2021 Index Review: Page 1 of a Long Fractional History?
Before getting into the full year recap, a quick look at a challenging December for the Altan Insights 100. The slide that began in November continued through the holidays, as we’ve previously seen that negative momentum in fractional markets proves difficult to arrest. While this month was certainly more difficult than November, as was the case in that month, there were still winners, and those that did win won big.
For the month, 48 assets were negative, falling 12.6% on average. Contrast that to just 18 assets that gained ground; however, they did so with a heartier 20.7% average return. That of course leaves 34 assets that were flat for the month, though that figure will continue to drop as more assets are added to Rally’s new daily trading format.
The top and bottom five performers on a percentage basis do not paint a particularly bleak picture, though as we alluded to, the depth of negative performers beyond the bottom five weighed significantly on performance. The top performer on the month was the bought-out 1986 Fleer Basketball Set on Otis, while the bought-out National Treasures Curry RPA on Collectable was fifth best. Bored Ape #601 made a significant charge on Rally, as BAYC continued its upward trajectory in December. Following a rejected buyout offer, the Pele Rookie Card on Rally was also a strong performer. The Signed MacIntosh Plus Computer on Rally led markets lower, dropping 49% after soaring as November’s top performer. Also notably, NES Super Mario Bros on Otis fell 35% this month, actually dropping out of the index by virtue of its poor performance.
In dollar terms, the top performers are the same, albeit in different order. The Apple I Computer lost $173k during the month, joining the MacIntosh Plus at the bottom. The Gretzky Rookie card on Rally, one of two PSA 10s, also surrendered $159k. At face value, the figures here appear conducive to positive performance. However, the top five is almost an exhaustive list of strong performers during the month, as just one other asset gained six figures. In total, eight assets lost six figure sums, and eleven lost more than $90k.
2021 really was a tale of four distinct quarters for the Altan Insights 100. The first quarter started bright, primarily driven by the carry-over sports card strength from the close to 2020. However, that strength was short-lived, as the index peaked for the quarter in early February, and entered a prolonged, but relatively mild downtrend for the remainder, closing Q1 down 6.2%.
While the damage was somewhat stifled in Q1, the wheels fully detached in Q2, with the index ending each month markedly lower than it began. Sell-offs were widespread and undiscerning. Short-term flipping behavior that was successful in late 2020 and early 2021 ultimately became a contributor to pain in the second quarter. Assets without recent comps and data points were broadly assumed to be losers, and it was not uncommon to see assets drop 30-40% without catalyst. Negative performance became a self-fulfilling prophecy of sorts. Investors began to expect negative performance, and as detrimental investor psychology dictates, they sold into that weakness to avoid further losses, which of course actually perpetuates the negative performance. The index dropped 13.5% in the second quarter, leaving it down 18.8% on the year.
Fortunately, the last day of the second quarter was coincidentally the trough for the Altan Insights 100 in 2021, and the start of the third quarter indeed proved to be a clean slate of sorts. Buyout offers had begun rolling in with great frequency in June, drawn like bees to honey by the bargain-basement values, and that trend continued into July and August. While in hindsight, many of these offers were not as strong as some would have liked, they did serve vital purpose: the introduction of these key data points provided some dearly-needed grounding in reality for fractional values. The reminder that there are indeed real world buyers eager and willing to own these assets at values above both the IPO price and the last traded price provided some arresting force to the irrationally driven precipitous drops of Q2. With the skid halted, it would take additionally strong data points to send markets higher.
Indeed, those data points arrived. Q2 saw red hot auction results persist in the video game space and it also marked a return to form for the sports card market after a tumultuous close to the spring and beginning to the summer. Investors additionally turned more bullish on sports memorabilia, which had been immensely challenged in fractional by the absence of direct comps, leaving the category particularly vulnerable to whimsical selling in the spring. If Q2 was the quarter of indiscriminate selling, by its end, Q3 was almost a quarter of indiscriminate buying, with many assets in favorably-viewed sectors charging ahead regardless of comps; behavior can be irrational when markets are trending upwards as well, sometimes even more so. The third quarter saw gains of an astounding 42%, restoring the index’s 2021 performance to a positive 15%.
