p2pmark
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Bonds
Sept 22, 2019 7:06:45 GMT
Post by p2pmark on Sept 22, 2019 7:06:45 GMT
I’m currently invest in numerous European p2p sites, nearly always in loans which offer buyback gurantees. This means that implictly, or often explicitly, you’re lending money (unsecured) to the loan originator for a return of, say, 12% p.a.
Investing in risky companies through high yield bonds instead would seem to offer numerous advantages: - There may be tax advantages to investing in a bond? - Much greater transparency - I’d expect the market to be more effiicent, meaning I’m more likley to be paying a “fair” value. I simply don’t know enough about the average Russian loan originator to know whether 12% is a fair return or not - I assume you’re less at risk in terms of the platform going bust? I assume in the case of bonds this wouldn’t affect your return, whereas I don’t fancy my chances of getting money back from a Russian loan originator if Viventor went bust. - In principle, I’d expect the fee to be lower as maybe the overheads associated with a bond to be less than through a p2p platform?
I guess on the other hand: - There is probably more flexibility for loan originators borrowing money through p2p – they can vary the amount they borrow month-month which is much harder through a bond. They will be willing to pay a premium for this. - There will no doubt be many numerous loan originators who don’t offer bonds - I’ve done well investing through these European p2p platforms so far.
With that in mind, I’m interested in investing high-yield bonds. I am quite prepared to take some risk, well aware that I may lose some or all of my capital. With this in mind, I am looking for the following: - High yield / high risk - Needs to be tax efficient. I’m nowhere near the capital gains threshold but am over the zero tax on interest band. I understand you can buy bonds through an IFISA? - Low fees - Currency is £ or Euro - Ideally some kind of tracker if they exist – e..g, the bond equivalent to the FTSE all-share. I don’t believe I would have any edge over the market by doing research and I would like diversification. - Not too fussed about liquidity - happy with 5 year period, but less than 10 years
I’ve tried to do research but haven’t found what I’m looking for. I’m aware of WiseAlpha. But this doesn’t quite meet my criteria in that fees at 1% p.a. (for <£20k) seem high to me - I’m used to about a fifth of that when I invest in shares. Further, the way to get the kind of return / risk profile I’m looking for is to select individual bonds which isn’t what I want to do. (As I say I ideally want some kind of tracker.)
Apologies for the long post. My questions are:
- Do you agree with the above analysis regarding pros and cons of European p2p / bonds? What’s wrong / missing? - Are you aware of any bond funds / whatever that you think might suit me given the above.
Many thanks for any help you can provide.
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hazellend
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Post by hazellend on Sept 22, 2019 7:30:40 GMT
I think there are junk bond ETFs but my understanding is they don’t offer much diversification over equities.
Best to completely avoid investments you don’t fully understand.
My impression is that many people on this forum are underweight equities. For people in the accumulation phase if wealth, equities should be the main long term holding.
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corto
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Post by corto on Sept 22, 2019 8:01:06 GMT
Goto trustnet.com and search for high yield bonds or strategic bonds; there are plenty and you can have them in an ISA or SIPP (if the provider supports it).
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bigfoot12
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Post by bigfoot12 on Sept 22, 2019 9:18:52 GMT
... I’m more likley to be paying a “fair” value. I simply don’t know enough about the average Russian loan originator to know whether 12% is a fair return or not... - High yield / high risk - Needs to be tax efficient. I’m nowhere near the capital gains threshold but am over the zero tax on interest band. I understand you can buy bonds through an IFISA? - Low fees - Currency is £ or Euro - Ideally some kind of tracker if they exist – e..g, the bond equivalent to the FTSE all-share. I don’t believe I would have any edge over the market by doing research and I would like diversification. - Not too fussed about liquidity - happy with 5 year period, but less than 10 years I doubt that any of us receive "fair value" on most P2P sites at the moment. The institutions have moved in, they can deploy billions with ease with much lower overheads than dealing with the likes of us investing £100 - £10,000 at a time. There might have been a time (I think that there was) when the banks were restructuring / frozen in headlights... that we were getting close to fair value, but I don't think now. You have to accept that in many cases as you move away from global/Ftse100/S&P500 trackers the costs are likely to be higher. You might be surprised to find that high yield bonds have average Yields (to maturity) of 5%-5.5%. Search for posts by samford71 he has mentioned a few in the past. iShares have lots of ETFs that are eligible to hold in ISA including several high yield bond flavours. Liquidity of most of the larges one should be good - can't promise that you will like the price. You need to think what you mean when you say currency is Euro. Do you mean that the fund only holds assets, denominated in Euro, or do you mean that the ETF company has hedged the currency back into EURO, or do you mean that it has full international risk, but can be bought denominated in Euro? All are often possible - though I doubt you will find a high yield ETF with only GBP assets (market is probably too small). Most of the high yield bond market is from US companies and much of the rest in denominated in USD.
