Taking A Peek At P2P Investment Trusts – Plus IFISA Process Guide

We like to take a regular look at investment trusts committed to the peer-to-peer (P2P) sector. Investment trusts are quoted shares and so have the potential upside of an equity asset (as well as the downside risk of loss). Fans of P2P-invested investment trusts argue that the relatively high dividend returns offset the risk.

Below, we offer an excerpt of a report from P2P Finance News on one trust in this sector. It should be noted that net asset value (NAV) is very different from the share price – the two are related, but in ways that have investment experts scratching their heads.

We note an attractive yield (currently at 5.91 per cent, according to Hargreaves Lansdown) and a valuation multiple (the number of times the share price goes into the market capitalisation – known as the price/equity ratio) of over 40. Some commentators might see this as a large multiple.

In addition to the excerpt of the P2PFN report, we add some current data from independent financial advisers, Hargreaves Lansdown.

P2P GLOBAL Investments (P2PGI) saw its net asset value (NAV) return decline in January, which it blamed on “adverse foreign exchange movements”.

The alternative finance-focused investment fund reported a NAV return of 0.45 per cent in January, down from 0.75 per cent in December.

P2PGI share price over one year: source – Hargreaves Lansdown

In its January factsheet, P2PGI’s investment manager blamed the lower January NAV return on “adverse foreign exchange movements which reduced the return by 1.44 per cent on an annualised basis (0.12 per cent on January 2019 monthly NAV return), driven by the higher than expected intra-month strengthening of sterling.

The NAV was also affected by share buybacks, which contributed 0.07 per cent on the monthly return.

However, the investment manager said that January’s NAV performance was “in line with target” and reflected the ongoing repositioning of the investment trust’s portfolio.

P2PGI share price over various periods: source – Hargreaves Lansdown

A Process Guide To Innovative Finance ISA Investment

Money&Co. lenders have achieved an average return of more than 8 per cent gross (before we deduct our one per cent fee). That figure is the result of almost £15 million of loans facilitated on the site, as we bring individuals looking for a good return on capital together with carefully vetted small companies seeking funds for growth. Bear in mind that lenders’ capital is at risk. Read warnings on site before committing capital.

All loans on site are eligible to be held in a Money&Co. Innovative Finance Individual Savings Account (IFISA), up to the annual ISA limit of £20,000. Such loans offer lenders tax-free income. Our offering is an Innovative Finance ISA (IFISA) that can hold the peer-to-peer (P2P) business loans that Money&Co. facilitates. For the purposes of this article, the terms ISA and IFISA are interchangeable.

So here’s our guide to the process:

  • Step 1: Register as a lender. Go to the login page, and go through the process that the law requires us to effect. This means we have to do basic checks on you to comply with money-laundering and other security requirements.
  • Step 2: Put money into your account. This is best done by electronic transfer. We can also process paper cheques drawn in favour of Denmark Square Limited, the parent company of Money&Co.
  • Step 3: Buy loans in the loan market. Once you’ve put cash in your account it will sit there – and it won’t earn interest until you’ve bought a piece of a loan. It’s this final step that requires lenders and IFISA investors to be pro-active. Just choose some loans – all loans on the Money&Co. site can be held in an IFISA – and your money will start earning tax-free interest.

The ISA allowance for 2018/19 is unchanged from last tax year at £20,000, allowing a married couple to put £40,000 into a tax-free environment. Over three years, an investment of this scale in two Money&Co. Innovative Finance ISAs would generate £8,400 of income completely free of tax. We’re assuming a 7 per cent return, net of charges and free of tax here.

Once you have made your initial commitment, you might then consider diversifying – buying a spread of loans. To do this, you can go into the “loans for sale” market. All loans bought in this market also qualify for IFISA tax benefits.

Risk: Security, Access, Yield

Do consider not just the return, but the security and the ease of access to your investment. We write regularly about these three key factors. Here’s one of several earlier articles on security, access and yield.


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Disclaimer: Money&Co.™ is the trading name of Denmark Square Limited, Company Number 08561817, registered in England & Wales, authorised and regulated by the Financial Conduct Authority (FCA). The company is identified on the Financial Services Register under Reference Number 727325. The registered office is 58 Glentham Road, Barnes, London, SW13 9JJ where the register of Directors may be inspected. Denmark Square Limited (ISA manager reference number Z1932) manages the Money&Co. Innovative Finance ISA.