Not surprisingly, the staggering third quarter performance left many assets vulnerable to weaker performance to close the year. Ultimately, the third quarter recovery stalled out in October, with the index closing down very slightly, before the proverbial rug was pulled in November with -6% performance. That performance, though, was driven more by weak performance at the top end of the market than broad, widespread sell-offs. However, the selling did get more broad in December as covered above, though somewhat offset by buyout activity, as well as select cases of strong performance. In many ways, the end of the year grew to resemble a milder version of the spring selloff – more discerning in sales activity with greater influence of comps, but not entirely bereft of irrational behavior.
It is worth taking a moment to note that the Altan Insights 100 is a market capitalization-weighted index, measuring the performance of the 100 largest assets trading fractionally by market cap. This being the case, the performance of the index may not necessarily be representative of each investor’s performance for the year. Of course, there are multiple ways to cut the data and consider the performance of markets.
One such way is with equal weight indices. But there are even countless ways to do this. For this analysis, we’ve constructed an index that rebalances on a monthly basis, including every asset that has traded fractionally at an equal weight at the start of each month. In essence, what that does is sell the winners and buy the losers, as over the course of a month, winners will grow to represent a greater weight of the index, losers will fall to represent a lower weight, and the rebalancing will revert each to equal standing. Selling winners and buying losers often turns out to be a successful investment strategy, particularly in markets such as these, which whipsaw with severity.
Not surprisingly, this index heartily outperforms the cap-weighted Altan Insights 100, gaining nearly 25% in 2021. The path of returns between the two indices moves in relative lockstep, but the equal-weighed index did weather the tumultuous periods of the year with greater stability, nearly exiting the second quarter flat on the year and losing considerably less ground in 4Q. We had noted in previous research this year that buying the dip had worked better than chasing momentum in 2021, and the performance of this index is further evidence. You would expect it to outperform in such an environment, particularly with the dramatic oscillation in asset-level returns on a month-to-month basis. As the market grows more efficient, the difference in performance may not be as pronounced, but so long as assets can fluctuate by 30-40% in relatively short order, the advantage would likely remain intact.
Altan Pro Plan members have been able to compare asset class level returns since we launched our new application, and today, we’re giving a peek under the hood at the data available to those who want to take their game to the next level. Fair warning: any content below this line would only be available to Pro Plan members from this point forward.
Pictured above is how things wrapped up for the year. The figures presented are calculated as the average performance relative to prices 12/31/20, or, if an asset IPO’d during the year, relative to IPO price. Many will not be surprised to see Video Games and Comic Books lead the way, though memorabilia is something of an eyebrow-raising inclusion as the third highest average ROI. The category was carried primarily by Apple memorabilia, with three assets delivering returns well north of 100%. Just three asset classes finished the year with negative average ROIs: Sneakers, Sports Memorabilia, and Trading Cards.
While those figures suggest that the chances of positive results, they ignore a path-dependency that may be relevant in examining results for the year. Also, by virtue of being newer to trading and therefore not having significant time to trade far in either direction, when assets begin trading and are added to those averages, there would be a tendency for a bias towards zero. Starting next week, with the turn of the year, the average 2021 ROIs will be replaced by true cap-weighted sector indices, which include new assets as they begin trading. Using that methodology, we arrive at a somewhat different set of results in terms of 2021 relative performance.
Video games still lead the way, with the index gaining a staggering 277% over the course of the year. Given the most valuable asset – Super Mario Bros on Rally - which made up most of the video game allocation for the first half of the year before the category became more popular, generated a 973% return since IPO, this result isn’t a surprise. Sports Cards, however, appear as the third-best performing asset class by this measure. While the average ROI was only 12%, 2021 was kinder to true grail assets than it was to the field. Additionally, the asset class got out to a fast start, reaching its current level and beyond by February. Comic Books remain a strong performer by this metric, but after that, things get more muted.
