Like investors in most bubbles, contemporary art collectors find it hard to imagine a pop. But tighter credit, slowing economies and unstable financial markets could let the air out. In recent years it has become stylish to refer to art as an investment. If it is, smart buyers may want to hedge their bets with some lower volatility assets. One class that’s truly stood the test of time is artwork by the Old Masters.
It’s easy to see why cash-flush buyers flocked to contemporary art. In the past decade, the Contemporary Art 100 Index, a benchmark for prices, has risen by more than 800%, according to Art Market Research in London. Over the same period, the value of a related index for Old Masters has increased by only about half of that.
But what if investors get cold feet? This is where the Old Masters shine. From 1991 to 1995, when the art market crashed, the value of the contemporary art index fell over 40%. The Old Masters index, however, only fell by about 20%.
This is largely due to the paintings’ long lineage. Old Masters have weathered stormy art markets and the twists and turns of fashion for centuries, so their collectors know the paintings will hold a big chunk of their value through thick and thin. The Giovanni Antonio Canal (Canaletto) paintings of Venice, a pair of which recently sold at Sotheby’s for nearly $10 million, have been around for over 200 years. Jeff Koons, by contrast, could crank out a piece mere months before its sale.
While Old Masters are not immune to art market downturns, their lower volatility makes them a useful hedge. This doesn’t guarantee that Pieter Bruegel the Elder (Bruegel) and El Greco will outperform Francis Bacon and Mark Rothko in the long term. But many of the world’s top art collectors are professional investors, and understand the value of hedging their portfolios. If the contemporary market starts to teeter, the Old Masters may become the next new thing.