P2p Global Investments Share Discussion Threads

[anley] 22/11/2016 15:56

Good point but did they ever say?

I think we should ask the board when they next publish their figures how this trust runs as its way off what was originally intended.

[spectoacc] 22/11/2016 14:55

Be interesting to see what happens to the share price when the buyback ends.

[orinocor] 22/11/2016 12:49

Not many shares are red today but this one is. Buying opp?

[aroon001] 21/11/2016 17:04

I'd be quite happy if they bought all the outstanding shares back rather than buying new p2p loans. Make back our 23%.

I'm not sure the NAV ever deviates from 1000p, as they just mark largely at cost.

Just need a few good 0.5 - 0.6% month on month returns to stabilise the share price.

[anley] 21/11/2016 09:57

There seems to be no bottom to the share price but it would be useful to see what the NAV now is when these figures are published soon.

[spectoacc] 21/11/2016 08:30

On the plus side - the co are able to buy back shares at lower and lower prices. 773p on Friday.

[anley] 14/11/2016 11:55

What is DB going to do as Prime Broker?

and from the grave............In 1964, Jim Slater left Leyland to acquire control of H Lotery & Co, a £1.5m public company which grew into Slater Walker Securities, one of the fifty largest companies in the UK, capitalized at over £200 million (about £4 billion in today’s money). Slater Walker became a conglomerate, but then gradually disposed of its industrial interests to become an international investment banking organisation. Jim resigned as Chairman in October 1975 because the Singapore Government began to try to extradite him from the UK for alleged offences by the company in Singapore. In January 1977 there was found to be no case against him.

When Slater Walker collapsed, due to the secondary banking crisis in 1975, Jim Slater famously found himself to be a ‘minus millionaire’ owing £1m more than his assets. Within a few years he repaid all of his debts with interest.

[anley] 10/11/2016 10:18

Yes there was a small closed end trust called Assets at a Discount Investment Trust Ltd (we did not have PLC in those days). We had H Lotery which became Slater Walker and lots more old names many which are no longer with us.

So I am a 75 year old investor having started in the City but made my money in land planning and building for the mass market.

Keep the good work up but I think the management should be asked and that I may do after Xmas as that will give me anther set or two of figures.

Thanks........

[aroon001] 10/11/2016 01:19

Crazy day.

@ r134870 I agree re the transparency issue. Almost feels like P2P have something to hide. This data should be made available. RDL even list their fees on each monthly fact sheet. Re the discounts to NAV being a safety net, i'd only be a bit careful of saying its sizeable as I feel that their NAVs may not reflect reality of where they could actually sell the loans in the market if they wanted to. They seem to be just marked at cost. Does feel like downside is limited as you say as lot priced in negatively (fx hedging, Lending club, relatively new product etc). P2P have stated that they are engaged in foreign currency borrowing instead of fx hedging which will reduce cash drag.

@ Anley 50 years ago? was there even such a thing Assets at a Discount Investment Trust?

@ Spectoact
- paying or having balance sheets in $ isn't an indication of something hedged or unhedged. P2P could convert its dividends into $ each quarter and pay them out and it would still be broadly fx hedged. Unhedged would be where assets are of different currency to liabilities I feel. I haven't seen any evidence that FTSE 100 companies have large fx mismatches in assets v liabilities, but if you have data would happily reassess.

- re the hedging cost v discount thing. I think I see where u might be coming from. If you believe that forex tends to average out over time then yes, you can argue that hedging costs are a waste. But traditional investors wont think that as they look at sharpe ratios. So if one security has 5% return but low vol, another security has 6% return but much higher vol, they would prefer the former. RDL dropped 5% today in the morning on fears that the dollar might weaken whist P2P was unchanged. Furthermore why the bias against investors who are not "long term" enough. If I bought RDL today with a 2 year view, and GBPUSD went from 1.20 to 1.70 over the next 2 years (reversal of last 2 years), id be down 30% as opposed to say up 10% on P2P. FX rate may average out and come back down to 1.20 eventually but I don't think my 2 year holding period can be considered short term. Nor 1 year or 3 months for that matter.

[anley] 08/11/2016 10:09

50 years ago I was the company secretary for Assets at a Discount Investment Trust and did it do well..........P2P is in my 2016/17 portfolio and a few others....

[rl34870] 08/11/2016 09:51

Yes, as I said earlier just shows how short term the market can be and how prices can turn on a sixpence.