Books, a strong performer by average ROI, did not perform well on an index basis, as larger offerings like the Great Gatsby and Shakespeare’s Fourth Folio sputtered early in the year. Memorabilia is another category which stands out for strong performance by average ROI, but poor performance on an index basis. Worth noting: the asset class indices were not individually incepted until at least five assets traded in each category. Had the memorabilia index started at the 1st of the year with just three assets, performance on the year would’ve been roughly flat. Instead, 2021 performance was effectively done-in by challenged Q2 performance that saw assets like Deaton the Triceratops Skull and the Apollo 11 joystick crater in value. From 6/30 onward, the asset class performance was quite strong, gaining 26%.
Sports Memorabilia and Trading Cards were similarly cases of significant deficits built early in the year. In the case of the former, a 52% decline midway through the year proved too much to overcome, though performance was positive in the second half of the year. Trading Cards were unable to recover primarily from the woeful trading of the 1st Edition Pokémon Set on Rally, and the index continued to skid throughout the year with only short blips of favorable performance. In fact, the same inception criteria that worked against Memorabilia actually favored Trading Cards. It would have been worse if incepted the first of the year with fewer assets.
Finally, armed with this asset class index data, we’re able to analyze how the various categories correlated in trading over the course of the year. On average, the categories primarily represented on Rally (think Cars, Luxury, Wine & Spirits, Memorabilia), which traded with relative infrequency, had the highest correlations with other asset classes. Given the move towards all assets trading on a daily basis, it seems likely that some of those exceedingly strong positive correlations would diminish in 2022. Until that happens, the benefits of diversification amongst certain asset classes are compromised.
There’s a tie for the strongest correlation in 2021 – one of which makes considerable sense, the other…less so. That video games and comic books exhibited a strong positive correlation of 0.93 is logical. The asset classes are tangential in nature and likely share very similar audiences and drivers of value, at least directionally. The 0.93 correlation between Comic Books and Cars on the other hand…well, I throw my hands up in confusion there. I wouldn’t expect that relationship to persist in the year ahead.
One of the least intuitive results (though perhaps not surprising if you followed alternative asset markets this year) is the negative correlation (-0.43) between Sports Cards and Sports Memorabilia. There were periods of the year when asset classes without frequent comps were out of vogue, while asset classes with frequent comps were able to maintain their standing or continue marching ahead. The negative correlation here seems more a result of those trends, especially in the less efficient beginning of the year, than something that we might expect to continue in years ahead. In the later stages of the year, the two classes moved in greater lockstep. We will be watching closely in the future, though, to see if any leading/lagging relationship exists between the two.
Trading cards exhibited the lowest average correlation with other asset classes. Chalk that up to persistent negative performance, even as other asset classes recovered and moved higher.
A quick note on the correlation calculations. Traditionally, analysis of financial asset correlations is conducted on returns, rather than on price levels. For this analysis, we used the price levels of the asset class indices. As much of the year featured infrequent trading and few assets eligible for trade, especially in certain asset classes, daily returns are varied, often muted, and perhaps not reflective of how the various categories moved over the course of the year, while the price analysis does - at this time - more effectively capture similarities in directional movement.
Finally, if you were wondering how things trended on a marketplace-by-marketplace basis, you’re in luck. The average 2021 ROI, calculated the same as above with the asset classes, favors Otis, followed by Rally, followed by Collectable. The three marketplaces end 2021 in relatively similar standing on a cap-weighted index basis, though Rally is slightly ahead of Otis, which is slightly ahead of Collectable (note: the index for Collectable is incepted in early February when trading launched). Otis led for much of the year, but challenged performance in the last month and a half ultimately flipped the rankings.
With that, we officially turn the page on 2021 from an index perspective. Stay tuned for increasingly robust index data in the year ahead, and don’t forget to upgrade to Pro for a consistent look at more powerful asset class analytics.
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