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Post by wisealphateam on Apr 6, 2017 19:51:38 GMT
Glad to help. I do plan to put on a basic education primer on bonds on the site soon as well so that should help especially when we have a broader variety of bonds/loans and yields. When that happens people will want to try to learn about risk-reward and relative value of each investments (in the same way people try to understand whether one stock offers more value than another). This would be extremely useful Should there be similar structured bonds, your explanation of how the figures are arrived at, in a thread like this would be much appreciated. If we are able to understand it, more people are likely to invest Hi Stevio, Sure, happy to describe in future threads.
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kaya
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Post by kaya on Apr 14, 2017 13:45:43 GMT
I agree that a full price history is material info and should be provided. I would certainly expect to be buying at present open-market price and not a closed WA price. Is the present open-market price not freely available?
If WA have bought earlier at a different price and then held, I guess that is their choice, though I would doubt they could afford to tie up funds like that for long.
One concern is that WA promote these investments as relatively safe, safer than the usual P2P stuff, but are they? Probably a lot of the bonds are pretty safe, whilst others are, as noted, rather speculative.
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Post by ddraiggoch on Apr 14, 2017 13:52:21 GMT
paul123 . . Moreover, I'd like to understand why this bond is offered here suddenly at 15% but wasn't offered when at 19%. Hi - I do not speak for WA or besides investments in their notes I have not relationship with them. From my discussions with Reezah at the back even of last year, the offer of taking the Matalan bond was available then. However WA choose to defer the option and on the basis of getting a better insight of the trading picture as per the accounts that were published at the end of February 2017. Post what is seen as encouraging yet still recovering set of numbers, WA choose to take up the option; albeit now at the 15% yield.
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registerme
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Post by registerme on Apr 14, 2017 16:26:37 GMT
I did put on this forum analytics using QuantLib to price loans/bonds and calculate implied default probabilities but nobody had any interest link. There is little or no interest in taking a quantitative approach to understanding credit risk on this forum. People are more obsessed with the irrelevance of platform comms and whether it take 24 or 48 hours to transfer money etc. I missed that post first time around, but thank you. I'm going to have a play with the spreadsheet and peak between my fingers at the answers it provides.......
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jonah
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Post by jonah on Apr 15, 2017 8:54:46 GMT
I did put on this forum analytics using QuantLib to price loans/bonds and calculate implied default probabilities but nobody had any interest link. There is little or no interest in taking a quantitative approach to understanding credit risk on this forum. People are more obsessed with the irrelevance of platform comms and whether it take 24 or 48 hours to transfer money etc. I think the above is very true. Speaking personally, I don't have sufficient background to make authoritative statements on quantifying risk and I suspect that people focus on the elements which they do fully understand and 'can measure'. That said, I'm always looking to learn, so thank you for the reminder of the above link. Whilst I suspect it may be a little beyond me, as I'm currently considering putting a non trivial (for me) amount of money into WA I want to ensure that I'm as close to being 'eyes open' as I can and hence suspect I need to do my homework.
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macq
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Post by macq on Apr 15, 2017 11:07:08 GMT
The answer may be with bonds,is that if you do not understand them that its worth paying for a fund manager to do it for you as you will still only pay about 1%(or even cheaper via a tracker/etf).Looking at Citywire table today from end of Feb 16 to end of Feb 17 there are 61 sterling strategic bond funds.Of these 30 have made over 10% and the highest are at 16-18% with an average across all funds of 10.1%.While the fund manager may not get it right all the time you would hope they would have a better idea of when to buy and sell i.e Matalan @ 15 or 19%.But what you get with wiseAlpha is the fun of doing it yourself and running your own account.
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Liz
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Post by Liz on Apr 15, 2017 12:32:22 GMT
All sounds too good to be true! I wonder if investors actually understand the default risk. My first thoughts are that they, a strong retailer won't go bust, then again history tells a different story.
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locutus
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Post by locutus on Apr 15, 2017 14:44:48 GMT
samford71 I like to think of myself as a confident, canny and well educated investor but when I see your posts, I feel like a confused child discovering something completely alien. If I could borrow your brain for a day, I'd be a rich man.
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jonah
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Post by jonah on Apr 15, 2017 15:10:28 GMT
samford71 I have spent the last period googling on related subjects and then come back here and find the above! I see my homework for this particular area will have to continue. Thank you for your continued efforts to educate myself (and others), similar to locutus comments, each time I think I understand something, I just realise how much there is I still need to learn!
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Post by msa on Apr 16, 2017 11:35:46 GMT
Does anyone know the tax treatment for buying those bonds at 85% with redemption 100% at maturity?
Are those 15% taxed as interest or as capital gains and when?
How would be the treatment if investing in bonds above par i.e. >100%?
