Art Is a Rising Focus for Wealth Managers and Family Offices - Kanebridge News
Share Button

Art Is a Rising Focus for Wealth Managers and Family Offices

By ABBY SCHULTZ
Thu, Nov 30, 2023 8:49amGrey Clock 3 min

The value of art and collectibles owned by the world’s wealthiest individuals totalled nearly US$2.2 trillion as of last year, an amount that could grow to nearly US$2.9 trillion by 2026, according to recent analysis from wealth management advisor Deloitte Private and ArtTactic, a research and analysis firm.

Yet, the art market overall has grown only 0.6% annually since 2008, failing to keep up with inflation, and with the surge of growth in overall global wealth. Deloitte Private—a division of U.K.-based Deloitte—and London-based ArtTactic said in the eighth edition of their biennial Art & Finance Report. That means there are many more wealthy people who could own art.  The report proposes an intriguing reason for the stunted growth: The fact that more than three-quarters of auction sales are generated by the work of a little more than 1% of all artists.

“We can assume that only a small percent of art buyers are behind these transactions, which leaves us with a heavy concentration around a small number of artists and buyers—plus a small number of art professionals (galleries, auction houses, etc.),” the report said. “Could this be one of the main reasons for the art market’s overall lackluster growth in the last decade?”

The more than 400-page report, which examines trends and developments at the intersection of art and wealth management, is informed by surveys with private wealth managers and this year, with several family offices, where art and collectibles comprise 13.4% of client assets—five percentage points more than at private banks.

“While art and collectibles provide portfolio diversification and potential value appreciation, they often are a more personal investment with emotional ties to the family’s interests and preferences,” Wolf Tone, the global leader of Deloitte Private, said in the report.

Overall, 89% of wealth managers in addition to collectors and art professionals who were also surveyed, believe “art and collectible wealth should be part of a wealth management offering,” up from 65% that said so in the first Art & Finance survey in 2011.  One reason art is touted as an investment option is its value doesn’t move in sync with traditional market instruments; another reason is the perception that the art market’s performance has been relatively strong compared with measures such as the S&P 500—a broad measure of U.S. stocks.

Fine art indexes developed by New York-based Artnet Worldwide Corp. reveal a more nuanced picture. In the five years up to the first half of 2023, the compound annual growth rate for fine art was a negative 0.4% compared with a 10.4% gain for the S&P 500, according to Artnet. Looking at individual investing categories, European Old Masters recorded a 1.6% CAGR in that period, while global post-war art (by those born between 1911 and 1944) posted a CAGR of 1.4%.  Over 10 years, the CAGR for fine art overall was only 0.1% compared with a 10.7% gain for the S&P 500, according to Artnet.

Artnet analysts noted in the report, however, that art—as a physical asset—is a better hedge against inflation than traditional market instruments, such as stocks, which are valued according to the expected future cash flows of their underlying businesses. Fine art returns rose 4.2% between January 2022 and July 2023 compared with a 6.6% decline in the S&P 500.

“Despite a spike in inflation and higher interest rates, art prices suffered less than other asset classes during this period of economic stress, demonstrating the asset class’ ability to serve partially as an effective hedge, especially regarding the blue-chip, high-end fine art category,” the report said.

Though the report confirmed that most people still buy art because they like it—60% of collectors are driven by art’s “emotional value,” consistent with past years—financial factors are rising in importance. For the first time, 41% of collectors surveyed said their primary motivation for buying art was financial, overtaking “social value” as the second-ranked motivation.  One reason is that younger collectors are largely driven by financial considerations: 83% cite potential investment returns as a key reason to buy art, up from 50% in the last survey in 2021.

Of those surveyed, 61% also cited portfolio diversification as a driver and 51% said art can be a safe haven in uncertain times, up from 34% in 2021.  “This tells us about how the new generation of collectors may relate to art as an alternative capital asset class, both now and in the future,” the report said.

The rise of art investment vehicles, particularly fractional-art platforms that allow individuals to buy a share in a painting as they would a share of stock, are another factor: 50% of younger collectors are interested in fractional ownership, up from 43% in 2021, the report said. The most popular way to buy art remains just that—directly buying a piece, according to 88% of collectors and 83% of art professionals. Yet fractional ownership is making inroads, particularly as more initiatives offer options that are supervised by regulators in the U.S., Europe, and Asia.

Though resistance remains, the report said the emergence of these platforms “could allow art and collectible assets to be more easily integrated into asset management allocation strategies in the future.”



MOST POPULAR

What a quarter-million dollars gets you in the western capital.

Alexandre de Betak and his wife are focusing on their most personal project yet.

