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Index Update: Recapping an Unfriendly First Quarter

Index Update: Recapping an Unfriendly First Quarter
April 8, 2022
Dylan Dittrich

Fresh off of its first winning month in three, the Altan Insights 100 dropped 1.4% in March to finish the quarter down 3.6%. While March was more of a “risk-on” month in traditional financial markets, selling pressure proved too broad to overcome despite some bright spots. Overall, 54 index constituents were down on the month, falling 10.7% on average, while 38 constituents were up, delivering an average positive return of 16.2%. Those results mirror a somewhat common trend for the quarter: losses have been widespread, but where there is positive activity, it has been large in magnitude. 

The AI100 continues to flirt with its 50 day moving average, closing above it on a few occasions this quarter, but ultimately failing to sustain a move higher. In March, the index reached its lowest level since mid-August before rebounding towards the end of the month. Aside from that mid-March dip, the index spent most of the quarter range-bound between 1,000 and 1,040 in a tug-of-war ultimately won narrowly by sellers.

The bright spots in March came from unlikely sources: NFTs and Trading Cards. Those two asset classes accounted for 4 of the top 5 best performers in the index. NFTs struggled for much of the quarter but rebounded in late March with the ApeCoin airdrop. At present, the Altan Insights 100 is purely a price-return index, meaning it tracks only the movements in price of underlying constituents, rather than a total-return index, which would track both price movement and distributions. However, if it were a total-return index, we estimate it would’ve finished the quarter at 1,008, down just 0.8% on the month rather than 1.4%. Trading cards were led by the PSA 10 Charizard and First Edition Pokémon Set on Rally, which saw support from extremely strong auction results at both PWCC and Heritage for the Charizard card. 

Cars were a significant driver of negative performance in March, as many of those assets returned to trading on Rally. Five cars had negative double digit returns, while two, the Ferrari Testarossa and the Lamborghini LM002, fell by more than 50%. In the case of the latter, for example, there have not been weak comps to initiate such a move lower, and the selling is likely the result of those seeking liquidity after a relatively long lock-up. 

We often compare the performance of the AI100 to an equal-weighted index to better understand the performance of blue-chips vs. the field. As a reminder, the equal-weighted index is rebalanced monthly to include all assets trading fractionally at an equal weight; the weight then varies over the course of the month with performance. Such an index is predisposed to buy losers and sell winners, typically offering superior performance in down markets, but trailing in markets with strong momentum to the upside. This quarter, the AI100 had closed the underperformance gap entirely by mid-March, but ultimately ended the quarter significantly lower. However, we must address the late March spike in the equal-weighted index.

That spike was caused by unusual trades of 1 share apiece of an asset on Otis. Those trades were executed at $3,000 per share and $800 per share after a last trade of $50, ultimately valuing the asset in question at $800,000. The asset? Nike Air Mags. Those admittedly awesome sneakers sold at Sotheby’s as recently as April 6th for $63,000. That being the case, to give a more representative analysis of market performance, we’ll be presenting two sets of figures for much of our discussion today: one including that outlier move and one excluding it. The exclusion here significantly narrows the gap in performance, though there was still a slight anti blue-chip bias at play in Q1. 

The allocation of the Altan Insights 100 heading into Q2 is as pictured below. Cars and Sports Memorabilia continue to cede ground to Sports Cards and now to NFTs. Moves amongst the other categories were relatively muted. One note: we will also be excluding the Nike Air Mags from AI100 inclusion this month; as the index did not participate in the unusual appreciation to the upside, its participation in the inevitable return to reality would not be a helpful or accurate representation of market performance. 

Moving on to asset class performance, Comic Books and Sports Cards were the winners on the quarter, while Memorabilia also delivered positive performance, led by the Declaration of Independence. Outside of those asset classes? Not so pretty. 10 of 13 asset classes closed the quarter lower, and for the most part, the margins by which they did so were not slim.

Books have been demolished fractionally in 2022, while NFTs join them towards the bottom. If the NFT index was total-return, it would have been down 18.9% rather than 25.6%, which is still illustrative of the challenging environment in crypto. Trading Card Games remain incredibly beaten down after finishing as 2021’s worst performer, while 2021’s best performer, Video Games, are returning to earth after stratospheric performance that was perhaps overwrought. 

If we were to look at 2022 Average ROI rather than the market cap-weighted indices, the picture looks largely the same, with two notable exceptions. First, Sports Memorabilia actually has a positive average ROI, indicating that it’s the large market cap items where performance is more challenged. Additionally, the average ROI in Memorabilia (non-sports) is sharply negative, as large cap assets (mainly the Declaration) propped up broad performance. 

With cars returning to trading this quarter, exactly zero of them traded positive. Now, it seems unlikely that the outlook for every single car materially worsened in the last three months, so the sell-off here certainly feels more technically-driven than fundamental. The fractional appetite for Luxury items remains feeble, and this quarter, the same can be said of Books, which were previously a fractional darling. Interest in Trading Cards outside of the top caliber assets is virtually non-existent. Sports assets continue to command relatively healthy interest, but Comic Books remain the most in-demand offerings, as shareholders seem reticent to invite sharks into the same waters as summer 2021, when several key, blue-chip issues were lost to buyout.

Finally, in terms of marketplace performance, Collectable performance was strongest both in terms of market cap weighted index performance and average ROI. However, average ROI was markedly stronger, indicating that shareholders have shied away from the highest market cap offerings on the platform. Rally assets were challenged this quarter by both metrics, though the market-cap weighted index would’ve been down 6.8% rather than 7.5% if it measured total return. Otis performance was narrowly negative on a cap-weighted basis and narrowly positive in terms of average ROI when you remove the Air Mag impact. It should be noted that volume on the platform is likely significantly lower than it is on the other platforms at present, and that prevailing prices may not be indicative of the levels at which a greater volume of shares would actually change hands.

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All information provided by Altan Insights is impersonal and not tailored to the needs of any person, entity or group of persons. Past performance of an index is not an indication or guarantee of future results.

It is not possible to invest directly in an index. Exposure to an asset class represented by an index may be available through investable instruments based on that index. Altan Insights does not sponsor, endorse, sell, promote or manage any investment fund or other investment vehicle that is offered by third parties and that seeks to provide an investment return based on the performance of any index.  Altan Insights is not an investment advisor and makes no representation regarding the advisability of investing in any such investment fund or other investment vehicle. A decision to invest in any such investment fund or other investment vehicle should not be made in reliance on any of the statements set forth in this document. Prospective investors are advised to make an investment in any such fund or other vehicle only after carefully considering the risks associated with investing in such funds, as detailed in an offering memorandum or similar document that is prepared by or on behalf of the issuer of the investment fund or other investment product or vehicle.  Inclusion of a security within an index is not a recommendation by Altan Insights to buy, sell, or hold such security, nor is it considered to be investment advice. Closing prices for Altan Insights indices are calculated by Altan Insights based on the closing price of the individual constituents of the index as set by their primary marketplace.

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