• Masterworks enables retail investors to invest in art
• Investment in art serves as protection against inflation
• Future of art market uncertain
Investing in works of art has never been easier. When investing through Masterworks, customers are only spoiled for choice in which artworks to invest in. Masterworks then does the rest and allows investors to participate in a possible increase in the value of the works of art.
Advertising
Trade Swiss francs and other cryptos with leverage via CFD (long and short)
Swiss francs and other cryptocurrencies have recently corrected significantly. Trade cryptos like Bitcoin or Ethereum with leverage at Plus500 and participate in rising and falling prices.
Art facility for everyone
The process is broken down into four stages: First, the Masterworks team looks for artworks that they believe are currently undervalued based on in-house data analysis. The focus here is on “blue-chip artwork”, i.e. works that art market considered to be particularly valuable. Next, Masterworks buys the artwork and waits for it to appreciate in value. On its website, the company states that the holding period is between three and ten years. Masterworks will then allow customers through auctions to purchase a share of the purchased artwork. The Ethereum blockchain is used for the transfer of ownership rights. The blockchain is well suited for this purpose as it ensures publicly available and transparent ownership.
It can happen very quickly with popular artists. At an auction at the end of 2021 for a picture by the artist Banksy, all shares were sold out within three hours of the start of sales. Once Masterworks sells the artwork to a third party, the investors receive a portion of the profit based on their interest in the artwork. Alternatively, impatient investors can sell their shares on a company-owned secondary trading market, provided a buyer can be found. Using Masterworks is not exactly cheap: in addition to an annual fee of 1.5 percent of the total shares held by the customer, a commission of 20 percent of the profit is added to the successful sale of a work of art.
Art as an attractive asset class in times of high inflation
According to the Masterworks website, contemporary art has appreciated in value by 13.8 percent between 1995 and 2021. Compared to other classic asset classes such as the S&P 500 (10.2 percent), real estate (8.9 percent) or gold (7.2 percent), art is a very promising investment. According to Masterworks’ internal calculations, contemporary art promises an attractive return, especially in times of high inflation. Here the average increase in value is 13.5 percent and thus again well above the S&P 500 (5.5 percent) and gold (3.2 percent). One reason for the high increase in value is the steadily increasing demand. According to a report by Art Basel and UBS Global Art, there was a 29 percent increase in sales in 2021 compared to the previous year.
Good addition to the portfolio, long-term success uncertain
It is still too early to finally evaluate the success of the new business model. The company has only been around since 2017, so the number of pictures sold is still low. However, of the eleven sold works of art listed on the website, eight were able to achieve an annualized net return of more than 17 percent. Although Masterworks offers an easy entry point for investors, everyone should be aware that there is no guarantee of profit or an increase in the value of the works of art. Masterworks also does not guarantee liquidity on the secondary trading market. Due to the very uncertain amount of the profit ultimately achieved and the lack of continuous distributions, an investment via Masterworks is more of a nice additional position in the investment portfolio. It is also uncertain whether the demand for art will continue to develop as strongly in the future. Since its inception, the company has benefited from low interest rates and very cheap money, which tends to favor investments in tangible assets and valuable assets due to the lack of profitable classic investment alternatives. It remains to be seen how the art market will develop as a result of the interest rate turnaround.
C. Kusche / Editor finanzen.net
This text is for informational purposes only and does not constitute an investment recommendation. finanzen.net GmbH excludes any claims for recourse.
Image sources: ArtemisDiana / Shutterstock.com, Gabrieuska / Shutterstock.com