And yes , I think a good investment philosophy would be to set up a DIY Neil Woodford discount fund.!

[spectoacc] 08/11/2016 09:20

I'd say VPC is the pick of the 3 under those criteria, for discount/moving towards balance sheet loans/yield. Not in it myself.

You can buy Circassia Pharmaceuticals for a lot less than Neil Woodford paid too. Just saying. :)

At some point, even WPCT may be on a big enough discount to buy. Hard to believe it went over £1.20.

[rl34870] 08/11/2016 09:12

P2P say that they have a daily handle on each and every loan of their portfolio so there is no reason why they could not break down the monthly return say as follows:

Coupon interest 1.0

Less Leverage costs 0.1
FX Hedging costs 0.05
Impairments 0.4
Admin costs 0.15

Monthly return 0.3

RDL are a bit closer to this type of disclosure as they give a monthly loss reserve together with a loan loss reserve balance as a percentage of NAV (ie what they think the overall level of impairments are after applying the monthly loss reserve)

Some investment trusts such as Fidelity Special Values break down the half yearly returns into items such as stock selection, fx moves etc and even though they might not have performed well you have more faith in the company as they are being honest and upfront.

Still the bottom line is that you can buy these funds at a considerable discount to what Neil Woodford paid for them so that is enough of a recommendation for me. I have an investment philosophy of buying companies where I think the downside is limited ie Sports Direct, Phoenix Holdings , Sainsburys etc rather than growth stocks and this style has served me well. I think P2P,Ranger and VPC fall into this category where the downside appears limited (fingers crossed!) and they could surprise on the upside.

[spectoacc] 07/11/2016 19:56

@AROON001 - many pay in $, most have their balance sheets in $, why would you think they hedge?

You say:

"Secondly they state on each months factsheet since June "A material amount of the discount shown is directly correlated to a decrease in the value of the GBP, as the Company predominantly has US based investments and is denominated in US dollars." ie they are saying specifically that the discount to NAV exists because they don't have a hedging policy in place and investors demand a higher return for it. So if I cant convince you, perhaps you might believe them? Thirdly average discount to NAV last 12 months has been 8.5% versus P2P LN of 11.5% according to bbg. Not so different."

Look at current discounts, and tell me why the difference? Taking a "last 12 months" average conveniently smooths over the hedging fiasco - according to the AIC, RDL -5.95%, P2P -20.91%, VSL -23.75%.

Forex tends to average out over time - if you're a long term investor, particularly if you've bought for yield, why should you want money wasted on hedging? Or put another way - P2P and VPC both decided to hedge, and it's cost them dearly. If they both now go ahead and introduce an element of gearing to make up for the wasted cash, that also changes the risk profile. We're currently in a very benign credit environment, be interesting to see what happens when that changes.

Personally, I'd rather the P2Ps put all their money into forming loans, and the same with any gearing they might take on.

I don't hold P2P, VPC or RDL, and only bought into P2P originally before I discovered the extent of the hedging fiasco. The best I can say is that P2P & VSL are better value on fat discounts than they were before.

[anley] 07/11/2016 18:34

Some of the best comment on P2P.....thank you guys.

I look at matters sometimes in a different way. One of these is who owns the shares and we do know that Woodford owns up to 29.9% - I think. As I have said before I wonder what he thinks to the management and will he give them a push on the quite?

[aroon001] 07/11/2016 18:14

Interesting. Ill have a look at that.

re the commentaries, yes they are quite vague you are right. Quite difficult to understand the underlying issues. They barely commented on this months pathetic 0.23%. I emailed them directly but they refused to answer any questions to retail investors. My sister who was a fund manager also spoke to them at a conference but they didn't reply to her emails which isn't great.

I notice just now that they also charge a fee on gross assets, not net, so if they leverage up, they take more in fees. Not only that but the performance fee is 15% versus RDL at 10%. and there is no hurdle rate so they get paid even if the perform badly which is typical.

I'm quietly optimistic though. I think once the last few months volatility is behind us and the returns bump back upto towards 6% the discount will narrow. I am concerned about rising levels of defaults though if they are only assuming 3% in the long run.

