June P2P Portfolio Update

Lending Club

From my last update I had mentioned my Lending Club account was expecting a a number of defaults to happen, and it has started.  My ROI has dropped about 1.8% after three new defaults.  At this point I am projecting my ROI to drop down to about 10% and then start to build back up, probably hovering around 11-12%.  My portfolio strategy is focused on more risk, so I will get the high returns to offset loss (hopefully). I did notice that 95% of my notes that are defaulted or late are 60 month notes.

Regardless, 10% is a staggering return for something that is relatively predictable. I continue to be very happy with Lending Club’s performance overall.

June Lending Club Account Screenshot

 

Of course running my portfolio through the NSR portfolio analyzer gives us a little more insight into what is actually happening.

Nickel Steamroller Analyzer

One feature I think is great over at Prosper is their promotion of a “seasoned ROI”.  A seasoned ROI only takes in to account loans that are 10 months or older. They do this because Prosper feels that is the point at which loans start to stabilize.  The NSR portfolio analyzer allows us to simulate this with date filtering so we can get a more apples to apples comparison to Prosper’s seasoned loans.

Seasoned Lending Club ROI

The way to read this is every loan I own that is older than 10 months is producing 9.96%  annually. Now when I started out in P2P lending I bought a lot of A and B loans which are in this loan population. After I while I shifted to C-D and then from C-F so I expect this number to rise a little or at lease stay the same as time goes on.  Compare this to this historical S&P 500 returns!

Prosper

Lately I have been absolutely hooked on Prosper’s platform. I love the clarity into their data and the auto-invest feature.  In the last month I put another $2,000 dollars into my Prosper account.  I have a pretty strict loan investment strategy so it can take some time to invest money.  With Prosper I know my money is always working at hard as it can, when I have idle money it is automatically invested (if notes are available). I don’t advise a set it and forget it strategy but it does make life easier.  I normally have to login to Lending Club almost every 2 days or so to check for idle cash. It’s a mild annoyance but a very small price to pay for predictability and great returns.

Prosper ROI

My Prosper account currently has 6 late loans, and 3 of those will mostly definitely default since they are in collections or related to bankruptcy.

I’m really excited to see how these investments continue to perform. One word of advice to investor just starting out, it will take a year to really start to see a trend in your portfolio, and even then at year 2 you will probably then be able to accurately assess your investment strategy.

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  • http://www.wallstreetoasis.com/blog/16325 Eddie Braverman

    Nice returns, and I love the transparency.

    I’m wondering if you’ve considered selling notes on the FolioFN platform? I’m approaching the 2-year mark with LC and I’m posting ~13.5% NAR. I have a pretty strict investing criteria, and the FolioFN platform has been a big part of it. I have a hair trigger when someone misses a payment and I list them for sale almost immediately. Perhaps I’ve been fortunate, but every note but one that I’ve sold I’ve managed to sell at a profit.

    Now, I might only make a 4% net return on a note that was set to pay 15% to maturity, but I’d rather take that 4% and move on to another performing loan than risk a default. Thus far (again, just about two year in to it) I haven’t had a single charge-off, and no one is even late. 

    If you haven’t been using FolioFN, maybe it’s time to look into it.

    Again, thanks for the post. I love seeing what fellow P2P investors are up to.

    • http://www.nickelsteamroller.com/ Michael

      I’ve tried to sell notes on Folio but I don’t think it will ever be a part of my core strategy. Once Lending Club opens their primary market to all states liquidity is going to drop considerably. I do like that Proper only allows you sell notes in good standing, a lot of people get burned buying late notes. I believe it is getting increasingly more difficult to sell notes with any issues as P2P investors get more sophisticated. 

      I may try to do more work on Folio, but there is always someone else on the other side. I know Marc at Lending Club experience got burned pretty bad buying all notes on the secondary market (http://lcp2p.blogspot.com/). I would like to reserve the secondary market for liquidity purpose, if I needed cash I like knowing I have that option. I am happy with 10% but I must say your 13.5% is very impressive.   What loan grades do you focus on?

      • http://www.wallstreetoasis.com/blog/16325 Eddie Braverman

        Here’s my portfolio composition per LC today:
        A – 1%
        B – 25%
        C – 43%
        D – 24%
        E – 5%
        F – 1%
        G – 1%
        36 month – 90%
        60 month – 10%

        I pretty much limit my investments to 3-year debt consolidation loans of $5,000 or less, where the loan amount will retire all or most of the borrower’s total revolving debt. I have some other criteria (income, delinquencies, employment), but that’s it in a nutshell.

        Based on my recent analysis, the D-paper seems to have the lowest default rate with my criteria and also provides a stout return.

        As for selling bad notes, the way my FolioFN strategy works is I sell a note pretty much the minute it goes sideways. So all the notes I list for sale are still listed as Current. They (most anyway) haven’t even entered the In Grace Period phase. I wish I had a way to track it, but I’m guessing most of the notes I’ve sold eventually make their payment and get caught up. I would be VERY interested to see some functionality that would allow me to track the performance of notes I’ve sold.

        For the reasons you’ve listed above, I have yet to BUY a note on FolioFN.

        I would like to see FolioFN offer the functionality of selling entire loan portfolios at one time, instead of listing the loans individually. I could see it being very profitable for someone who was good at building LC or Prosper portfolios to let the notes season 6 months or so and then sell the entire portfolio for a profit.

        • http://www.nickelsteamroller.com/ Michael

          Eddie, you should read my latest post, you loan term allocation is very interesting compared.  Could you break down your defaults by loan term in post comments?  I’d like to have some discussion over there on loan term diversification.

          How many notes do you own?  I’m assuming its at least 100 since you have F and G notes as 1% of your overall portfolio.  Is it hard to spot notes that are not yet late?  On the loan export there is next due date, but with the ACH time I think that can take a few days to post, for instance Loan 732946 had a due date of June 3rd, would you consider that grounds to sell?  

    • http://twitter.com/ThomasDeLong Tom DeLong

      Zero defaults after 2 years is amazing. I do most of my investing on Prosper where we can’t sell late notes so I have focused more on buying mis-priced high yielding notes to make up for expected defaults but that is impressive – congrats Eddie.

      • http://www.nickelsteamroller.com/ Michael

        Tom, I think that is the way to do it. Liquidity should come at a spread you can use to improve returns. Although most notes that are aged past 18 months can still at a premium. I wonder if that will every end.

      • http://www.wallstreetoasis.com/blog/16325 Eddie Braverman

        Thanks Tom. Check out my reply to Michael. It explains what I’m doing (for better or worse).

  • http://twitter.com/ThomasDeLong Tom DeLong

    Thanks for the update Michael. I agree that Prosper’s AQI is a great feature to minimize idle cash.