My Quarterly Marketplace Lending Results – Q4 2017

Time for my regular quarterly returns post, one of the most popular features here on Lend Academy. I have been sharing my detailed quarterly returns with readers since 2011 and I will continue to do so for the foreseeable future. I know investors are most interested in returns, in particular how they have been trending over time. You can go back and look at the breakdown of my investments every quarter for the past six years.

If you do look at my historic returns you will see they have been moving steadily in a downward trajectory since the beginning of 2014 when my trailing twelve month (TTM) return was 12.44%. I look back on those returns wistfully now, when my accounts were firing on all cylinders and in reality we were being overly rewarded for the risk we were taking. Today, the pendulum has swung too far the other way and I think the return is too low for the risk.

Overall Marketplace Lending Return at 5.01%

The long decline in my returns has continued with 2017 by far my worst year since I began investing with LendingClub back in 2009. My overall TTM return  in Q4 2017 was 5.01% compared to 6.64% in Q3 2017 and 8.07% one year ago.

I used to proudly say I had never had a down month in my LendingClub or Prosper investments. Now, I have not just had down months but down quarters as well. And I came perilously close to having a down year in my main LendingClub with my return coming in at 0.01%.

The reality is that I had been far too weighted in the highest risk loans. For many years these D, E, F and G grade loans were the best performing loans and I had no reason to believe that would not continue. So, I eschewed the low risk, lower return loans and concentrated my entire portfolio in these higher risk segments. But since the 2015 it has been the A and B grade loans that have performed best at LendingClub. While Prosper’s returns have also declined from their peak as you can see in the table below they are holding up relatively well.

Now on to the details. 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:

  1. All the account totals and interest numbers are taken from my monthly statements that I download each month.
  2. The Net Interest column is the total interest earned plus late fees and recoveries less charge-offs.
  3. The Average Rate column shows the weighted average interest rate taken directly from Lending Club or Prosper.
  4. 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.
  5. The six older accounts have been separated out to provide a level of continuity with my earlier updates.
  6. 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.

LendingClub

Above is a screenshot of my very first Lending Club account that I opened in June 2009. This is the account that made just $3 in 2017, a 0.01% return. All my LendingClub accounts are suffering from reduced returns due to the challenges with the 2015 and 2016 vintages there. I hold out hope that the much vaunted new credit model (read more about that here) that was put in place in September 2017 is an improvement on what was in place in 2015 and 2016. Regardless, though, I have learned my lesson. I am primarily investing in Grades A, B and C today with just a sprinkling of the higher grade loans. Given past experience I think that is a more prudent approach.

Prosper

My main Prosper taxable account has had $50,000 of investments starting in 2010 and continuing until 2013. Since then I have just been reinvesting all earnings. While my accounts at Prosper have not had the same performance issues as LendingClub I am still down considerably from where I was a year ago. It is interesting that the one account where I have taken a balanced approach since day one, my Prosper New Roth IRA account is performing the best. This account was opened about four years ago and is managed by Lend Academy sister company NSR Invest using their balanced strategy. I used to question my approach here as every quarter this was a drag on my returns but now it is far and away my best performing account at either LendingClub or Prosper and it also happens to have the lowest average rate for the underlying loans.

Lend Academy P2P Fund

The Lend Academy P2P fund, managed by NSR Invest, invests in LendingClub, Prosper and Funding Circle loans and has a small position in Upstart as well. Given where my self-managed accounts are at I am not displeased with the returns here. While 5.04% is down considerably from where the fund has been it is still significantly better than the 2.77% I received at my six original marketplace lending accounts.

P2Binvestor

One of the great things about asset-backed small business lender P2Binvestor is that your money is liquid. These are short-term loans, backed by accounts receivable, with 30-60 day liquidity. This has been a consistently good performer always returning in the 8-10% range. I would put more capital to work here but with few new deals coming on the platform it takes too long to deploy capital today. Hopefully, that will change soon. I really like their new bank partnership product and I am invested in a few of these loans now (full disclosure: I am on the advisory board of this Denver-based company).

PeerStreet

My first real foray into marketplace lending for real estate is PeerStreet. They are a real estate platform focused on short term loans of 6 months – 2 years duration. These are primarily residential fix and flip properties where a developer intends to renovate and then resell the property in a short amount of time. One of best things about Peerstreet from an investor perspective is that they have a $1,000 minimum investment per loan, whereas most real estate platforms have a $5,000 minimum. All these loans are secured by property which is the main reason I have been moving more money into this asset class.

Streetshares

Since I was redeemed from the DLI Fund in June last year small business lender StreetShares has been my best performing investment. It is now the only investment I have still solidly showing a double digit return. I invest across the risk spectrum at StreetShares with $100-$150 per loan and I have created a portfolio now of almost 300 small business loans. Their new contract financing product, which is a factoring type product aimed at government contractors, is the best risk reward investment available in the market today in my opinion. You are investing in invoices backed by the US government and being paid 1% per month in interest.

AlphaFlow


Real estate platform AlphaFlow was part of a group of new investments I made when I liquidated my investment in the DLI Fund. What I like about AlphaFlow is that you can quickly build a diversified portfolio of 75-100 properties. They do everything for you deploying your capital in deals across multiple platforms. This way you are using their expertise to screen the very best properties and even with a small investment you are still well diversified.

Money360


When it comes to commercial property I had virtually no exposure until I invested in the Money360 fund, M360 CRE Income Fund LP, six months ago. The fund invests primarily in bridge loans in the $1 million to $20 million range for commercial properties. The fund is managed by M360 Advisors, LLC, the wholly owned investment management company which is part of Money360. I expect this fund to be a consistent performer in the mid to high single digits.