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mary
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Post by mary on Apr 18, 2017 8:01:05 GMT
kaya Here are price and yield charts for this bond (MTNLN 6.875% 2019) The price has risen from 77 to 85 in the last few months (yield has dropped from 19% to 15%) so price is near one year high. Matalan's bonds (issued via a special purpose entity, Matalan Finance plc) are rated B3 (highly speculative) by Moody's and CCC (substantial risks) by S&P (for ratings guide see link). Both downgraded their rating of Matalan in the last few months (Jan 18 for S&P and Nov 9 for Moody's). These bonds are listed in Luxembourg, so while they may be secured on the main PLC, they are two steps removed (the SPV issuer being step 1), and under a separate jurisdiction. This presumably adds to the risk profile.
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Post by tybalt on Apr 18, 2017 11:03:10 GMT
I confess most of my day to day men's wear is from Prat at Primark. Isabel favours Tui at Sainsbury's and Bon Marche. Went to a Matalan on Saturday as other wise we would have been too early for a lunch appointment.
1. Isabel found nothing she wanted to buy. 2. I thought the shop was spaciously laid out AKA under stocked as opposed to awaiting deliveries. 3. We both thought it was a few pounds per item dearer than the budget High Street
Not for me
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Post by Wisealpha on Apr 18, 2017 15:59:28 GMT
paul123 . Rating agencies are pretty reticent about mapping a qualitative rating to a quantitative probability of default. As can be seen in this link you can back out what the historic one-year probability of default has been for bonds with various ratings. However, that isn't really a fair evaluation. For example B rated bond have a mean probability of defaulting within 12-months of 7-8% based on the historic sample. However the variance is huge (up to 0-16%). Moreover this is just the probability it jumps from B to D in 12-months. You also have a transition probabilities for B to C (which might then jump from C to D etc) or say B to BB (followed by BB to D) etc. You would need to sum up the weighted transition probabilities. The market implied probability of default is of course embedded into the price of the bond. A 27-month bond with a 6.875% semi-annual coupon, trading at a clean price of 85, is implying an annualized 20% default probability (assuming recovery at 40%). This is precisely that same as what the CDS market is also pricing. Matalan 2y senior CDS trades at 500bp+16pts upfront (equivalent to a spread of 1330bp) so at a recovery of 40% that backs out to a 1-year probability of default also of 20%. I did put on this forum analytics using QuantLib to price loans/bonds and calculate implied default probabilities but nobody had any interest link. There is little or no interest in taking a quantitative approach to understanding credit risk on this forum. People are more obsessed with the irrelevance of platform comms and whether it take 24 or 48 hours to transfer money etc. My concern here is not WA offering bonds like Matalan. It's not clear that this is in any way riskier than many a P2P loan at 15%. However, I think transparency is an issue (and P2P platforms are very poor at transparency aswell). These bonds are traded publicaly and are typically not primary issues. The Matalan bond was issued in 2014 at par for example. I think credit ratings, price/yield history etc should be provided. It might be also worth knowing that the subordinated three-year 8.875% 2020 bond trades at 68.75, a yield of 23.5% (CCC rated). Moreover, I'd like to understand why this bond is offered here suddenly at 15% but wasn't offered when at 19%. Hi all, Just catching up on the comments during the Easter break. Here is my personal view. - In terms of ratings pretty much all of them are publically available – so you can find them via a google search. Any other basic info is available on our company description page. We intend to put this info onto the wiseAlpha site as well as create charts with more historic price info and news feeds once we’ve developed the site further and have automatic data upgrades - I personally use ratings as directional guidance or just to spot when a downgrade can cause a technical move down in price and lead to a potential trading opportunity. - To Samford’s point ratings agencies try to avoid if they can mapping a qualitative rating (which these are) to a quantitative probability of default because a) it’s often unreliable and b) there can be wide statistical variance because the data set is small (hundreds rather than millions as in consumer lending) and c) the best credit analysts tend to work for the top 10% of funds rather than credit agencies so.... - Bottom line is therefore a qualitative or company specific view is needed to assess risk rather than just trying to rely on a data driven implied default probability metric. Data methodologies are more reliable in industries with a high data set such as consumer lending – there are millions of people who borrow versus only thousands in the corporate world so default probability data can be measured and hence have a higher level of confidence - For those interested in actual industry aggregate default data in our asset class: o Western senior secured debt (which the bonds listed on our site currently are) had default rates of 0.5% and default loss rates of 0.2% (assuming 70% average recovery) last year according to Credit Suisse research in Feb 2017. This is lower than P2P unsecured small business lending with the difference likely to be even greater in a recession scenario particularly since the last recession structuring has become more conservative o For high yield as a whole (both senior secured and second ranking/subordinated bonds the default rate was 1.4% and 1.0% (assuming a 30% recovery) again lower than P2P unsecured small business lending - While every P2P operator and niche is different in general my personal view is that unsecured small business lending can be a lot riskier than even junior or second ranking high yield (we intend to list this soon). It's why people are told to invest in over a hundred investments to diversify because default risk is higher. You don't even need to have that level of diversity to invest in stocks and make a similar return. - Price as a way to identify the implied probability of default is also imperfect because there are lots of other factors that affect it so again I use it as information but base my view on the assessment of the company and whether the relative value (my expectation of long-term yield and near-term price) versus other companies in the sector and across other sectors is compelling. - Key basic things I look for in assessing a company (there are a whole host of things but here are some of the main ones): o Do I like the business and the product (or at least do I think others do) o Past performance at different times in the economy. Companies with stable performance across the cycle tend to be long-term holds, companies with volatility in financial performance are trading opportunities at the right entry level o Market position and competition. Market leaders in general are market leaders for a reason. o Industry trends o Cashflow and balance sheet liquidity (how many years of interest payments does the co. have) o Net debt/EBITDA, Interest cover, cashflow coverage and other relevant metrics o Assets and liquidation potential o Make-up of the capital structure (see the bar on the company description page) and equity cushion o Risk-reward – yield versus other investments - In general, if you want to simplify things even further, a market leader with 5-8% returns tends to be good value. Higher return investments need a closer look. Something like Matalan requires more attention than something like Virgin Media.
