One of a Kind: What Is Blue-Chip Art and Should You Invest in It?

One of a Kind: What Is Blue-Chip Art and Should You Invest in It?

Alternative is going mainstream as blue-chip art and other collectible asset classes grow bigger by the day. Here's what to look out for as an art investor.

One of a Kind: What Is Blue-Chip Art and Should You Invest in It?
Guy Ovadia

Published Mar 3, 2022Updated Jul 18, 2022

Art

Art

Collectibles

Collectibles

Balanced Investing

Balanced Investing

There are traditionally two audiences for blue-chip art: the rich and the very rich. Most people who view art for the beauty, spectacle, or history are usually doing so behind a velvet ribbon or glass pane. Paintings that lived in galleries and museums were usually owned only by a handful of elite patrons who could afford them. 

But as contemporary art went from a speculative collectible to bonafide asset class, investing in blue-chip art has never been easier or more accessible for retail investors.

What is blue-chip art?

Blue-chip art is widely recognized artwork that not only sells for the highest prices at auction but also consistently increases in value over time. The term is used to distinguish art that's considered a relatively safe bet in the world of art investing.

The term 'blue chip' is borrowed from trading lingo referring to a stock in a well-established profitable company. This term is not traditionally used in the world of contemporary art and is actually an indicator to pure collectors that the person using it is more interested in investing and profiting from the secondary market than simply purchasing art that they enjoy. However, certain parallels can be drawn between the best performing contemporary artists and the best performing publicly traded companies (blue chip stocks) from an investor's perspective.

Just like companies, artists are judged by their past performance.

For example, if a painter's work has provided stable increasing returns in the past, then investors might consider them to be 'blue chip' and may be more inclined to buy their subsequent paintings.

Is blue chip art a good investment?

To determine whether blue chip art is a good investment we must look at the big picture. This means understanding the downsides of art as an investment before praising its benefits. First, the art market is largely unregulated and the investment risks are similar to commodities in that they're purely speculative. Secondly, making quick profits on blue-chip art is difficult because it is a highly illiquid asset class.

Finally, there are unique risks that are inherent to blue chip art investing. One is that art is a heterogeneous product, meaning that no two pieces are alike. In turn, there is a higher risk of fraud or forgery when it comes to art compared to other asset classes. As a result of this and lack of regulations, art investors traditionally need to have high levels of expertise in order to make profitable blue-chip art investments. 

 

That said, investing in blue-chip art has never been easier or more accessible than it is now. What's more, blue-chip art can provide stable, competitive returns while helping you diversify your investments outside of the stock market. Here's why.

Art investment goes mainstream

Blue-chip art is no longer strictly an alternative investment because it steadily became more mainstream as market forces grew more influential than art critics. Financial institutions have increasingly recognized blue-chip art as among the rare collectibles asset class over the past couple of decades. Contemporary art has outperformed stocks as well as investment-grade bonds as an asset and is even outpacing the broader art market. 

The risks have clearly not scared away top shot art investors because, according to the 2010 World Wealth Report, high net worth individuals hold approximately 22% of their overall holdings in art. This estimate would place the private art market at $1.5 trillion at the time of the report, but art market research firm Artprice found that contemporary art is the fastest-growing art market segment. According to their data, the contemporary art market grew to almost 15% of the global art market in 2019 compared to 2.9% in 2000 and 8.6% in 2010.

Blue-chip art vs stocks

The data implies that contemporary artworks generated nearly $24 billion in 20 years, but just how well they did over this period compared to the stock market can be illustrated by art indices like the ArtPrice Index. ArtPrice uses data from thousands of auction houses and weighs the performance of the top artists over the past five years, with annual adjustments to the top artists based on their relevance. According to their index, the best performing artists outperformed the S&P 500 by a margin of over 250%.

 

Contemporary art's lack of correlation with other markets makes it one of the best instruments for portfolio diversification. For instance, blue-chip art was one of the least affected assets by the 2009 recession. Despite increasing attention from mainstream investors, blue-chip art investments are still alternative in the sense that they are an excellent hedge against traditional financial assets and inflation. Even with all the speculation, blue-chip art may still be one of the most stable assets in your portfolio.

How to invest in blue-chip art

Investing in physical blue-chip art often requires maintenance and incurs storage costs, which can add up. While investors can profit by lending out works to galleries and museums, that's a lot to worry about in addition to choosing an artist, finding an initial painting to invest in, and paying the prohibitive costs associated with contemporary art on top of that. But retail investors now have unprecedented access to works by artists like Banksy and Picasso since alternative investing platforms like Masterworks and Otis hit the scene.

The stock market for blue-chip art

Masterworks is a platform that lets anyone invest in pieces of blue chip art as an underlying asset. Investors can buy shares of pieces by famous modern and contemporary artists at auction, and Masterworks stores and maintains the pieces in exchange for a fee. Masterworks also facilitates a secondary market where investors can buy and sell their shares, thus making liquidating assets and taking profits much easier. 

masterworks
Masterworks

4.6

Collectibles

Investors who are leaning toward culturally relevant contemporary art should consider the platform Otis. Otis is an investment platform that specializes in collectibles like trading cards, streetwear fashion, as well as contemporary and digital art that speaks to our current cultural zeitgeist. Otis allows investors to buy shares in rare Yeezy sneakers, vintage Marvel comics, and even popular non-fungible tokens (NFTs). With their selection of one-of-a-kind works by high-profile artists like Banksy and Kaws, Otis is a great platform to carry out a clout-based investment strategy.

otis
Otis

4.3

Collectibles