How You Can Buy The ‘Mona Lisa' For £10!

A few weeks ago, I wrote about carbon credits: one example of how we can look to balance our portfolios by adding attractive investment assets that don’t particularly move in line with stock markets. As I explained, storm clouds seem to be gathering in financial markets with prices already at high levels. As the table below shows, most experts do not expect the very high equity market returns of the last few years to continue going forwards. Of course, they could be very wrong and, as I’ve explained elsewhere (Time in the Market Vs. Timing the Market), trying to time the markets is very often a costly and losing strategy. However, diversifying your portfolio so that not all your long term investments are equally exposed to any general market pullback makes perfect sense. Up until very recently, really effective diversification opportunities were the sole preserve of the very wealthy. However, now newer products and marketplaces are emerging that offer ordinary investors the opportunity to benefit from a better range of portfolio diversification opportunities. Against this backdrop, today I would like to tell you about how you can now invest in art masterpieces with as little as £10! Perhaps surprisingly, art masterpieces seem to have all the hallmarks of excellent long-term investments.

Source: Masterworks Report, 2021
Past performance is not indicative of future performance.
Returns may increase or decrease as a result of currency fluctuations.

The world of art seems pretty opaque and difficult to understand for outsiders. The prices of the most sought-after pieces just seem incredible. In fact, the way the whole art market works seems to bear little semblance to our ordinary lives or to even to the investment world itself.

Have you seen the Netflix documentary about contemporary artist Banksy? In it, a piece of his art – “Girl with Balloon” – sells for $1.4 million at a 2018 Sotheby’s auction. Then, hidden in the audience, Banksy uses a remote control to have the piece start destroying itself through a shredder hidden in the frame. Presumably, the stunt was meant to shock and provide a visual illustration of the uneasy connection between art and commercial value. But the real irony was that Banksy’s trick didn’t diminish the value of that piece of art. It only made it more famous and more valuable. The painting took on a new name – “Love Is in the Bin” – and is now scheduled to go up for sale again at Sotheby’s London on 14th October. The estimated sale price is somewhere between $5 million and $8 million. This is a case in point of what a very different world high end art really is!

But this example also shows that the painting’s value is up five- or six-fold over the last three years alone. And that is only one example of the buoyant conditions in the market for high-end contemporary artwork – there are countless others in the same space. Demand continues to increase for “blue-chip” works that stand out, especially from the top 100 artists – with names like Warhol, Basquiat, and Picasso. In fact, the ultra-wealthy have long been flocking to high-end art as a unique way to protect and grow their wealth outside of more traditional assets like stocks or bonds.

This trend has been raging for decades now, and it’s been gathering pace because of today’s ongoing historic wave of money-printing. The only problem – which goes all the way back to the first European art markets founded centuries ago – was that ordinary people had essentially been unable to access this market…until now!

Artwork is not Just a “Trophy Asset”: It has Attractive Fundamentals

According to Sotheby’s Institute of Art, “In the 1960s, the idea of ‘art as investment’ took hold and prospered into the $64 billion art market of today.” That number represents the total value of high-end art changing hands on an annual basis. About half of those transactions happen publicly through auctions. Meanwhile, if you look at the total value of all the high-end art in the world – essentially, the market cap of the art market – the number swells to roughly $1.7 trillion. And ultra-wealthy investors are allocating an average of 5% of their money to the category already.

According to the Knight Frank Global Wealth Report, 37% of individuals worth at least $30million actively collect or own fine art. Meanwhile, the CEO of BlackRock, the world’s largest asset manager, says contemporary art is one of the greatest stores of international wealth right now.

Being a great store of value is the ultimate accolade for an investment. Even better if the prices don’t move in line with other popular assets like equities and bonds as this helps protect our portfolios against market setbacks.

Advantages of Adding High-End Art to Your Portfolio

  • Separate and Distinct Asset Class: high-end art is no longer just a trophy for the super rich but there is growing recognition that it has a place in a portfolio as a separate asset class from more traditional investment categories like stocks, bonds, and real estate because it is different and superior in a number of ways.

  • Resilience: despite the pandemic, the global contemporary art market generated strong returns and high levels of activity in 2020. In addition, high end art has demonstrated 2 year losses in just 8% of the time over the past 25 years

Source: Masterworks Report, 2021
Past performance is not indicative of future performance.