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Post by Wisealpha on Apr 18, 2017 16:20:54 GMT
Thanks, i really appreciate you taking the time to answer some of that. Another worry of mine, touched upon on your last paragraph is what price did wisealpha pay for the bond and is the price they are currently available for on the platform for the open market price or the closed wiseAlpha price? Put another way, how can I be sure I'm paying the correct (fair) price and how can I be sure that wiseAlpha are not speculating? (and profiting from my ignorance) Why doesn't MiFID2 cover this? Should it? We list bonds as we buy them (after they settled) because our model is to pre-purchase and then sell. We are gradually building the number of bonds on the site. We occasionally will put a higher yielding (and consequently higher risk) names onto the site for the P2P yield/thrill seekers (we tend to focus on stable market leaders in the 5-8% yield range mainly though). We bought Matalan when we listed it (well technically we waited till it settled after a few days) and at the price we sold. The institutional bond and loan markets tend to be over-the-counter and so it's nowhere near as liquid as the equity markets. Having said that the top 10 market makers (the global investment banks) tend to be fairly close in price quotes (plus or minus 1%). On the most liquid names prices tend to be pretty tight across the market. On the illiquid names where they are hard to find there can be even 2-4% differences. Purchase size can also affect the willingness and price of bank to sell if they are not active sellers. Once we've figured out a way to get automated chart data in and displayed it will be easier for you to check price. We have users who have bloomberg so most people know we are pretty much close to or at the same price an institutional buyer can buy at when a bond comes out. It's worth being upfront though that since we don't sell everything on the same day (although that should change as we grow and get more and more users) sometimes we are still selling something we purchased a while back and the price in the institutional market can move around a little. We actually have found that we have been selling some names like The AA and Virgin at a couple of percent lower than in the institutional market since they have risen in price since we first bought them. So the WA price we sell at can be slightly above or below. If the price moves vastly we'll either adjust it or remove it from sale. In the future as our debt capital base and users grow and we release our own internal secondary market we'll support the development of our market to eventually create a liquid market for our users that will closely track the institutional market (until we merge with or outgrow it!). We'll look at Mifid 2 as it's finalised but since we are structured more like a P2P private marketplace those don't apply at present
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Post by Wisealpha on Apr 18, 2017 16:32:19 GMT
I agree that a full price history is material info and should be provided. I would certainly expect to be buying at present open-market price and not a closed WA price. Is the present open-market price not freely available? If WA have bought earlier at a different price and then held, I guess that is their choice, though I would doubt they could afford to tie up funds like that for long. One concern is that WA promote these investments as relatively safe, safer than the usual P2P stuff, but are they? Probably a lot of the bonds are pretty safe, whilst others are, as noted, rather speculative.I hope my second last answer covers that. But senior secured in my personal view is less risky than P2P unsecured small business lending for obvious reasons and based on aggregate default data. None of the investments listed on our site for example are close to defaulting and our aim is to avoid a default loss scenario through selection however the senior secured nature of the investments is important as recovery levels are approx on average 70% according to Credit Suisse research. Anecdotally these can sometimes be higher than 100% in distressed takeovers (for example I've been in a situation where senior lenders took control of the company and made well over 100% of their initial capital). That's something for further down the road... We will be launching unsecured high yield bonds (effectively the large corporate level equivalents of retail mini-bonds. They have guarantees but these tend to be subordinated to senior debt) where default loss risk is higher (last year it was 1.0% across both senior secured and subordinated high yield) but rewards can consequently be higher. in terms of risk my personal view is these are still in general less risky than unsecured mini-bonds and unsecured small P2P business lending but there is more leeway here to have your own personal view.
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