The unforgiving recession has pummeled stock and bond markets, but an unconventional investment has Victor Cordell smiling.

On a recent San Francisco morning, Cordell read aloud a letter from The Collectors Fund, a Kansas City-based investment fund that buys mostly 20th century American art. He joined in October. For the year that ended in June, the value of the fund’s holdings rose 10 percent a unit, based on multiple appraisals, following a 20 percent increase the prior year.

“Even the real cutting-edge modern art got hurt, but The Collectors Fund—both because of the way that they buy and the class of art that they buy into—hit pretty much the sweet spot in the market,” he said. “So, as a result, we have fared well.”

The appraisals suggest a performance that significantly outpaces the Mei Moses Fine Art Index, which tracks the financial returns of the art market. “Is it possible? Yes,” said co-founder Michael Moses. “Is it difficult in this environment? Yes.” According to the index, returns on all art fell 4.5 percent last year and 31 percent in the first half of 2009. “It may be that the appraisers who viewed the work feel that its qualitative factors outweigh the decline in the quantitative measure,” he said.

The fund has only been in existence for two years, so it remains to be seen whether it can continue to perform in the long term.

Currently valued at $17 million, it holds pieces such as a massive, vibrantly painted aluminum structure by Frank Stella, The Mat Maker, and serene pastel drawing, Four Cakes, by Wayne Thiebaud. The approximately 125 investing entities, typically couples, don’t have to rely on brochures to view the fund’s more than 130-work collection—the pieces are stored in their homes on a rotating basis, another part of the fund’s diversification strategy.

Fund founder and executive chairman Sandy Kemper attributes the fund’s performance to its emphasis on bringing efficiencies to an inefficient market. The fund uses experts to shy away from price-inflating fads and puts connections to work to buy roughly a third of its pieces from private collectors, avoiding fees from galleries or auction houses. It focuses on pieces priced in the middle third of the fine art market, which Kemper believes is the most liquid and historically best performing.

Inflation worries have attracted the latest influx of members, said Kemper.

“People are beginning to worry about the declining of the dollar,” says Kemper. “Art also runs very well against inflation.”

Now is a particularly good time to buy because many private collectors want to sell, Kemper said.

The fund, expected to close to new members by the end of the year, buys works typically ranging from $50,000 to $500,000. In a given year, the fund may part with none to as much as 10 percent of the collection, depending on offers and opportunities.

“We’ll sell works from time to time, we’ll pay a little bit of that profit out to the members, and we’ll reinvest the rest to acquire more work,” said Kemper, who may eventually form other funds focusing on different genres.