says:

“Diversification is really one of the core principles of investing, and the same is true of investing in art. Artists or genres can go in and out of favor, and their markets are definitely affected by these changes. If you invest in a single artist or work of art, if the market for a particular artist or genre goes out of style, you are 100% exposed to that depreciation. Experienced art collectors therefore buy works of art from a variety of different artists.”

In addition to sourcing a diverse portfolio of artworks, acquiring exceptional examples of an artist’s most iconic images from the most important period of their career is another way to optimize investment returns, as the highest quality works are most likely to command the highest prices, so it’s time to resell. It’s also important to focus on artists with strong markets and career paths. For mid-career and emerging artists in particular, support from top galleries and museums is important and may reduce downside risk as “these institutions are also very keen on maintaining momentum for these markets and keeping these markets strong.” , claims Sotheby’s Courtney Kremers.

Both independence and expertise are important for an art investment manager: it would not be appropriate to have a contemporary work of art appraised by an Impressionist art expert, or vice versa. For example, Yieldsteet engages independent, specialized external appraisers and experienced museum conservators to assess the condition and value of each work of art. Guided by these estimates, Yieldstreet purchases all artwork at or below fair market value.

However, art investment funds face particular challenges. For example, Yieldstreet does not disclose images of the artworks in the Art Equity Funds or the purchase prices. The provenance, or history of ownership, of an artwork has a direct bearing on value. While ownership by a celebrity or celebrated collector can be profitable, an artwork known to have belonged to a mutual fund could have a negative impact on its future resale value. However, it is imperative to provide investors with as much information as possible about each artist’s history and market performance so that investors can make informed and informed decisions.

Art is a real asset class that is finally available to small investors. Although collecting world-class artwork remains prohibitively expensive, investors now have real opportunities to participate in a market previously reserved for the ultra-rich. Through platforms like Yieldstreet, investors can gain access to portfolios of world-class artworks, giving them the opportunity to become part of a market that until recently was completely inaccessible.

Rebecca Fine is Managing Director and Head of Art Investments at Yieldstreet.

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