Pilots of Fortune

The “reach for yield” – where investors take on more risk to scrape ever smaller returns – continues, despite the Federal Reserve and the Bank of England raising rates. It’ll take many more rate hikes without something breaking before we reach any kind of “normality” in markets – if that’s even possible any more.

And so our journey through abnormal markets continues. One of the strangest (and bravest) reaches for yield that I’ve observed, are investors crowding into leasing aircraft to make money. Asian sovereign wealth funds got to the new aircraft leases first, so private investors have been forced to reach even further – to the aged commercial aircraft market.

Here they lease “end of life” planes (17-25 years old) to make returns. As each plane has its own flight history, each lease pays different rates: the less landings the lower the rate, as it’s the landings which really age an aircraft.

Such risky strategies are of course only embarked upon by the large investors. What yield can smaller investors reach for?

Well, despite the recent volatility rollercoaster we’re seeing in markets recently, some trades that have made money since 2000 continue to yield returns…

Flightplan

I live beneath a flight path that leads to Heathrow. I’ve access to the roof of the building I’m in, and I’ll often go up there to watch the sunset with a beer.

On a clear evening you can always see four airliners on the path. As soon as one plane disappears on to the horizon, another will have appeared on the other side of the sky.

Although the planes approach the path from different directions, they all converge on to the same path. It’s a perpetual stream of planes, funnelling into the horizon hour after hour. You could bet on the path continuing, and only lose money in the event of adverse weather, or a terrorist attack.

This actually forms the premise to Eoin Treacy’s Reflex Trader. There are flows of money that reliably and perpetually enter markets that follow a certain “flightplan”. You can bet on these flows having a reflexive response in the market, and yield a return every couple of weeks from it. Adverse market weather and terrorist attacks will also disturb this flightplan – the strategy isn’t risk free.

But even through the mayhem in markets last week, these flights of capital made it through to the horizon – and the strategy made a significant profit.

If you’re interested in becoming a ‘Pilot of Fortune’, you can learn more here. But remember the risks before you climb into the cockpit.

All the best,


Boaz Shoshan
Editor, Southbank Investment Research

Category: Economics

From time to time we may tell you about regulated products issued by Southbank Investment Research Limited. With these products your capital is at risk. You can lose some or all of your investment, so never risk more than you can afford to lose. Seek independent advice if you are unsure of the suitability of any investment. Southbank Investment Research Limited is authorised and regulated by the Financial Conduct Authority. FCA No 706697. https://register.fca.org.uk/.

© 2021 Southbank Investment Research Ltd. Registered in England and Wales No 9539630. VAT No GB629 7287 94.
Registered Office: 2nd Floor, Crowne House, 56-58 Southwark Street, London, SE1 1UN.

Terms and conditions | Privacy Policy | Cookie Policy | FAQ | Contact Us | Top ↑