One way of investing in peer-to-peer (P2P) loans is to use an investment trust, run by a professional investment manager. There are a number of such investment trusts, vehicles quoted on the London Stock Exchange. Today, we offer some commentary on a report on figures published by one of them, and reported on by our friends at P2P Finance News.
Investing via an investment trust has its pros and cons
We'd argue that the pros of the investment trust route include benefiting from the expertise of the manager, who will pick the assets – good loans, if he or she is a good manager. One of the cons is the extra level of cost – these vehicles typically charge fees, by which managers remunerate themselves.
At Money&Co. we have regulatory permission to run a fund management service, so we offer a managed portfolio service for investors with £100,000 or more – and we only levy the standard one per cent fee that all lenders pay.
P2P Finance News quotes from the newsletter just issued by P2P Global Investments (P2PGI) investment trust:
"Attractive risk-adjusted yields in both liquid and illiquid credit remain scarce," the newsletter said.
"During the quarter, spreads in the fixed income market have again tightened. Gross yields in UK unsecured consumer loans have further declined, as the competition remains fierce.
"This suggests that there will be less income to absorb potential future losses.
"In light of this, the investment manager has been increasing exposure to secured loans and products with an asset-backed structure."
Another factor to consider is the potential discount to net asset value. It's a phenomenon common to investment trusts that the share price does not fully reflect the value of the assets contained in the trust. This is in effect the market taking a conservative attitude to risk. Sometimes, if the discount of the share price against net asset value (NAV) becomes too wide, an investor might launch a bid to buy a majority of the investment trust's shares, wind up the trading company (which is what an investment trust is), and realise the value.
P2P Finance News continues its report:
"[P2PGI's]NAV for June was 0.29 per cent, the 37th consecutive month of positive returns, taking the return since inception in June 2014 to 16.79 per cent.
"P2PGI, which also announced a dividend of 12p per share for the quarter, is currently trading on a discount to NAV of 12.6 per cent."
Money&Co.'s latest loan offering is A-rated, with a current gross yield of over 8 per cent.It is over 38 per cent funded at the time of writing. The average return achieved by Money&Co. lenders is just over 8.6 per cent - before deduction of our one per cent fee - in the three years and nearly £10 million of loans facilitated on our platform. More new offerings will be announced shortly.
In addition to new loan offerings, our secondary loan market, offering existing loans for sale by lenders, is available to registered Money&Co. users. All loans can be held, tax-free, in an Innovative Finance Individual Savings Account, or Innovative Finance ISA.
If you haven't made a loan via Money&Co. before, please read the risk warnings and the FAQ section. You may also wish to consult a financial adviser before making an investment. Capital is at risk, once loaned.