Fractional Performance Recap: Was Sell in May Taken Too Literally?
Altan Insights 100 Performance
Until May, 2022 performance of fractional markets was weak but, overall, relatively tame. That changed last month, as the bottom swiftly fell out, and both the breadth and magnitude of losses grew significantly. Investors have not embraced risk of any kind in recent months, and that attitude swiftly permeated fractional markets in earnest over the course of a few weeks. More than in recent months, there was nowhere to hide.
Of the 100 assets tracked in the Altan Insights 100, 76 were down in May, with an average loss of 14.2%. To think: we thought April saw relatively broad based selling, when just 65 assets lost ground. A mere 18 index assets posted positive May returns, with an average gain of 9.4%. That represents somewhat of a departure, as the magnitude of gains has held up fairly well against losses previously, even if they were significantly less common.
Three of the top five index performers in percentage terms were Sports Memorabilia assets, a theme which recurs in our analysis of the month’s performance. Six of the 18 positive performers came from that category, which has benefited from highly-visibly, headline auction sales. It will surprise few to find two CryptoPunks among the bottom five performers; NFTs account for four of the bottom ten performers, and seven of the bottom twenty.
The differences in performance between the Altan Insights 100 and an equal-weighted index of all assets are somewhat muted this month. While equal-weight unsurprisingly protected better, losing 6.1% in comparison to the AI100’s 8.1%, that gap feels small given the sharp downward movement in May and the previously negative April. As the equal-weight index rebalances to equal weight at the end of each month, it would have effectively added weight to April’s big losers. But selling was so broad this month that the index suffered nonetheless, and the two indices followed an extraordinarily similar path in May.
Fractional Asset Class Performance
When we view performance at an asset class level, the news is similarly dim. Just one asset class, Art, delivered positive returns in May, and that category consists of only 16 assets on Otis. Every single other category was negative, though Sports Memorabilia was close to flat on the month. Even those categories which have already been thoroughly punished - Books, Trading Card Games, Video Games, and NFTs - had ample capacity for further punishment in May.
Those categories continue to bring up the rear YTD, unsurprisingly led by NFTs in the current environment. Somewhat inexplicably, Books remain a battered asset class in the absence of any real, negative catalyst, despite having a relatively stable, lower volatility track record. Video Games continue their return to earth after 2021’s highs, particularly as games that IPO’d at or above peak values begin trading. Despite being the worst performing asset class of 2021, Trading Card Games continue to find room to fall precipitously. Comic Books are now the lone 2022 bright spot, though that brightness is waning with each passing month. With this month’s disparity in performance, Sports Memorabilia is now handily outperforming Sports Cards for the year, reversing a multi-year run where the opposite was the case.
The story is quite similar whether you examine the cap-weighted indices detailed above or average 2022 ROI (pictured below), which provides a more equal-weighted measure. The most notable difference remains the disparity in performance for Memorabilia, with high market cap assets, particularly the Declaration of Independence, buoying performance.
The ugliest chart of 2022, though, has consistently been the percent of assets with positive YTD returns by asset class. Like the other charts, each month’s edition has gotten worse. By this metric, Sports Memorabilia, Sneakers, and Comic Books continue to show the most (relative) strength. In other categories, selling has been incredibly broad-based and seemingly indiscriminate. Between the bottom three asset classes, just two assets total have gained ground this year. In the rubble of the rest of those assets, it seems likely that some have been discarded without merit at prices disconnected from reality. For reference, the percentage of overall assets with positive YTD returns sits at just 24%.
Fractional Marketplace Performance
Across marketplaces, Otis is the strongest performer by each metric, though the dwindling activity on the platform ahead of the transition to Public may have spared it from some of the May pain. May was a significant setback for Collectable assets, which were the best performers through April. The struggle for Rally assets continues, with challenged performance across the spectrum of categories and market caps.
It is, of course, discomforting that fractional markets have chosen to have their worst month since inception concurrently with traditional financial market distress, given that the allure of some of these assets is a proposed lack of correlation with stocks. Alas, what happens when those assets are made to trade just like stocks, as the pitch goes?
Now, we shift our focus to better understanding whether the underlying asset categories are indeed displaying the same weakness represented fractionally: is this yet another bout of investor psychology at its worst, or a shift towards high-correlation among risk assets of all kinds?
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