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bigfoot12
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Bonds
Sept 22, 2019 9:20:40 GMT
Post by bigfoot12 on Sept 22, 2019 9:20:40 GMT
Best to completely avoid investments you don’t fully understand. I agree wholeheartedly with that, but for most of us I think that applies to almost all P2P lending at least as much as a listed bond fund!
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adrianc
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Post by adrianc on Sept 22, 2019 12:41:15 GMT
I simply don’t know enough about the average Russian loan originator to know whether 12% is a fair return or not You had me (running away, screaming) at "Russian" and "12%".
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corto
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Bonds
Sept 22, 2019 13:18:13 GMT
Post by corto on Sept 22, 2019 13:18:13 GMT
I simply don’t know enough about the average Russian loan originator to know whether 12% is a fair return or not You had me (running away, screaming) at "Russian" and "12%". Russian equities have been doing quite well over the last three years. Russian Junk bonds I don't know; sort of an unnecessary niche if one can get better with more main stream, less speculative investments.
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Bonds
Sept 22, 2019 13:47:40 GMT
Post by Deleted on Sept 22, 2019 13:47:40 GMT
I have to admit that only earning 12%
and
Russian risk
just seems a poor value bet to me. Now if you said 32% I'd be more comfortable.
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adrianc
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Post by adrianc on Sept 22, 2019 14:24:04 GMT
Where's cwah when you need him ? I'm sure he'd be as bullish about Russian bonds at 12% as he was about the banking sector in Georgia, or Thomas Cook He's sunning himself on a beach somewhere, having availed himself of the shareholder's discount.
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corto
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Bonds
Sept 22, 2019 14:59:34 GMT
Post by corto on Sept 22, 2019 14:59:34 GMT
I have to admit that only earning 12%
and
Russian risk
just seems a poor value bet to me. Now if you said 32% I'd be more comfortable.
For curiosity: How do you factor American risk in?
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Post by Deleted on Sept 22, 2019 15:55:10 GMT
I invest in assets with growth rates of better than 12% Y on Y for a min of 5 years with limited "ownership" problems. A limited bunch but enough for me.
So if the risk was one of retention of asset value then I would look at say USA, Korea, UK, France, Germany, Canada, NZ etc at a base of 0% and Russia, China and the 'stans at -~30%. To be fair I hate to think what I would score for assets in Argentina, Brazil or dare I say it Venezuela.
Much of my working life has been with some of the more "interesting nations" of the world and I've seen how what was person A's property becomes person B's property by the decision of someone in the "government" without compensation too often to risk my own money.
Still if you have the guts for the game good luck to you, I used to have to do some pretty odd forms of due diligence in my work with those countries.
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Post by Deleted on Sept 22, 2019 16:15:50 GMT
- Do you agree with the above analysis regarding pros and cons of European p2p / bonds? What’s wrong / missing? - Are you aware of any bond funds / whatever that you think might suit me given the above.?
Bond buying seems to me all about the timing. I believe I am pretty bad at timing, in fact I've tracked my attempts to manage it and unless the clues are massive I miss them. I did buy a load of bonds in the spring of 2007 because frankly you would have had to been stupid to not see the recovery.
