What really is fractional share ownership in investing? We’ll explore this topic, focusing on fractional share investing in the alternative investment market.
Fractional investment ownership
Fractional ownership is a method in which multiple parties who may or may not be related, can all share a percentage of ownership of a particular asset.
Alternative assets are defined as those which can’t be categorized as stocks, bonds, or certificates. Historically, real estate and gold are two of the most popular alternative investments.
These assets are often categorized as passion assets, Alts or alternative assets. These include items such as watches, fine art, whisky, real-estate, sneakers and even Pokemon trading cards. For many decades these forms of assets have only been accessible to the ultra-wealthy, allowing them to diversify their portfolio away from traditional assets.
Why Invest in Alts?
Alternative assets range far and wide, what makes them attractive to people can be twofold.
According to Goldman Sachs, the average 10-year stock market return is 9.2%. While some investors may be pleased with those annualized returns from the S&P500, spread across a long period of time, some will look to alternatives to find potentially better or higher returns on their investment.
Investing in Collectibles
More recently, we’ve seen the popular rise of what we call collectables or passion assets in the mainstream media. All-time highs with prices being beat at auction for items such as postcard stamps, whisky bottles, first print edition comic books and even the luxury watch secondary retail market almost doubling in a few years.
Here are a few reasons investors are interested in collectibles:
- A passion or hobby for certain items, such as sports memorabilia.
- Rarity. For instance, baseball cards or wines that have stopped production.
- Portfolio diversification.
- Strong returns.
Let’s look at fine wine as an example. While the fine wine Bordeaux selections maintained an annual performance 10.51% in 2021, Cultwines states the Champagne sector continued to astound with another towering gain of 22.98% at the end of 2021 – according to the Liv-ex Champagne 50 index.
The new world of alternative investment ownership
The history of fractional ownership in tangible assets begins with the business of private jets. NetJets’ Richard Santulli coined the idea, allowing multiple parties to invest and own a share in a jet, therefore reducing costs for all parties than buying the asset individually and outright. Since then, fractional ownership has extended into multiple constructs and assets over time, be that properties with timeshares, yachts, or even private residence clubs.
Helping democratize finance for all, we’ve seen the rise of investing brokerage apps like Robinhood, Webull and Freetrade (Europe) offering people to invest in traditional investments like stocks and ETFs from their fingertips. Now, millennials are investing in some of the world’s largest companies straight from their phone.
Since March 2021, more than 60% of Robinhood customers have traded fractional shares. As people were bored stuck-at-home, looking to diversify portfolios or an alternative to make a bit of extra cash, commission-free offering access to markets become a golden opportunity. But what about the Alts market?
New platforms have entered the space helping unaccredited investors to buy shares in alternative assets and benefit from the appreciation in their value over time, including:
Wine: Vinovest, Vint, CultWine
Sport Cards: Dibbs, Collectable
Culture: Koia, Rally, Masterworks
Linking fungible tokens or non-fungible tokens (NFTs) to an asset
With the rise of blockchain technology, new possibilities have emerged to enable fractionalization. Fungible or non-fungible tokens can be linked to an underlying asset with token holders often getting a say in important decisions such as when the asset gets sold and receiving partial proceeds if a sale of the underlying asset happens, based on the number of tokens they hold.
One way to explore the world of alternative assets is via Koia. Koia’s mission is to open up access to alternative assets. They’re building a community-driven platform to buy, collect and trade alternative assets you are most passionate about.
Koia fractionalizes iconic assets using NFTs and lets you build a collection of assets based on your passion, be it luxury watches, rare whisky or collectible sports cards, starting from just $60. Learn more about the process and how it all works.