Every quarter around this time I get emails from readers asking when I will be publishing my quarterly returns post. For many years now it has been one of the most popular features on Lend Academy. People like to know how others are doing so I have been sharing my returns here every quarter since Q4 2011. Over the years I have diversified beyond my initial investments in Lending Club and Prosper into the three major asset classes within marketplace lending: consumer, small business and real estate.
Overall Marketplace Lending Return at 7.28%
One could almost say my returns are in a downward spiral. Since peaking in Q1 2014 at 12.44% my returns have decreased pretty much every quarter and for the last two years that decrease has averaged around 0.5% per quarter. Two years ago I stood at 11.3% and my weakest Lending Club account earned a respectable 8.19% and the average return of my original six accounts was 9.51%. Times have indeed changed since then.
This past quarter my overall returns stood at 7.28% and the returns for my original six accounts were 5.07%. My worst Lending Club account was my original account there and it came in at 1.95% for the year. The only good news, if there was any, was that I did not have a negative quarter in any of my accounts this quarter unlike in Q1.
For those readers who may be new to my quarterly returns post the reason for the drop in my returns are issues, primarily at Lending Club, in the D and E grade loans issued in late 2015 and early 2016. These have underperformed significantly, particular the 36-month loans, and these are the loans I have made the bulk of my portfolio. Now, I made some adjustments at the start of this year but these loans are still defaulting at higher than expected rate and it will be the end of the year I expect before I will see things begin to improve.
Now on to the numbers. Click the table below to see it at full size.
As you look at the above table you should take note of the following points:
- All the account totals and interest numbers are taken from my monthly statements that I download each month.
- The Net Interest column is the total interest earned plus late fees and recoveries less charge-offs.
- The Average Rate column shows the weighted average interest rate taken directly from Lending Club or Prosper.
- The XIRR ROI column shows my real world return for the trailing 12 months (TTM). I believe the XIRR method is the best way for individual investors to determine their actual return.
- The six older accounts have been separated out to provide a level of continuity with my earlier updates.
- I do not take into account the impact of taxes.
Now, I will break down each of my investments from the above table grouped by company.
As you can see in the table above I have a total of five Lending Club accounts. The screenshot here is of my very first account that was setup in June 2009. While Lending Club shows an 8.19% return I ignore that number and do my own calculation. My TTM return here is at an all time low of 1.95% but at least I have reversed what happened in Q1 when I had a negative quarter. As I shared in my Q1 results I had an annualized return of -2.63% in Q1, my Q2 annualized return has bounced back nicely to 6.32%. I am hesitant to say the worst is behind me because in my largest Lending Club account, my wife’s traditional IRA I barely broke even in Q2 with an annualized return of 0.74%. This brought the TTM on that account down to 3.58%. I think I will have some more difficult quarters here before the bad loans work their way through the system.
It has to be said that during these difficult times at Lending Club my Prosper returns have held up quite well. My main Prosper account was opened in 2010, I initially invested $50,000 over a period of 18 months or so and it has grown now to almost $88,000. While my Lending Club accounts have struggled my main Prosper account has been quite consistent remaining in this 8-9% range. This is a taxable account and my losses here are well over $3,000. While I can offset these losses against some of my other investments I am no longer adding any new money to this account.
Direct Lending Income Fund
The Direct Lending Income Fund continues to be my most consistent performer returning solid double digit returns every quarter since I started investing back in 2013. Having said that there are some changes coming up with this investment. Apparently, by sharing my returns here I am in violation of the investment agreement I have with them. As this fund scales to the billion dollar range they are getting more strict with compliance. The only way I could continue investing was to remove all references to my fund returns. That was not something I was willing to do. So, my full investment was redeemed as of June 30, 2017. There will be more on my plans here in next quarter’s update.
Lend Academy P2P Fund
The Lend Academy P2P fund, managed by the team at our sister company NSR Invest, invests in Lending Club, Prosper and Funding Circle loans and has a small position in Upstart as well. I have been pleased that the fund has not been that impacted by the weakness at Lending Club because we do have a significant position there. The TTM returns have maintained around the 7% mark which is a full two percentage points higher than my own combined Lending Club/Prosper returns.
Asset-backed small business lender P2Binvestor has been very consistent and remains one of my favorite investments (full disclosure: I am on the advisory board of this Denver based company). These are short-term loans, backed by accounts receivable, with 30-60 day liquidity. I like the diversification this investment provides and the fact that you can earn a double digit return with such a short duration makes this a compelling investment. While I have two loans in default right now I have still not lost a penny of principal in the four years I have been a P2Bi investor.
PeerStreet is a real estate platform focused on fix and flip properties. These are short term loans, typically between 6 and 24 months, and they are backed by the property. I started investing in April last year and I just made my 2017 IRA contribution in June. I have now made my 2015, 2016 and 2017 IRA contributions to PeerStreet as I focus on building up my real estate holdings. They have a $1,000 minimum investment which allows for decent diversification – I am currently invested in 19 properties.
Streetshares have been my top performing investment now for two quarters in a row. In fact, my returns have gone up in this most recent quarter to 14.12%. These are small business loans made to primarily veteran-owned business with typical loan durations of 12 to 24 months. You can invest as little as $25 per loan and I have built up a portfolio of over 100 loans since I started investing in 2015. They also offer Veteran Business Bonds, an offering for non-accredited investors, that pays a fixed 5% per year.
My Lending Club investments continue to be a drag on my overall returns. There are signs that recent vintages are performing much better so as I move into 2018 I expect my returns will start to go back up. But for the rest of this year I don’t see much chance of any significant improvement there.
My own strategies are also moving more towards the conservative end of the loan spectrum. I think that has been the lesson here for me. I was overweight on D and E grade loans and not diversified enough across the whole universe of loans. That is changing as new reinvestments are now being channeled into lower risk loans in some of my accounts. This will mean that double digit returns will not happen again but I have a better chance of consistently hitting 6-8% returns. With my overall investments my goal is to get back to 8-10% returns in 2018.
Finally, as I do every quarter I want to end by highlighting the net interest number which for the last 12 months stands at $51,413. This is the lowest total for net interest for over two years but it still means that my overall investments are growing. In fact I crossed over $750,000 in my total marketplace lending portfolio this past quarter.
As always feel free to share your thoughts in the comments below.