Jasmine Birtles
Your money-making expert. Financial journalist, TV and radio personality.
How to invest in art and own the unownable
Karl
30th Aug 2022
This is a paid article on behalf of Mintus
It’s proving to be a tough year for traditional investors.
All major UK share indexes are down since the year began and few expect the stock market to witness any sort of boom during the latter half of 2022.
While there are a number of variables involved, stocks and shares generally rise when the UK economy looks stable and relatively healthy. Right now, this is not the case at all. The UK is currently grappling with the highest levels of inflation in 40 years, with consumers and businesses collectively feeling the impact of rising prices.
Because the UK economy looks rather wobbly at the moment, the Bank of England is likely to continue its policy of raising interest rates until inflation slows. The UK’s central bank last hiked rates on 4 August. Stock prices generally fall when interest rates rise due to higher borrowing costs.
the ECONOMY & alternative asset classes
During times of economic uncertainty, alternative asset classes typically perform well compared with traditional assets – such as stocks and shares. Gold, for example, is up over 9% since the turn of the year, while many other commodities have enjoyed positive returns in 2022.
But what about other alternative assets? Art is typically given less coverage than gold, despite the fact that tens of billions is invested in art around the world. But is it actually possible for ‘normal’ retail investors to invest in art?
Keep on reading for all the details or click on a link to head straight to a section…
- How big is the art market?
- How has art performed in recent times?
- Should you invest in art?
- How can you invest in art?
- Do you need to be an expert to invest in art?
- What are the risks?
How big is the art market?
The global fine art market was worth $65.1bn (£52.8bn) in 2021.
During challenging economic times investors may take a closer interest in alternative asset classes, such as art. That’s because the value of art is generally considered ‘immune’ from the performance of financial markets.
This doesn’t mean the value of individual art cannot fall during collapsing share prices, but rather, the performance of equities isn’t seen to have much of an impact on the value of art.
How has art performed in recent times ?
During the economic downturn in 2020, contemporary artworks outperformed traditional asset classes, such as stocks and shares.
Yet, art doesn’t only increase in value during difficult economic periods. For example, when looking at the longer-term picture, the average annual return from art stands in the region of 7.6%. This compares well to the UK’s biggest stock market index – the FTSE 100 – which has increased by a similar 7.75% per year since its inception.
Despite the fact that art has performed well in the past, it’s important to keep in mind that past performance of any type of investment should never be used as a reliable indicator of future performance.
Should you invest in art?
You won’t be surprised to hear that it simply isn’t possible to say whether art will outperform other asset classes in future. However, many investors are attracted to fine and contemporary artworks because of the perception that art has a low correlation with the performance of the stock market.
It is for this reason why art is typically an attractive investment for those looking to diversify their portfolio. After all, holding an asset class that doesn’t necessarily fall when stocks and shares take a tumble can be a boon for those looking to reduce their overall risk exposure.
How can you invest in art?
You may have the impression that investing in art is an activity reserved for the rich. Thankfully, however, this is not the case at all.
In fact, investing in art has never been more accessible. That’s because there are now companies that allow investors to purchase fractional pieces of artwork. This means you don’t have to be a multi-millionaire to dabble in art ownership.
Mintus is one company that gives investors the opportunity to buy shares in individual artworks.
Aside from requiring a lower capital outlay, buying a fractional share of art through a specialist company also means that you don’t have to worry about any of the practical challenges involved – such as storage, valuation, and selling costs. These are all taken care of for you.
For example, artworks held with Mintus are stored securely, and valued by independent experts on an annual basis. Once artworks hit their ‘optimal value’ after 2-7 years, Mintus then sells the artwork on your behalf.
Mintus charges an annual management fee (only for the first four years) and retains some of the investment to cover costs, then after the artwork is sold, charges a 1% fee (based on the value of the artwork) and a 20% ‘performance fee’ of any profits generated by the fund.
Mintus is authorised and regulated by the Financial Conduct Authority.
Do you need to be an expert to invest in art?
Art is arguably the most subjective of asset classes. Despite this, if you aren’t an art guru, you may be reluctant to put your faith into an asset class in which you have little knowledge.
While nobody can say for sure whether art is the right investment for you, lacking expertise in the field shouldn’t really be a reason for staying clear, especially if you do choose to invest with art specialists such as Mintus.
That’s because under Mintus’ fractional ownership model, artworks are chosen by experts based solely on ‘investment potential’. This means that you needn’t worry about the taste of individual experts!
Mintus says that its ‘Fine Art Team’ sources works from institutions, galleries, private collectors, and also from artists directly. Meanwhile, close attention is paid to important metrics, such as market track record, and recent price velocity.
Of course, investing in art is just one way to diversify your portfolio. To learn more about investing in alternative assets, take a look at our complete beginner’s guide to alternative investments.
What are the risks?
When it comes to investing your capital is at risk. In other words, the value of your investment can fall.
Also, unlike traditional stocks and shares investing – where shares are traded on a recognised exchange – art is an illiquid asset. This means it may not be easy to immediately sell your shares if you’re keen to cash in your investment early.
If you choose to invest in art via a recognised platform such as Mintus, it’s a good idea to have a long-term horizon in mind.
It’s also worth being aware that when it comes to investing in art through specialist platforms, pre-identified artworks are likely to have been chosen based on the past performance of the art market, or a particular artists work. It’s important to consider this as a drawback as past performance should never be used to give a reliable indicator as to future performance.
Regardless of the asset class you’re looking to invest in, always do your own research before making any decisions and always carefully read the information on risks.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.
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