Former New York University Prof. Michael Moses, who co-founded an art investment index in 2002, says over a decade of data shows that artwork can yield better returns than equities.
And investors don’t have to focus on so-called “high art” to profit, he adds.
“You don’t have to be super wealthy and only buy the most expensive paintings to get the best returns,” says Moses, who has also taught at the Wharton School of Business. “It turns out that low-priced art purchased at auction outperforms high-priced art at auction.”
With compound annual returns of 7.4 percent, art exceeded S&P 500 returns of 7.0 percent over the past 10 years as of 2012, according to the Mei Moses Fine Art Index.
Despite a decline of 3.28 percent in the index in 2012, Moses believes art is also a good wealth preserver.
“Art is more a part of people’s wealth portfolio on a worldwide basis now than it’s ever been. One of the beauties of art is it has good returns and it’s great to look at and fun to collect, such as talking to the artists. Art has decent financial returns,” he said.
Back To 1810
Developed by Moses and his partner Jianping Mei, the indices, which is not traded, is modeled after the Case-Shiller U.S. National Home Price Index published by Standard and Poor’s.
“We use a similar methodology. One of the key facts we find is that art is very democratic,” Moses said.
The Mei Moses Fine Art Index tracks the art market going back to 1810 and gauges future values and compares returns to more traditional financial indices.
“We track the repeat sales prices which yield true returns,” Moses said. “Our index gives a measure of how art has been doing over time as a financial asset, but it’s difficult to replicate what it does because you can’t buy the index.”
The lowest price point for a painting on the index is $3,000 to $4,000.
“The index gives investors a way to build confidence levels around buying and selling paintings. It’s not very different from a stock broker using the S&P 500,” said Janet Yuen, an analyst in Atlanta, where Moses will be giving a presentation on art investing for the CFA Society of Atlanta on April 23.
The index includes any work of art that comes up at auction at Sotheby’s or Christie’s.
“We have 34,000 repeat sale pairs in our database. We use the purchase price and sale price to determine returns,” said Moses, who is co-founder of Beautiful Asset Advisors, which manages the index and acts as a consultant to art investors.
The index, located at www.artasanasset.com, tracks seven collecting categories, including Chinese traditional works of art, impressionist, modern, old masters and post war and contemporary.
Art As Diversifier
“The overall view is that 2013 is part of a new decade, which is post the 2008 financial crisis where equity markets are volatile and interest rates are low so, art may be a good place for people who have a well-rounded portfolio of stocks and bonds to invest in along with oil, gas, energy and wine,” said Yuen, who purchases artwork from local artists.
The art index doesn’t track individual artists, such as Jeff Koonz, Basquiat or Andy Warhol.
“They are in our database under the post-war and contemporary category, but individual indexes require one thousand repeat sale pairs to build an index and no artist has that kind of record,” said Moses.
According to the index, post war and contemporary has been the strongest collecting category while the old masters category has been the weakest for the last 25 years.
“When you track a painting's price and performance over time with the index, it indicates a change in value of the artwork and how much it might sell for a few years down the road given the performance of similar paintings in the past,” Yuen said.
For wealth managers and individuals who are interested in investing in art, Moses suggests visiting museums, finding posters of favorite paintings and hanging them on a wall.
“Live with it for a while and see if you still like it a year later. Hone your taste. Art isn’t as liquid as stock. You may have to sit with a painting and you may as well sit with something you like,” said Moses.