Related Stories
Money
To Find Winning Stocks, Investors Often Focus on the Laggards. They Shouldn’t.
By KEN SHREVE 12/06/2024
Money
Louis Vuitton Unveils Its Most Extravagant High-Jewellery Collection Ahead of Olympics
By LAURIE KAHLE 09/06/2024
Money
Sylvester Stallone Sells His Knockout Watch Collection, Including the Most Valuable Modern Timepiece Sold in Sotheby’s History
By ERIC GROSSMAN 08/06/2024

These stocks are getting hit for a reason. Instead, focus on stocks that show ‘relative strength.’ Here’s how.

By KEN SHREVE
Wed, Jun 12, 2024 4 min

A lot of investors get stock-picking wrong before they even get started: Instead of targeting the top-performing stocks in the market, they focus on the laggards—widely known companies that look as if they are on sale after a period of stock-price weakness.

But these weak performers usually are going down for good reasons, such as for deteriorating sales and earnings, market-share losses or mutual-fund managers who are unwinding positions.

Decades of Investor’s Business Daily research shows these aren’t the stocks that tend to become stock-market leaders. The stocks that reward investors with handsome gains for months or years are more often  already  the strongest price performers, usually because of outstanding earnings and sales growth and increasing fund ownership.

Of course, many investors already chase performance and pour money into winning stocks. So how can a discerning investor find the winning stocks that have more room to run?

Enter “relative strength”—the notion that strength begets more strength. Relative strength measures stocks’ recent performance relative to the overall market. Investing in stocks with high relative strength means going with the winners, rather than picking stocks in hopes of a rebound. Why bet on a last-place team when you can wager on the leader?

One of the easiest ways to identify the strongest price performers is with IBD’s Relative Strength Rating. Ranked on a scale of 1-99, a stock with an RS rating of 99 has outperformed 99% of all stocks based on 12-month price performance.

How to use the metric

To capitalise on relative strength, an investor’s search should be focused on stocks with RS ratings of at least 80.

But beware: While the goal is to buy stocks that are performing better than the overall market, stocks with the highest RS ratings aren’t  always  the best to buy. No doubt, some stocks extend rallies for years. But others will be too far into their price run-up and ready to start a longer-term price decline.

Thus, there is a limit to chasing performance. To avoid this pitfall, investors should focus on stocks that have strong relative strength but have seen a moderate price decline and are just coming out of weeks or months of trading within a limited range. This range will vary by stock, but IBD research shows that most good trading patterns can show declines of up to one-third.

Here, a relative strength line on a chart may be helpful for confirming an RS rating’s buy signal. Offered on some stock-charting tools, including IBD’s, the line is a way to visualise relative strength by comparing a stock’s price performance relative to the movement of the S&P 500 or other benchmark.

When the line is sloping upward, it means the stock is outperforming the benchmark. When it is sloping downward, the stock is lagging behind the benchmark. One reason the RS line is helpful is that the line can rise even when a stock price is falling, meaning its value is falling at a slower pace than the benchmark.

A case study

The value of relative strength could be seen in Google parent Alphabet in January 2020, when its RS rating was 89 before it started a 10-month run when the stock rose 64%. Meta Platforms ’ RS rating was 96 before the Facebook parent hit new highs in March 2023 and ran up 65% in four months. Abercrombie & Fitch , one of 2023’s best-performing stocks, had a 94 rating before it soared 342% in nine months starting in June 2023.

Those stocks weren’t flukes. In a study of the biggest stock-market winners from the early 1950s through 2008, the average RS rating of the best performers before they began their major price runs was 87.

To see relative strength in action, consider Nvidia . The chip stock was an established leader, having shot up 365% from its October 2022 low to its high of $504.48 in late August 2023.

But then it spent the next four months rangebound—giving up some ground, then gaining some back. Through this period, shares held between $392.30 and the August peak, declining no more than 22% from top to bottom.

On Jan. 8, Nvidia broke out of its trading range to new highs. The previous session, Nvidia’s RS rating was 97. And that week, the stock’s relative strength line hit new highs. The catalyst: Investors cheered the company’s update on its latest advancements in artificial intelligence.

Nvidia then rose 16% on Feb. 22 after the company said earnings for the January-ended quarter soared 486% year over year to $5.16 a share. Revenue more than tripled to $22.1 billion. It also significantly raised its earnings and revenue guidance for the quarter that was to end in April. In all, Nvidia climbed 89% from Jan. 5 to its March 7 close.

And the stock has continued to run up, surging past $1,000 a share in late May after the company exceeded that guidance for the April-ended quarter and delivered record revenue of $26 billion and record net profit of $14.88 billion.

Ken Shreve  is a senior markets writer at Investor’s Business Daily. Follow him on X  @IBD_KShreve  for more stock-market analysis and insights, or contact him at  ken.shreve@investors.com .