Q3 was an interesting one, and it really was a tale of two quarters in one.
For the first two months or so of the quarter, the market seemed to be really finding its footing for the first time post-2021. But by September, some caution had returned. First, recapping Q2 a little. The percentage of indexed companies with positive quarterly returns had been trending up. Trade premium discounts had improved a little after seemingly one-way trend in 2022. And the buy versus sell IOIs were increasing, and IOI spreads were declining.
Q3 initially continued all these trends. And we saw this in Index performance as well.
Having a look at the year-to-date index performance chart, you see that the year began as a long trend downwards, a continuation of 2022. However, near the end of Q2 and into Q3, we start to see signs of a bottoming in the Forge Private Market Index performance.
Then, zooming in on Q3 performance, we even saw positive quarterly index performance, something that was in contrast to major public markets.
NASDAQ 100, for example, represented here by QQQ, or the small cap Russell 2000, which is represented by IWM ETF, the Forge Private Market Index was up 1.1% in Q3, while Triple Q was down 2.7%, and IWM was down even a little more at minus 4.7%. Looking under the hood of index performance, this next chart shows the percentage of index companies that were priced up, down, or flat for the quarter.
One of the benefits of an index, besides merely understanding the historical returns of the market or investment strategy, is to help us understand the market in a broader portfolio context.
While the Forge Private Market Index was not designed to be directly investable, it can still give us some useful insight into how a well-diversified private market investment portfolio might perform relative to other asset class investments.
Looking at the nearly five years of performance of the Forge Private Market Index, what we see is, even after a strong drawdown in 2022 and 2023, is that a private market exposure still generated strong returns relative to other asset classes.
The Forge Private Market Index generated an average annualized return of 19.2% since the start of 2019, ahead of major public markets, such as U.S. large cap, represented here by the SPY ETF, U.S. small cap represented by IWM ETF, or commodities and bonds represented by the GSG, GLD, and AGG ETFs, respectively. The Forge Private Market Index wasn't the strongest performer we looked at, however. The mega-cap-led U.S. tech sector outperformed it by a few percentage points.
But most interestingly, it did not do so in the same way. While there were some years in which both public market tech and the Forge Private Market Index had positive or negative performance in the same years, the scale of performance and ranking of performance varied. Further, it is perhaps most interesting to see how widely the two markets performed in 2023. And for me, especially this raises interesting questions about the direction of future performance from here.
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© 2024 Forge Global, Inc. and its affiliates. All rights reserved. Investing in private company securities is not suitable for all investors, is highly speculative, is high risk, and you should be prepared to withstand a total loss of your investment. Private company securities are highly illiquid and there is no guarantee that a market will develop for such securities. Each investment carries its own risks, and you should conduct your own due diligence regarding the investment, including obtaining independent professional advice.
Past performance Is not indicative of future results.
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The information contained herein is based on currently available information, and Forge undertakes no obligation to update any of such information or to reflect new information or the occurrence of unanticipated events, except as required by law. While Forge believes such information forms a reasonable basis for the contents of this Investment Outlook, such information may be limited or incomplete, and this content should not be read to indicate that Forge has conducted an exhaustive inquiry into, or review of, all potentially available relevant information.
This Investment Outlook contains trademarks, service marks, trade names and copyrights of Forge and may contain those of other companies, which are the property of their respective owners. The use or display of third parties’ trademarks, service marks, trade names or products is not intended to, and does not imply, a relationship with Forge or any of its respective affiliates, or an endorsement or sponsorship by or of Forge or such affiliates. Solely for convenience, some of the trademarks, service marks, trade names and copyrights referred to in this Investment Outlook may be listed without the TM, SM, (c) or (R) symbols, but Forge will assert, to the fullest extent under applicable law, the right of the applicable owners, if any, to these trademarks, service marks, trade names and copyrights.
The performance of the Forge Private Market Index with respect to the growth of $10,000 shown herein does not represent the performance of any actual investment, as you cannot invest in the index, but rather reflects the hypothetical growth of a $10,000 investment in a basket of securities based on the index. Additionally, the chart assumes reinvestment of dividends and capital gains in the constituent securities but does not reflect any fees or commissions that may be incurred in purchasing or selling such securities, which would lower the figures shown if included. Further, $10,000 may not be a sufficient amount to invest simultaneously in all securities contributing to the performance shown, which would further prevent an investor from matching the performance shown. The performance shown represents past performance, and past performance is not indicative of future results.
The Forge Private Market Index is calculated and disseminated by Forge Data LLC ("Forge Data") and is a mark of Forge Data. The Forge Private Market Index is solely for informational purposes and is based upon information from sources believed to be reliable. It is not possible to invest in the Forge Private Market Index, and Forge Data makes no assurance that any investment products based on or underlying the Forge Private Market Index will accurately track index performance or provide positive investment returns. Forge Data is not an investment adviser and makes no representation regarding the advisability of investing in any asset classes or investment vehicles. Private company securities are highly illiquid, and the Forge Private Market Index may rely on a very limited number of trade and/or indication of interest inputs in its calculation. Please see Forge Private Market Index Disclaimers & Acknowledgments for other important disclaimers, disclosures and restrictions related to the Forge Private Market Index that you acknowledge by downloading this content and to which you are subject. References to "Returns" in the context of the Forge Private Market Index Price are hypothetical in nature. The percentages displayed indicate the per-share change in percentage in the Forge Private Market Index Price of the applicable constituent, rounded to the nearest tenth of a percent unless otherwise indicated.