Marks reports Oaktree's high yield default rate is roughly one-third the market average over forty years.
“And so, over the last forty years, on average, something like 3.6 or 3.7% of all high yield bonds have gone into default every year, and our default rate has been roughly a third.”
Marks cites math where consistently staying between 27th and 47th percentile for fourteen years produced overall fourth percentile performance.
“So solidly in the second quarter for fourteen years in a row. But interestingly, as a result, for the fourteen years overall, they were in the fourth percentile.”
Marks advocates cutting off the bottom tail rather than shooting for the top tail to achieve best long-term performance.
“Approach is very simple, cut off the bottom tail. That's what this guy in the Midwest did.”
Marks argues average returns with below-average risk are equally significant but overlooked because only returns are visible.
“achieving an average return with below average risk is an equally significant accomplish, but easily overlooked because only the risk is evident, only the return is evident.”