We Look At The Sweetheart Of P2P Investment Trusts
As regular readers will be aware, we write regularly on the difficulties experienced by institutional investors seeking to take advantage of the peer-to-peer (P2P) loan asset class. Here's a recent piece describing the "malaise" of institutional investors committing capital by way of investment trust.We're pleased to report, however, that the problems are not universal. Honeycomb appears to be doing better than many UK-listed investment trusts investing in P2P assets.
While the share price is the ultimate arbiter of performance, the market valuation of net assets is also significant. The difference between share price and the aggregated book price of a trust's assets is measured as a discount to net asset value (NAV).
Mainstream markets usually value investment trusts shares at a discount to NAV. Honeycomb's shares, as reported by our friends at P2P Finance News, are currently trading on a premium to NAV of 8.2 per cent. "In contrast, similarly focused investment trusts such as P2P Global Investments and VPC Specialty Lending are on discounts of 12 per cent and 18.7 per cent respectively."
The implicit confidence that the market has in the management of Honeycomb is a rare and pleasing bright spark in a gloomy news area.
Historical Performance And IFISA Process Guide
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 over £17 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.
Money&Co. has been lending for over 5 years and has only had one bad debt so far, representing a bad debt rate of 0.03 per cent per annum.
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 2019/20 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.