It is hard to believe it is the start of a new year and a year on from when we first heard of COVID-19, yet here we are. 2020 has been a year like no other and while I’m glad that it is behind us, I suspect this year will also throw out a few challenges as the world continues to deal with COVID-19 and the impacts it is having both economically and personally on people’s health and wellbeing. This is the backdrop in which we invest in and as such I have been keeping a close eye on my P2P portfolio and the performance it has been achieving. Overall, the portfolio has performed reasonably well and am happy with the performance achieved to date. We will break down the individual platform performance and an overview of the whole portfolio.
I’ve found my portfolio of active loans in TruePillars has been shrinking over the last year with more loans paid out and a couple of defaults (more on this later) which has outpaced new loans on offer. So much so that by October 2020 I had 30% in cash which was pulling down my returns. As such I’ve pulled a fair chunk of this money out of the platform and redistributed most of it to Plenti (formally Ratesetter) to keep the money invested. The reduction is reflective in the number of loans I now hold compared with the last update (currently 137 vs 165 loans). This would be much lower had it not been for the 12 new loans since October which is great to see a pick-up in loan initiations compared with the 3 months prior. However, I will add back into the platform as loans start to exceed the repayments again to continue the diversification.
The 137 current loans are diversified across multiple industries. The following pie chart breaks out my portfolio diversification based on the allocated industries assigned to each loan.
Over the last 12 months my TruePillars account has averaged around 10% down about 2% from last year. There were two factors to this result, the first was the driver was holding up to 30% unproductive cash (I calculate based on all funds in the account and not just what is invested). The second driver was the number of loans on deferred payments. Thankfully this has dropped right off with only nine loans now on deferred payments compared with a high of about 55 loans. When it comes to defaults the last 12 months have seen five defaults with the first occurring in back in January last year. This still sit on the books as they go through the default process to see if any of the funds will be recovered. The losses for these will be worn in my profitability numbers once the default process is finalised and TruePillars write off the amounts that were not recovered. The value of the defaulted loans from the last 12 months equated to 23% of the interest I earned over the period. Factoring in the full right off would lower my returns for the 12 months to 7.3%.
While the last 12 months has seen an increase of defaults, over the last few years I have made 227 loans with 89 loans paid in full and six defaulted with the remaining 132 still active.
This platform has been a consistent earner for us with no active involvement required from myself achieving annualised returns of around 13.02% over the last 12 months. Given the short-term nature of the loans, I had expected the returns to be affected by bad debts. The one figure I have been following closely. MoneySpot’s bad debt was 5.33% in January 2020 to moving up to 5.61% in July 2020 and continuing the upward trend to 6.66% in December 2020. While this has yet to affect returns it is something that can’t be ruled out and one to watch in the next few months.
Plenti (Formally RateSetter)
The returns over the 12 months have been 7.4%. However, the last two months were around the 6% mark due the new funds introduced that were redistributed from the TruePillars. Last year also saw a number of changes to the Plenti platform which includes capped interest rates with a maximum on the five-year lending market of 6.5%. As such, the average returns on this platform will continue to decline as my earlier loans are paid out and reinvested at a lower interest rate. The performance over the last 12 months as shown little impact on the provision fund to support investors against defaults. At time of writing the provision fund was still sitting at 157% of expected defaults with the latest fund performance found here
This platform I’ve made the call to not actively use and will see out the current investments only. As such I’m only on every month to track its progress and withdraw my available funds. The platform has achieved an average annualised return of 10.6%. The few times I’ve logged in I’ve noted a couple of the loans were behind schedule repayments. This fluctuates from month to month and as of the start of January all were up to date.
The overall performance for the last 12 months has been 10.6% with the last four months sitting a little lower at 9.6%. I’m comfortable with the performance received to date and while I’m aware that there are some capital losses on TruePillars that I’m waiting to finalise that will be reflective into the returns once they finalise.
To keep track of the individual performance of each platform, I track them on a single graph below and then aggregate the results to give my overall portfolio returns. We can see that the overall returns of the portfolio are trending down from 12% to around the 10% mark for the previous 12 months. The driver for the returns trending lower were the underutilised capital in TruePillars and the loan deferrals. As this has now been redeployed, I do expect this to stabilise however Plenti have a capped max rate of 6.5% which will also contribute to the overall returns trending lower in the longer term as more weight is added to this platform.
I feel the full impact of COVID-19 on the loan space is yet to fully materialise so am keenly watching the space to see how my investments continue to perform. As with all investments there is risk which is why we diversify into multiple loans and platforms.
Hope all are faring well and staying safe in these crazy times.