Red Eight Gallery’s art expert Julian Usher explores whether a beautiful piece of art can also be a wise investment
If you’ve ever walked past a gallery and fallen in love with a particular artwork, you probably weren’t thinking about its investment potential. It’s a well-kept secret in the art world that even work by emerging artists can offer substantial returns if you’re willing to part with it in a few years’ time.
Wealthy investors have long known that passion assets such as classic cars, art and even rare postage stamps can be a smart counterweight to stock market volatility. Not only do they act as a hedge against inflation, they also typically retain their value during economic downturns and deliver impressive mid-to-long-term returns.
The good news is that you don’t need to remortgage your house to splash out on a Rembrandt or Picasso. Investment-grade art is now more accessible than ever thanks to the meteoric rise of contemporary art and growing interest in emerging talent.
Over the past couple of decades the sector has experienced an impressive rise in auction turnover, from just $92 million in 2000 to $1,993 million in 2019. That’s equivalent to a 2,100 per cent increase. According to the Citi Global Art Market chart, the sector has also performed well against the stock market over this period, delivering an annualised return of 14 per cent over the past 25 years, compared with 9.5 per cent for the S&P 500.
Contemporary art is thriving despite Covid
The past 18 months have tested the nerves of even the most seasoned investors, but art has continued to hold its value or even advance during the Covid-19 pandemic. Citi’s 2020 Global Art Market Report notes that even during the first seven months of 2020, contemporary art averaged a 6.7 per cent return, beating all other asset classes.
Red Eight Gallery has echoed that trend, delivering an average return of 24 per cent across 2020 for our investors. According to the Citi report, the biggest losers over that same period were commodities (-22.1 per cent), real estate (-14.5%) and private equity (-5.9%).
Contemporary art has held its value during the pandemic thanks to its status as a highly covetable luxury asset. Investment-grade art tends to be little affected by wider market factors such as macroeconomic and political drivers. Prices are largely determined by an artist’s reputation and the size of their following, meaning that it’s important to select artworks with their future performance in mind.
How to start your art collection
What excites me about investing in art is that it offers great potential returns as well as the opportunity to acquire a stunning piece for your home or work space. I think that’s why we’re seeing more investors come to us than ever before, thanks to our strong roster of emerging and established talent who have used the lockdowns over the past year to produce some truly incredible work.
If you’re considering building an investment-oriented art collection, I’d suggest entering at a level you feel comfortable with and expanding from there. Try to choose work that you like aesthetically, and which is also likely to increase in value over the next five to 10 years.
As with any investment, it’s important to do your homework and thoroughly research your chosen gallery or broker before parting with any funds. There is lots of online research material out there to help you learn more about the art market, including excellent industry reports from the likes of Artprice and Art Basel/UBS. We also produce our own complementary Red Eight Gallery quarterly reports, which can be a great resource for investors who are new to the art market.
Consider supporting emerging artists
At Red Eight our business model centres on our relationships with both our artists and investors. We work closely with all our artists to help them build their careers. This in turn delivers greater returns for our investors as their artworks appreciate in line with the artist’s reputation and demand for a particular artist’s work.
Supporting newer talent comes with the prospect of excellent financial returns: the artists we work with at Red Eight have all been selected for their growth potential. We regularly see annual returns of 10 to 15 per cent, with works by street artist Panik and talented wildlife photographer William Fortescue increasing in value by 20 to 25 per cent in 2020.
It isn’t just about the financial gain, though, since investing in emerging artists can be hugely rewarding on a personal level. You can help an artist’s career develop and be closely involved as they grow and flourish. This is an experience that you simply don’t get when purchasing art from more established artists, and it’s part of the reason I started working at Red Eight Gallery. Investing in emerging talent is a way to help young or new artists to realise their potential, and to make the art world more accessible for everyone.
Request your free Art Market Report to find out how you could profit from this rewarding alternative asset.