Fine Art Investment - How to capitalise on strong growth.

Are you excited about buying an artwork?  Apart from the joy of seeing a source of inspiration in your own space, how do you assess the value of the artwork and its future capital performance?

An artwork

There are a number of factors that contribute to the purchase price of the artwork starting with the artist’s career path and recognition by independent bodies, the medium used by the artist to create the artwork, the provenance of the artwork (its history of ownership), for more established artists. Who is collecting the artist and where it is represented is an equally important factor when determine the price.  An original artwork will always have a better value then a limited edition print, which is a copy of the original artwork signed by the artist.  However, many people start their own art collection by owing a giclee limited edition print. Nevertheless, some prints are quite rare and unique and can be extremely important for art collectors, such as Picasso’s lithographs or Warhol screen print on paper.

The Art Market

In considering art against other asset classes, the art market itself is subject to macro economic factors, such as the economic health of the country or region (GDP, debt level etc) and the degree to which these impact disposable incomes.   Although the current market is relevant for purchase price, for divestment values, the position of the market in the longer-term cycle is important.  Taking the longer trend, growth in sales of artworks in the decade 2002 to 2012 has increased by approximately a third “from the standpoint of the decade, the number of works sold has largely quadrupled and prices for contemporary art have risen by 34%[1]. ”  For the nearer term trend, obtaining regular valuations and monitoring market sentiment through good art periodicals combined with looking for opportunities to pick up emerging artists showing promise as more established collectors pay them attention is a good modus operandi.

A strong market top end, as in the high performing auction market, will tend to lift prices overall.  The growth here in turnover has been significantly greater ‘The global Fine Art Market posted a new record level of activity in 2014, with a total auction turnover of $15.2 billion, up 26% compared with 2013 ($12.05 billion) and more than 300% compared with a decade earlier.[2]

Blue chip artists in the high performing auction sector will tend to stretch price boundaries and reach new high record sales, as in the example of the Picasso’s Women of Algiers, which has become the most expensive painting so far to sell at auction. It was sold by Christie's for $160m (£102.6m).  The contemporary season is not yet over and there is still the Sotheby’s July 2015 sale. 

Portfolio Diversification across artists

Structuring a portfolio to include a broad range of artists is more likely to lead to the evening out of purchase anomalies (good and bad!).  Picking those with good track record of recognition by esteemed bodies combined with unique and quality subject matter, is likely to provide more resilience to market downturns.  Equally, those artists who’s prices have consistently appreciated and for whom market opinion is that they “have legs' (from trading vernacular) i.e. they have the likelihood of further price appreciation, are more likely to be successful.

Art compared to other asset classes

Let's not forget that while a few may want a share certificate on their wall, for most the dual purpose of decoration and investment potential of art is an attractive bonus.

The above strategy doesn't guarantee growth but typically makes a portfolio more resilient to the inevitable ups and downs of the world art market and the regional / sector variations that are part of it.

Despite all, you should always buy art that you like and invest and promote artists you believe in. No one knows who is the next big name in the art world!

Disclaimer

The above article does not constitute investment advice; please seek professional advice from your investment adviser.



[1] Figures taken from artprice.com report (artprice-contemporary-2012-2013-en)

[2] Figures taken from artprice.com report (artprice 2014 art market)