So do I agree with the analysis. Well given that gilts are in the -.5% to 1.5% range I would struggle to see how a bond at 12% was going to be an attractive risk. I would think 4% might work out a more happy medium.
You might be happy with something like a PIB or a corporate bond from a UK blue chip which come up every so often but I doubt that you will get anything better than 6% on even one of these (see timing point).
Still it is not my area of expertise and I too would be interested in a blue chip company offering good payouts or a fund of bonds that does not take the lion's share of the income.
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Bonds
Sept 22, 2019 16:22:47 GMT
Post by Deleted on Sept 22, 2019 16:22:47 GMT
As a further thought you might like ishare ETFs, their global infrastructure seems to be interesting (not one of my mine and this is not advice).
I do recommend using trustnet, their "advanced search engine" is excellent at finding well performing assets.
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Bonds
Sept 22, 2019 16:32:34 GMT
Post by samford71 on Sept 22, 2019 16:32:34 GMT
I invest in assets with growth rates of better than 12% Y on Y for a min of 5 years with limited "ownership" problems. A limited bunch but enough for me.
So if the risk was one of retention of asset value then I would look at say USA, Korea, UK, France, Germany, Canada, NZ etc at a base of 0% and Russia, China and the 'stans at -~30%. To be fair I hate to think what I would score for assets in Argentina, Brazil or dare I say it Venezuela.
Much of my working life has been with some of the more "interesting nations" of the world and I've seen how what was person A's property becomes person B's property by the decision of someone in the "government" without compensation too often to risk my own money. Still if you have the guts for the game good luck to you, I used to have to do some pretty odd forms of due diligence in my work with those countries. I would disagree about a broad based dislike of EM debt. EM sovereign US$ debt has delivered a total return of around 9-10%/annum over the last two decades. In fact, EM sovereign debt often comes out as providing one of the best risk-reward propositions of any asset class in many asset allocation analyses. Normalizing for return volatility is has outperformed the S&P 500 by a factor of around 2.5x. EM external debt consistently outperforms EM equities and EM local currency debt as an asset class, mainly since it avoids the primary risk factor in EM investment which is currency risk.
EM external debt has benefitted from a large supply-demand imbalance. The majority of EM countries have much better government fiscal positions that equivalent developed countries. There are exceptions: Argentina, Venezuela etc but the index has close to 60 countries so you can absorb a few ones going bad. Remember even a basket case like Turkey only has debt/GDP of 30% or so. Private sector debt is lower. The external debt burden has reduced as these countries have rotated into issuing local currency debt. So supply is limited.
On the demand side, the relative high yield of these countries has driven major inflows into their sovereign debt markets. In fact, at various points this decade, the total amount of money indexed against the JPM EMBIGD index (which 90%+ of instos use) was actually greater than the market cap of the index. Passive funds simply couldn't buy enough to get market weight. Globally, insto investors are massively underweight EM in their portfolios.
I'd agree with you on EM corporate debt. It's is a completely different creature from sovereign debt and one which I would stay clear of given the lack of corporate governance, opacity and lack of liquidity. It's almost as bad as speculative property development loans. Ok I'm being unfair, it's not that bad!
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Bonds
Sept 22, 2019 16:57:35 GMT
Post by Deleted on Sept 22, 2019 16:57:35 GMT
Not broad-based at all but your educated explanation is much better than my stumbling, ignorant explanation. I see 0% as the best score to invest in, while I see Russia, China etc as bad at -30%. I guess that means I would expect to at least get back what I invested in Korea but would expect to lose 30% of what I invested in Russia. This may be unfair and certainly, the Russian central bank seems to be doing great work under a gangster government. I doubt all Chinese numbers etc.
Profits come on top of that. But my lack of timing skills just push me away and I like to sleep without worry and hit around the 9-10% without much stress.
EM = emerging countries for those who didn't know (like me).
samford71, given your obvious knowledge how would you recommend a retail investor accesses a broad band of EM sovereign debt?
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