Financial Disruptors Index: First Three Months of ‘live’ returns

By David Stevenson on 21st January 2015

The world’s only ‘live’ stockmarket equity index specifically tracking the fortunes of the growing alternative finance space has just reported its first three months performance – and announced that it will also include recently listed US platforms LendingClub and OnDeck within its index in 2015.

Financial Disruptors Index: First Three Months of ‘live’ returns

The Liberum AltFi Data Financial Disrupters Index (LAFDI) tracks the share price of listed businesses whose operating model is built on disrupting the financial services sector. Key constituents in the index include well known US firms such as LendingTree and PennyMac as well as novel European outfits like Monitise (UK based) and Basware (Finnish). The index was specifically designed to only focus on those businesses that are challenging the traditional financial services model and involves a wide range of underlying propositions including pure alternative finance, next generation lenders, invoice funders, payment transmission specialists and supply chain finance integrators.

Over the last three years the index would have produced an annualised return of 31.80% versus just under 13% for the benchmark MSCI World index of developed world equities – by contrast even the world’s biggest bank (and arguably most successful in this decade) US based Wells Fargo has only managed an annual return of 24.4% over those three years.

Returns for the LAFDI index over the last three years versus the MSCI World Index

Performance for the LAFDI over calendar year 2014 was rather less impressive, with the index producing a loss of 10% compared to a 3% gain for the MSCI World.

Calendar Year Performance

2014

2013

2012

LAFDI Return

   

Total Return

-10.03%

64.36%

59.57%

Price Return

-10.35%

61.83%

56.23%

MSCI Return

   

Price Return

2.92%

24.09%

12.85%

 Wells Fargo

22%

30%

20%

In the first quarter of live returns for the LAFDI index – starting October 1st 2014, the LAFDI index returned a loss of 5% versus a sub 2% gain for the MSCI World Index.

Index Return Last quarter

Gross Returns

Annualised Returns

October

November

December

3 Months

3 Months

1 Year (2014)

3 Year

LAFDI

-1.26%

-1.85%

0.04%

-5.24%

-19.62%

-10.39%

31.80%

MSCI World

1.72%

2.38%

-1.17%

1.82%

7.57%

2.92%

12.96%

Wells Fargo

3.57%

2.08%

1.86%

6.94%

31.30%

21.77%

24.47%

According to AltFi Data’s Rupert Taylor this recent under-performance by the LAFDI index is easily explained – “the index is quite focused on a small number of very disruptive businesses” says Taylor “some of whom have had a difficult last few months. Outfits like Monitise and Optimal Payments here in the UK have had a difficult few months as investors have questioned some parts of the business model while Russian based outfit Qiwi have been caught up in the Russian crisis.

“But I’d also observe that some businesses within the index have had a superb three months since the beginning of October, with LendingTree shooting ahead by 38%. I’d also draw attention to the near 20% gain recorded by Money3 from Australia – in our opinion the alternative finance space down under in both Oz and New Zealand is well worth paying close attention to if you are an active investor!”

Top Performing

Stock

4th Qtr 2014

Stock

2014

1

LendingTree - TREE US Equity

38.11%

Money 3 - MNY AU Equity

53.42%

2

PennyMac - PFSI US Equity

22.00%

LendingTree - TREE US Equity

47.20%

3

Money 3 - MNY AU Equity

19.69%

Basware - BAS1V FH Equity

44.48%

Worst Performing

   

Stock

4th Qtr 2014

Stock

2014

1

Optimal Payments - OPAY LN Equity

-35.57%

Monitise - MONI LN Equity

-64.55%

2

Qiwi - QIWI US Equity

-34.49%

Qiwi - QIWI US Equity

-63.95%

3

Tungsten - TUNG LN Equity

-27.94%

Trustbuddy - TBDY SS Equity

-60.80%

 Weightings correct at last rebalance date

LendingTree - TREE

2.46%

PennyMac - PFSI

3.69%

Monitise - MNY

1.48%

Basware - BAS1V

0.49%

Optimal Payments - OPAY

6.40%

Qiwi - QIWI

4.93%

Tungsten - TUNG

5.17%

Monitise - MONI

6.90%

Trustbuddy - TBDY

0.74%

 One other notable feature of the LAFDIs recent performance has been that the volatility of the stocks within the index hasn’t in fact been any worse than returns for a massive banking blue chip such as Wells Fargo.  Using standard deviation as a measure of variability, the constituents of the LAFDI index have moved up and down in roughly the same manner as Wells Fargo common stock – a surprising outcome given that many of the businesses in the index are likely to be small to mid-cap stocks, displaying a growth stock profile.

Index Risk

Index

Stdv (%)

Annualised Stdv

Sharpe Ratio

3 Months

1 Yr

3 Yr

3 Months

1 Yr

3 Yr

3 Months

1 Yr

3 Yr

LAFDI

1.06%

1.01%

0.97%

16.75%

16.02%

15.42%

-1.17

-0.71

2.06

MSCI

0.70%

0.56%

0.67%

11.09%

8.96%

10.57%

0.68

0.33

1.23

Wells Fargo

1.06%

0.88%

1.11%

16.80%

14.03%

17.62%

1.86

1.55

1.39

New constituents in the index to include LendingClub and OnDeck

The Index Committee have also announced that the LAFDI index will include two new constituents from 2015 – recently listed US alternative finance platforms LendingClub and OnDeck.

The former’s shares have drifted back from recent highs after the IPO but the consumer lending platform is still valued at roughly $8 billion, making it more valuable than most US listed banks. Business focused lender OnDeck has had a rougher start to its public life, with its shares trading down from the initial $28 a share to the current level below $20 – yet even at these lower levels, OnDeck is still valued at over $1 billion.

According to Sam Griffiths from AltFi “both businesses absolutely fit all the criteria for inclusion within the LAFDI inclusion, featuring next generation, technology enabled business models that are already disrupting the traditional banking model. Both businesses will now be tracked by the LAFDI index, where they’ll no doubt have a major impact in terms of returns”.

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