Critique my Investment Strategy

Purplesky_2

Ryan_Futuristics wrote: »

The worst case scenario with P2P lending platforms are that default rates climb to unsustainable levels - in which case they just turn into platforms for giving away money ... One platform's already gone down with 100% default rates

Which platform was that?

bowlhead99

Ryan_Futuristics wrote: »

Here's a look at Yale's portfolio from recent years - average returns 15.6%, with bond-like volatility

The performance snapshot you posted doesn't show that at all. The returns of +8.9%, +21.9, +4.7, +12.5% over the four year period for the years ended 2010,11,12,13 annualises to 11.8% and that is without including the -24.6% in the year before.

If you call it a five year period and include that loss, you get 3.3% compound.

Clearly if you include the big equity bull run up to 2007/8 in the analysis you will get an overall better performance, although that's not what you've shown, and the private equity fund returns would likely return similar to leveraged public markets.

Also, is returns -25% to +22% what the common man thinks of as "bond like volatility"? It seems reasonably wide spectrum of returns. And for the post-2009 market rally in both equities and bonds, the returns don't seem particularly stunning.

What am I missing?

Ryan_Futuristics

bowlhead99 wrote: »

The performance snapshot you posted doesn't show that at all <snip>

Since the 1970s

Ryan_Futuristics

masonic wrote: »

I don't have to give them credit for the good years. They obviously got lucky for a short period. I don't think the fund is unstable, I think it's a dog. No wonder the lead manager left in disgrace recently. Essentially their short positions and hedging strategies have completely cancelled out the gains from their long positions over a sustained period of rising markets. What on earth were they thinking?

It's not a fund I've looked at, but I think you're looking at it the way Telegraph articles tend to: What are the returns? What are the charges? Buy a UK equity income fund instead ...

It's probably better to think of Absolute Return strategies as occupying the same space as commodities and real assets - as long-term stores of capital and hedges against volatility in financial assets

Compared to a gold, oil or natural resources fund, these funds are a walk in the park ... And if your portfolio's hinging on the performance of long bonds and equities, are you really diversified enough?

Ryan_Futuristics

Purplesky wrote: »

Which platform was that?

I think it was called Quakle

They had an eBay-style feedback system so lenders could rate borrowers' creditworthiness ... Which evidently didn't work

So it shows how important the system the platform employs is

masonic

Ryan_Futuristics wrote: »

It's probably better to think of Absolute Return strategies as occupying the same space as commodities and real assets - as long-term stores of capital and hedges against volatility in financial assets

Compared to a gold, oil or natural resources fund, these funds are a walk in the park ... And if your portfolio's hinging on the performance of long bonds and equities, are you really diversified enough?

In addition to my equities and bonds, I have exposure to commodities, commercial property and asset-backed lending. I'm not disagreeing that diversification outside of traditional equities and bonds is a good thing, just that absolute return is uninvestable for me because it is dependent on a fund manager being successful in timing the market. Especially so if expected returns are cash-like.

Ryan_Futuristics

masonic wrote: »

In addition to my equities and bonds, I have exposure to commodities, commercial property and asset-backed lending. I'm not disagreeing that diversification outside of traditional equities and bonds is a good thing, just that absolute return is uninvestable for me because it is dependent on a fund manager being successful in timing the market. Especially so if expected returns are cash-like.

Well the real return sector's kept up with property during a property bull market - and if you look over 10 years+, it's been far more stable ... Not timing property or commodities exposes you to much more downside risk

When people say you can't time markets, they mean in highly efficient equities markets it's hard to make better predictions than the market itself - not that people can't come within inches and often win

But funds like GAR are making dozens of simultaneous calls - like long European dividend stocks (because QE's going to drive down rates and probably have more investors searching for yield); long US dollar; Mexican interest rates being higher than European; etc

And these are all really common sense, but being so diversified, you can even afford to get almost half of them wrong

Remember in some markets, ONLY active strategies are going to be able to make money ... It's another form of diversification

masonic

Ryan_Futuristics wrote: »

Remember in some markets, ONLY active strategies are going to be able to make money ... It's another form of diversification

Perhaps, although if one star manager, who had the backing of HL's Wealth 150 and the various financial media outlets at the time, can get it so very wrong, who is to say today's SL GARS or Newton Real Return won't become tomorrow's Blackrock UK Absolute Alpha.

Ryan_Futuristics

masonic wrote: »

Perhaps, although if one star manager, who had the backing of HL's Wealth 150 and the various financial media outlets at the time, can get it so very wrong, who is to say today's SL GARS or Newton Real Return won't become tomorrow's Blackrock UK Absolute Alpha.

I still think you're being a little negative on the BlackRock fund - a few years of lacklustre performance isn't bad - especially if it was giving you diversification and protecting you from downside the whole time (it was possibly set to profit from an expected market drawdown)

But it's a much bumpier, more painful ride with real assets

I'd recommend an alternatives portfolio, where you target above-cash-like returns ... If you'd held BlackRock, GARS and Newton at the same time, they'd have all cancelled each other's periods of underperformance out

masonic

Ryan_Futuristics wrote: »

I still think you're being a little negative on the BlackRock fund - a few years of lacklustre performance isn't bad - especially if it was giving you diversification and protecting you from downside the whole time (it was possibly set to profit from an expected market drawdown)

I only held it for a short time, but during that time it fell almost 10%. Gilts rose over 10% during the same timeframe, which was enough to convince me it was too correlated with equities and wasn't providing enough real diversification to continue holding. Of course, gilts today are not such an attractive proposition.

But it's a much bumpier, more painful ride with real assets

I'd recommend an alternatives portfolio, where you target above-cash-like returns ... If you'd held BlackRock, GARS and Newton at the same time, they'd have all cancelled each other's periods of underperformance out

I'm really quite comfortable with the volatility of other assets. My focus in diversifying is to enhance returns, rather than reduce volatility. Had I held on to the Blackrock fund, it would have been a dead weight - returning less than a high street cash savings account. Perhaps I could have forgiven that if it weren't such an opaque beast, but since I clearly don't understand it or the strategies it is adopting in order to achieve parity in an environment where all asset classes are rising, it was foolish of me to ever have invested. Perhaps that has led me to take quite a negative view on the concept as a whole, but when I hear 'absolute return' these days, I can't help comparing it with the guy at the casino who believes he has a system