SpectoAcc - I had a look at RDL's website. Few interesting things. They are 95% invested in non gbp assets (mainly USD). so its a effectively a pure punt on GBPUSD. In USD their issue price was $15.43, and now trading $14.35 according to september factsheet. not great for a US investor. In June their NAV went up 10% in a month. a month!! due to gbpusd. How could u realistically invest in it knowing that you might make your 0.5% next month but could make/lose 10% on fx move alone. Secondly they state on each months factsheet since June "A material amount of the discount shown is directly correlated to a decrease in the value of the GBP, as the Company predominantly has US based investments and is denominated in US dollars." ie they are saying specifically that the discount to NAV exists because they don't have a hedging policy in place and investors demand a higher return for it. So if I cant convince you, perhaps you might believe them? Thirdly average discount to NAV last 12 months has been 8.5% versus P2P LN of 11.5% according to bbg. Not so different.

Regarding BP, Shell etc I take your point about buying these stocks in regular ftse trackers, and for income etc but I haven't seen any reports to indicate FTSE 100 companies maintain large unhedged fx exposures. In fact I trade with these guys at work (rates, fx) so if anything I feel I have first hand information that they do hedge actively.

[rl34870] 07/11/2016 17:31

Yes a lot of it is guesswork on our part as their monthly/ quarterly commentaries are quite vague and you cant help feeling they only tell us what they want us to hear. The half yearly/ annual reports by comparison present the facts so the 2016 annual reports will make interesting reading and show the actual costs of hedging, leverage costs and actual levels of impairments. With these facts we can then make a more educated guess as to whether the NAV is misleading or not.

If you look at Liberum,s alternative finance website you can see very interesting research in 2015 from Cormac Leech who has now moved to become VPC,s european principal. This was produced last year when these trusts were trading at signicant premiums but today he still says he remains quite optimistic about the sector (he is a former banks analyst amongst other things.) You only have to look at Shells share price 9 months ago to see that the market takes a very short term view on things. Funding Circle Income Fund has been trading on a small premium recently and although it has lower charges I cant help thinking it isn,t that different from P2P and VPC.

[aroon001] 07/11/2016 13:56

re hedging I would just reiterate I think its more the assets (v earnings) hedge that is important simply due to size rather than the type of company being important. I mean Apple building £100m factory in say Nigeria may not mind its £5m a year earnings fluctuating down 20% to £4m, but the factory itself being valued down from £100m to £80m would be a massive hit. I'm also not sure if there is any data on what proportion of foreign earnings are hedged by Ftse 100 companies. Loans in foreign ccy can offset revenues etc would be very difficult to determine in aggregate. SpectoAcc would love to see any links you have.

Anley - think there are reasons to be positive. Drag from fx margin should subside, as investors get more comfortable with p2p over time the risk premium demanded to hold the shares should reduce, bond yields are falling etc so think in medium term shud be ok.

I think in terms of pricing at moment last 12 months has given 4.74% increase in nav. If you feel that the average investor feels they shud be getting 6-8% yield, (less a bit for admin, the packaging of all the loans, fx hedging, management fee, so would be happy to accept 6% net yield) then 4.74p/0.06 = 790p. So current pricing is ok I suppose.

I agree with rl34870 about the monthly returns.
1) Monthly returns dont seem to make sense here. Out of the 11% coupon, we lose a bit (say 2%?) to management fee. Lose perhaps 1% to fx margin (holding cash). So net 8%, where does the other 3-4% go? Defaults?

2) 11% coupon seems awfully high for average 2 year loans. Can this be right for generally low risk, better credit loans that p2p make? I get offered 5% loans all the time. 11% sounds odd.

3) Is the target (is it 6-8%?) return only meant to be achieved when p2p deploys 100% leverage? in which case it will be earning a 22% coupon raising more questions about where the excess returns are going.

4) Target level of defaults for p2p is 3%. Zopa already has defaults of 3% in what is a benign environment for credit. What happens when the economy worsens? could this go to 10-20% in a recession.

5) is the NAV misleading? always seems to be hovering at 1000p because I suppose loans are valued at cost. if interest rates (discounting) changes or expected level of defaults change, I'm not sure if the published NAV changes. So perhaps the discount to NAV is also misleading. Its odd that the published NAV ex income hasn't been going down 3% a year.

[spectoacc] 07/11/2016 13:46

1. Big oil, miners etc earn their $'s from $ assets, so no - not confusing earnings & assets. Much easier for them (& P2P/VSL) to report in $, even paying dividends in $ in many cases. You don't refuse to own HSBC, or BP, or Shell, or a FTSE tracker, just because there's no hedging in place, and all of those stocks are "income stocks".

2. "..And investors would demand higher yield to compensate". They've done just that thanks to the hedging! Discounts widened well before impairment worries (though I accept Lending Club's travails didn't help). Unhedged RDL on about a half a percent discount last time I looked.

