As the Art Market Surges, Masterworks Provides an Onramp for Retail Investors
December 12, 2023 (Investorideas.com Newswire) As any retail investor can tell you, certain attractive asset classes are typically considered out of reach. Common examples include direct investments in commercial real estate, equity in private firms, and high-end fine wine collecting. They're all asset classes that generally require large upfront outlays to make them worthwhile. Plus, they require expertise that the average investor doesn't have.
There is at least one alternative investment class that retail investors can partake in, however. They can make fractional investments in fine art, courtesy of market innovator Masterworks. It's a company built from the ground up to make art investing accessible to just about anyone. And it's one of the smartest investments around.
Here's a look at what's been happening on the financial side of the world of fine art and how Masterworks makes getting in on the action as simple as possible.
Fine Art vs. Other Asset Classes
Although it doesn't get much attention from the financial press, fine art-and contemporary art in particular-has become one of the soundest investments anyone can make.
As a class, it outperforms anything else a retail investor might have in their portfolio. For example, in the period between 1995 and 2022, contemporary art outperformed the S&P 500 by 3.6%, gold by 6.7%, and corporate bonds by 7.7%.
More importantly, contemporary art has beaten real estate-the financial growth engine of the middle class-by 7.7% as well.
What's Driving the Growth
Several factors are driving the explosive surge in growth in the fine art market. One of those factors is that fine art is a tangible asset at a time when just about everything else has gone digital. The importance of that can't be overstated. In a world where cashless transactions dominate, and digital assets like crypto and NFTs follow a boom-and-bust cycle that nobody can truly predict, plenty of investors have begun craving assets a bit more rooted in reality.
And according to Masterworks CFO Nigel Glenday, the ultra-wealthy have been pouring money into the market already for years. "Demand is being fueled by wealth creation among the global ultra-high-net-worth community, [which is] a trend that has been underway for decades," he says. "That wave of demand is chasing a scarce group of assets, and the global mobility of the asset that allows it to be transacted anywhere-bought in New York, sold in Hong Kong, and so on."
Plus, ownership turnover within the fine art market is accelerating as more speculators move in seeking profits. Between 2021 and 2022 alone, sales of relatively new artwork-pieces created within the past two years-more than doubled. That illustrates the strength of demand within the market, while also explaining some of the upward inflationary pressures driving artwork prices ever higher.
And there's no sign of the trend slowing down, either. If anything, it's accelerating. As 2023 comes to a close, a raft of contemporary art is hitting auction blocks once again. Within the group, there are pieces from modern masters like Pablo Picasso and Claude Monet, which experts expect to fetch record returns. Altogether, the sales could net owners as much as $2.5 billion, adding even more heat to an already red-hot market.
How Masterworks Makes Art Investing Easy
For their part, Masterworks offers an all-in-one solution for retail investors looking to get into fine art investing. And their platform makes doing it as close to a point-and-click experience as possible. The process begins with Masterworks' in-house research team of fine art specialists who identify promising artwork with excellent appreciation prospects. Then they purchase, securitize, and offer fractional shares of the artwork for sale to investors via an on-platform marketplace.
For end users, investing is as simple as choosing a work from Masterworks' catalog and buying as many shares as they wish. And they can count on learning quite a bit about both the artwork and the market itself via the Masterworks platform.
According to Glenday, "The art market might be a centuries-old market, but it is a new asset class for many from an investment standpoint, even for those who are well versed in other alternative asset classes. So, educating our users is incredibly important."
After making a purchase, investors can use an on-platform marketplace to manage their assets and sell shares to willing buyers. And eventually, when the work goes up for sale, all of its fractional investors receive a share of the profits-assuming, that is, that the resale nets a profit. From beginning to end, investors can expect an experience that's little different from a conventional investing platform-except with a track record of much higher returns.
The Future of Art Investing
It's worth pointing out that Masterworks' democratization of the fine art market has the potential to propel it to even greater heights in the years to come. After all, retail investors currently poured some $1.51 billion per day into US stocks this November alone. If they devote even a fraction of their resources to fine art investing, it would represent a cash infusion unlike anything the market's ever seen.
In other words, for all of the glowing returns already generated by art investments in recent years, the best may be yet to come. And Masterworks is the onramp to capturing a slice of what's turning into an investor bonanza.
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