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August 07, 2011 at 08:03 AM
Fine art collections can pose a challenge for portfolio management. The issues are well-known and include a lack of liquidity and market transparency, plus transaction fees and storage/protection costs. Collectors know how to deal with those problems, but an often-overlooked issue is the quantitative treatment of art as part of clients’ total portfolio.
One solution is to ignore collectible art’s investment features and treat it as a personal asset, but that approach overlooks art’s potential risk and return, however.
Michael Moses, Ph.D., and Jianping Mei, Ph.D., co-founded Beautiful Asset Advisors LLC and the Mei Moses Fine Art Index to help address this situation. The firm’s index tracks repeat-sales pairs at art auctions — think of it as the S&P Case-Shiller index-construction method for home prices applied to art transactions. (A repeat-sales pair means that the firm has a record of the last two times an art object was sold at auction.)
Their database includes 27,000 repeat-sales pairs and is growing by 3,000 pairs each year. The firm uses that data to track price movements in several major art categories; they sell access to their database and analyses online.
A 2010 “Journal of Investment Consulting” article by Mei and Moses, recently analyzed by “Artes Magazine” noted that the most recent five- and 10-year periods for art, as measured by the Mei Moses All Art Index, were 3.6% percent and 4.9%, respectively.
These returns were higher than those earned by S&P 500 Total Return Index of 2.3% and 1.4% for the same respective periods. Stocks outperformed art over the past 25 years with 10.4% CAR vs. 6.5% for art, the 50-year returns were similar: 8.9% for art vs. 9.4% for stocks.