Source: Masterworks Report, 2021
Past performance is not indicative of future performance.

  • Outperformance: Since 1995, post-war and contemporary art – as measured by Masterworks’ proprietary index – has outperformed the S&P 500 almost three times over.

Source: Masterworks Report, 2021
Past Performance is not indicative of future performance.

  • Low correlations: The value of art has had almost no correlation to other asset classes over the last four decades. That means its performance doesn’t mirror the performance of other types of investments, making it a good diversification tool.

Source: Masterworks Report, 2021
Past performance is not indicative of future performance.

  • Outperforms in periods of high inflation: inflation has recently ticked up everywhere and most commentators feel we are entering a period of high inflation. History shows that Art Masterpieces perform well in periods of high inflation.

Source: Masterworks, 2021
Past performance is not indicative of future performance.

  • Low and growing portfolio allocation potential: ultra-wealthy investors are allocating an average of just 5% of their money to the art category – a low base from which an increase can easily take place. In addition, the new trend of fractionalisation brings a whole new wall of money to the market from smaller investors.

  • Scarcity: When it comes to fine art, the total supply is extremely limited. Especially if you start talking about a particular artist’s body of work. And as more of these paintings find their way into the permanent collections of museums and other public entities, the supply continues to decline.

  • Tangibility, mobility, and international portability: A painting is a real, tangible asset like a piece of prime real estate. However, it is also easily moved and can be sold anywhere in the world in any currency. In fact, roughly 64% of fine art assets are outside of the United States right now.

Add it all up, and you can see why art has been an attractive investment option for ultra-wealthy investors… especially in today’s world of unprecedented money-printing and ultra-low interest rates. But now, after centuries of remaining exclusively for the very rich, ordinary investors can finally get access to the very same artwork and all the related investment benefits…

The Simple Way to Buy a Banksy for £10

You have probably already read about fractionalisation - which is essentially like how timeshares in holiday homes work. Fractionalisation is now being applied to other expensive assets. With fractional investment, the owner of an asset can list that asset on a platform… and offer shares (or fractions of the asset’s worth) to investors.

For example, in the States, you can list a $100,000 rare baseball card on certain platforms and offer investors fractions of it at $100. If the baseball card’s value rises to $1 million, a $100 fraction would increase to $1,000.

This is now happening with everything from supercars to luxury real estate. It’s only natural that fractionalisation would take the art world by storm, too. Given the superior non-correlated returns that Art Masterpieces have achieved over the past several decades, demand from smaller investors who were previously shut out from this market is likely to be very high.

The first company to offer this was the Masterworks platform. Scott Lynn launched this platform to make blue-chip artwork investable for everyone. The platform allows you to get fractional ownership in some of the world’s most desirable paintings for as little as £10. Better yet, it isn’t just a buy-and-hold arrangement, you have liquidity whereby you can also buy and sell your fractional positions to other investors through the platform’s secondary market (without paying any commissions).

As Scott says:

“The goal is to bring investment-grade paintings to the platform that drives
superior returns.”

And it has already been doing that.

The Banksy “Mona Lisa” painting, mentioned at the beginning of this report, is just one example. It was the third offering on the Masterworks platform… and was purchased and then resold in just over one year… with a final annualised return to investors of 32%. That was twice the S&P 500’s gain over the same timeframe.

Source: Masterworks Report, 2021
Past performance is not indicative of future performance.

Source: Masterworks Report, 2021

Obviously, like any investment proposition, there is no guarantee that these high returns in the art market will continue to be achieved in the future. But as I explain above, there are several powerful fundamental drivers supporting the prices of high end art. I personally believe high-end art represents an attractive investment opportunity which not only helps to diversify our portfolios away from equities but I believe the prices of high-end art may be boosted further going forwards by the structural change in the market whereby the masterpieces become newly available to smaller investors through fractionalisation platforms like Masterworks.

This material is not investment research in accordance with the legal requirements designed to promote investment research independence and is also not subject to any prohibition on dealing ahead of the dissemination of investment research; and as such is considered to be a marketing communication.

All investments have the potential for profit and loss and your capital may be at risk.

Past performance is not indicative of future results.

3 Likes