Art Underperforms Equities in 2012

Beautiful Asset Advisors/Mei Moses Fine Art Index has released their December 2012 tracking report, showing a decline of 3.28% in the All World Art Index.  The report notes the All World Art Index has been weakening for the past six months when compared to equities, and is a change in trending over the years where art either performed as well as equities or better. 

 Beautiful Asset Advisors reports

Our data collection and reporting efforts based on 17 Sotheby’s and Christie’s world wide auctions that occurred in December 2012 produced 258 repeat sale pairs from mostly European sales from several of our collecting categories. These pairs allowed us to create the Mei Moses® world all art tracking index for December 2012 which produced the aforementioned 3.28% loss as compared to the closing value for year end 2011.

The index shows a continued weakening position of art versus equity indexes over the last half of 2012. The returns of the individual items that make up the indexes tell a similar story. Knowing the purchase and sale price for each of the 258 objects added to our database in December 2012 we can compute the compound annual return (CAR) for each object and then compute the average of those individual object returns. The result is a below average CAR of 4.5%. The average CAR of equal sums invested in the S&P 500 TR index for the same holding period as the art objects was a superior 7.0%. We should also point out that S&P 500 total return index is near its all time high. The lower return for art is a negative result for the sellers of the art and is a reversal of the trend we have been seeing in the last few years. During this period on average art owners achieved similar or better returns than equities and obtained the enjoyment of living with the art for free.

The average auction interval of the 258 objects was about 29.7 years. This is similar to the average holding period that we have seen in monthly data where the sales are weighted towards old masters rather than contemporary, as in December. Therefore auction interval does not explain the weak comparison between the two asset classes.

This overall poor performance of the art market is in stark contrast to the
media and market hype over the prices of the few high end trophy purchases achieved this fall. Only time will tell if these purchases prove to be financially successful. Our database of 33,000 repeat sale pairs show that works purchased for more than a million dollars on average tend to produce the lowest returns!

In prior time’s success at the high end extended to the middle and lower
ends of the market, as an example 1985-1990; 2003-2007. Increasing income disparity even amongst wealthy families may explain the current result. If it continues it may mark a significant change in the future performance of the art market. Only time will tell.

Source: Beautiful Asset Advisors