What is Blue Chip Investing in Art and Stocks?
Until recently, investing in paintings by high-caliber artists such as Andy Warhol or Jean-Michel Basquiat was available to only a handful of the world’s population. With the arrival of fractional investment in art and NFTs over the past few years, art investment has opened up to a larger population. As art investment has grown in popularity, the art world has begun to adopt some terminology from the investment space. Blue chip art is an example of that.
What is a “Blue Chip”?
The term “blue chip” originates from the game of poker where gambling chips represent differing dollar values based on color. White chips are often the least valuable, then red chips, then blue chips signifying the highest value on the table.
Oliver Gingold, a Dow Jones employee, brought the term to the investment world in 1923 to describe stocks with consistently high valuations. Since then, the phrase has been adopted to define industry leaders with a long history of dependable earnings and an excellent reputation.
Blue Chip Stocks
Blue chip stocks are typically large, well-established, and financially sound companies that have a proven track record. A blue chip stock typically has a market capitalization in the billions, is a market leader in its sector, and is a household name. A blue chip stock is generally a component of the most reputable market indexes or averages, such as the Dow Jones Industrial Average in the US or the FTSE Index in the UK. For all of these reasons, blue chip stocks are among the most popular. Examples include Disney, Coca-Cola, or American Express.
For the purposes of data comparison, the S&P 500 Index and the Dow Jones Industrial Average are used in this article as stand-ins for blue-chip stocks.
Blue Chip Art
Similar to how blue chip stocks refer to high-quality publicly-traded companies, blue chip art is a work priced at the high end of an established artist’s market, typically with a commercial and academic reputation. Blue chip artists typically have a long history of transactions and/or large transaction volumes. These are artists you have seen in museums and read about in art history classes. Artists deemed to be culturally or historically significant typically have a higher level of collector demand, and therefore, command higher prices for their work.
As a rule of thumb, an artist would be considered blue-chip if they have created pieces that consistently sell in excess of $500,000, have been selling at auction for 10 or more years, and have an annual sales volume greater than $10 million.
Blue Chip Art as an Investment
For many, art is often a long-term passion investment – an asset that one can enjoy while you hold it and wait for a hopeful appreciation in value. For others, art is part of an overall alternative investment asset allocation. According to Deloitte, collectors have increasingly started to view their art holdings as a strategic asset allocation. Many wealth managers now offer various collection management services including art lending, consignment services, and estate planning. According to the Art Basel & UBS 2021 Art Market Report, 69% of UHNW collectors (assets above $1m) reported an allocation of over 10% to art and collectibles with an average of 23%.
One main attraction of art as an investment asset is its low correlation with other financial assets. Morgan Stanley wealth advisors noted that art can help diversify investment portfolio holdings because its prices are not linked to the movement of the overall financial market. A 2022 CitiBank Report calculated the correlation between art* and all other asset classes and found that most correlations are weakly positive or close to zero. Contemporary Art and Developed Equities showed a correlation of -0.04 between 1985 and 2021, while Contemporary Art and Investment Grade Fixed Income showed a correlation of 0.15. In fact, art had the strongest correlation with real estate – another tangible asset class – with a correlation of 0.21.
Low correlation with other financial markets can be a factor that helps protect a portfolio from major market events and volatility, such as the global financial crisis of 2008. For example, from 2007 to 2009, the S&P 500 declined 57% from its peak while the decline in art prices for the top 100 artists was estimated between 26-28%, based on ArtPrice data.
Like other tangible assets like precious metals or commodities, it has been argued that art can even act as a potential inflation hedge. According to Masterworks internal research, during periods from 1985-2020 when inflation was equal to or higher than 3.0%, Post-War & Contemporary art prices had an annual average real price appreciation of 23.2%. In fact, according to Art Net, art sales tend to increase during times of high inflation, indicating a higher volume market and potential higher price appreciation.
One of the most important factors for many investors is price appreciation. Although art differs from many other assets in that investors often have a passion for art as opposed to simply viewing it as a financial investment, it can still act as a vehicle for price appreciation. From January 2020 through June 2021, the Masterworks.io All Art Index delivered a 28.2% return — comparable to broad, publicly-traded risk asset classes including developed market equities, emerging market equities, and commodities, as noted by the 2022 CitiBank Report.
It is important to remember that diversification and asset allocation do not ensure profit or guarantee against loss.
Begin Investing in Blue-Chip Art With Masterworks
Masterworks is the first platform making it possible to invest in multimillion-dollar works from artists like Banksy, Kaws, Basquiat, and more. Masterworks’ industry-leading research and acquisition teams use proprietary data and art market expertise to curate a collection of iconic works of blue-chip contemporary art. Since inception in 2017, Masterworks has realized a net annualized gain in excess of 30% per each work sold**.
Masterworks expects to purchase more than $1 billion in art in 2022, making it the largest buyer in the art market today. Masterworks only invests in contemporary blue-chip art, democratizing access to fine art investing.
*Art is represented by Masterworks.io Total Art, Post-War & Contemporary Art, and Impressionist & Modern Art Indices. Indices revised as of November 2021.
**Since its inception, Masterworks has only sold three paintings, each realizing a net annual return of over 30%. This is not an indication of Masterworks’ overall performance. Past performance does not guarantee future results. Masterworks, in its sole discretion, may hold paintings before selling for up to 10 years.
Diversification and asset allocation do not ensure profit or guarantee against loss. There are significant differences between art and other asset classes. Investing involves risk, including loss of all principal. See important Regulation A disclosures at masterworks.io/cd