Hedging's perfectly sensible if the cost is low. Unfortunately it isn't, and having come this far they're now stuck with it.

[rl34870] 07/11/2016 12:02

We shouldnt forget that the NAV performances have been perfectly reasonable, its just that the discounts have been widening ( at a time when investment trust discounts have been widening generally).

I agree with AROON001, its a fixed income fund so it should be hedged. The question is with current monthly returns of both funds at around 0.2- 0.3bp, what is the current level of impairments causing this? The end of year accounts will reveal these figures and that I think is the most relevant issue here. Even with VPC posting collateral of £64m ish, that is still only around 17% of their fund. If these funds are earning coupons of 10.94%+ on the invested bit, and only increasing NAV's by 3%pa then the impairments must be coming in well above their original expectations even though they seem to be playing this down (VPC are taking quite radical action by switching a lot of the portfolio from marketplace to balance sheet loans).

Point taken from SpectoAcc re most FTSE100 earnings being unhedged, but these are completely different type of companies.

[anley] 07/11/2016 11:10

Your Point 2 is well made.

In my case I started to buy at around the 850p+ area with other purchases around the 800p mark with all the dividends re-invested. I calculated that at £10 I would cash out and that would be towards the end of 2017.

Now I am not sure because I feel the management has not done a good job. Good idea but it looks as if they have failed..............

[aroon001] 07/11/2016 10:56

1) you are mixing earnings and assets? P2P had about 40p in earnings off an asset base of 1000p. Hedging or not hedging the relatively tiny "earnings" wont materially change the margin they have to hold as its so small. Hedging the underlying "assets" of 1000p is why they hold the bulk of margin. FTSE 100 companies hedging or not hedging earnings isn't a comparison to P2P hedging of its assets.

2) Most people who invest in P2P I think will view it as a high yield bond instrument, and expect to achieve 6-8% with low volatility. Making 6-8% but with high volatility because of fx moves changes this investment from a high yield bond to something else and investors would demand higher yield to compensate.

[spectoacc] 07/11/2016 06:57

You know my thoughts already @AROON001 so I won't repeat them, except to say that few $-earning co's bother with much in the way of hedging - c.80% of FTSE100 earnings are non-£, little of it hedged.

[aroon001] 06/11/2016 19:39

1) there is no alternative to fx hedging. All non GBP assets have to be hedged into GBP. Consider that an old granny buys p2p to get 4-6% income with GBP at 1.20. If at end of year gbp is 1.50, they may have earned their 4-6%, but they will have lost 20% on the exchange rate moves which of course is unacceptable. If P2P listed an unhedged class which you could buy a) you would be exposed to fx moves far larger than the underlying yield of the instrument making it pointless and just fx speculation or b) if you hedged it yourself you would have to keep margin etc and face the same problems as P2P in terms of cash drag, and also wider retail bid offers on fx spreads. FX hedging is a necessity not an option as far as I see it. I would much rather earn 4% than lose 20%.

2) In terms of cash drag, it wouldnt reach 50%. At any given time you would expect the manager to have sub 10% in margin. According to june newsletter they increased this to a peak of 20% to cover the events of brexit. They also don't receive management fees until its back down to 10% so I would assume generally that is how much cash they hold. One must consider that 20% is the exception with a once in a lifetime event of brexit. it is unlikely to remain that large. It would never go to as much as 50% because each month the manager has daily maturities of the underlyling loans which can be used to pay off margin. It could also sell short dated loans if it had to. 10% seems like a reasonable amount to me which reduces yield from say 6% to 5.4%.

3) in terms of borrowing to pay off margin or borrowing to invest in new loans, there is no difference in the balance sheet. It is immaterial whether the cash from borrowing goes to pay margin calls. if you have $100 in assets and an fx hedge and fx rate moves 20%, and you borrow 20% to pay for this, you have 20% liabilities versus $120 in assets. If you borrow 20$ but fx hasn't moved, you still have 20% liabilities versus $120 in assets.

4) fx vol just needs to stabilise on the whole not gbpusd back to 1.50 for monthly returns to increase, (so that less margin can be kept in cash as any point in time).

thoughts?

[rl34870] 06/11/2016 12:29

I realise I,m stating the obvious, but if hedging FX is so detrimental to fund performance why on earth did they decide this policy at the outset? The old saying "when your in a hole stop digging" comes to mind!