YieldStreet


My other recent addition is YieldStreet. They are an interesting platform that provides investments in a range of asset-backed investment products. They offer real estate loans, secured business loans and litigation finance. I have exposure to the first two assets classes elsewhere but I had never invested in litigation finance until making this investment with Yieldstreet. I have invested in their “Diversified Pre-Settlement Portfolio XXIII” which is a portfolio of plaintiff advances related to 365 different personal injury cases. These advances are intended to help individuals pay for essential life expenses while they await the resolution of their personal injury lawsuits. This is a unique investment in my portfolio in that whenever payments of principal and interest are made on these loans they are deposited directly to my bank account, there is no way to reinvest these proceeds as of today.

Final Thoughts

I continue to be disappointed in my LendingClub and, to a lesser extent, Prosper returns. The fact that today I can buy a 10-year Treasury Note for close to 3% and some 5-year CDs are approaching that number means I need to be earning way more than 3% in my marketplace lending investments. The 2.77% return I received in 2017 is not acceptable to me. While I certainly made mistakes with a lack of diversification, which I have corrected, I need these returns to start rebounding. By the end of 2018 the fifth generation credit model at LendingClub will have had a chance to make a difference in my own portfolio and I expect significantly better returns as a result of this.

As interest rates continue to rise we need to demand higher returns for our unsecured loan investments. By this time next year we could easily be looking at 4% 10-year Treasury Notes which means we will all need to adjust our return expectation higher.

Finally, I will highlight my Net Interest number. This is the money that my portfolio actually earned in the past year. Due to my lower returns this number is the lowest it has been in several years: $38,226.

As always feel free to share your thoughts in the comments below.

Subscribe
Notify of
35 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
LC
LC
Feb. 23, 2018 2:04 am

Hi Peter,

Thanks for sharing the information. I always look forward to your quarterly returns. I have heard it’s next to impossible to get into Yieldstreet investments as they fly away in seconds. Any piece of advice on how to get into Yieldstreet investments.

Thanks,
LC

ROC
ROC
Feb. 23, 2018 7:44 am
Reply to  LC

LC – Agreed. Peter thanks so much for sharing, this is extremely helpful. Litigation finance is a space that I’m trying to get invested in as well but the investments are fully subscribed in seconds. I was able to get into an early LexShares litigation finance deal that I did extremely well on but since then their offerings are fully subscribed in seconds. Any ideas?

Thanks!

Sam
Sam
Feb. 23, 2018 2:38 pm

Its interesting that I am having the exact opposite results between Prosper and Lending Club but I think it has to do with what I have invested in (loan grade wise).

Since 2013 my Lending Club XIRR is 5.73% while my Prosper return (since 2014) is 4.60%. My focus has been mostly A and B loans (but early on I did do maybe 15% in C loans and mostly 36 monthers. I am letting Prosper run off and plan to close the account and sticking with Lending Club.

PM
PM
Feb. 23, 2018 2:56 pm

LC’s statistical website shows the average borrower earning 3.5%

https://www.lendingclub.com/info/statistics-performance.action

Jacob
Feb. 25, 2018 10:39 am

Thank you for tirelessly and so transparently sharing with us your returns. I have been following this blog for years now and I have always appreciated your ability to parse the marketplace lending news and to share with us your insights. I don’t think I would have invested in Prosper or Lending Club if you hadn’t been so forthright and helpful.

My experience largely mirrors yours. My recent returns are a bit higher because I was invested in more A, B, and C loans, but my early returns were lower, so I’m guessing we’re pretty close in terms of returns. I also feel similar to how you do. I have been letting my LC and Prosper portfolio wind down and am plowing the proceeds into 3%+ FDIC insured 5-year bank CDs. Maybe if LC increases rates, I’ll dip my toe back in. Right now the risk/reward formula is out of whack in my opinion, especially considering taxes.

Mike
Mike
Mar. 2, 2018 12:26 pm
Reply to  Jacob

Jacob can you share where you are getting “.. 3%+ FDIC insured 5-year bank CDs. “. I have not seen these rates.

Larry Ludwig @ Investor Junkie
Mar. 2, 2018 7:28 pm
Reply to  Mike

Fidelity has a 5 year Cd at 2.90%.

https://ratebrain.com/5-year-cd also one on at 3.00%

Jeff Miller
Jeff Miller
Feb. 27, 2018 11:26 am

I’m seeing very similar 2017 result based on aggressive risk tolerance. I have modified that approach but the impact of that won’t be realized for some months/years. Thanks for your updates

Matt Matera
Matt Matera
Feb. 27, 2018 12:26 pm

Thank you for sharing Peter. With your new investments, it would be helpful to know which of these marketplaces are for retail versus accredited investors only. While consumer loans have made it available for some time, it seems like there’s some opportunity for a commercial or small business lender to get a whole new subset of investors if they can find a way into the retail space. Is anyone out there currently doing this already?

Griff
Griff
Feb. 27, 2018 12:44 pm

Peter,
Always enjoy your analysis. And may thanks for making me aware of DLIF many years ago. Have you considered adding Wunder Capital to your portfolio? It provides a good stable return for investing in commercial solar projects.

Robby
Robby
Mar. 2, 2018 10:36 am

My primary notes on LendingClub are yielding a 4.49% annualized return while my traded notes are yielding 9.02%. Have you invested in traded notes and if so what has been your experience with them vs primary?

David Pollard
David Pollard
May. 22, 2018 3:38 pm
Reply to  Peter Renton

My experience is similar on LendingClub 5.35% vs 7.05% on traded notes. I could see how this would get onerous if I were managing $50K this way instead of $5K. My returns have steadily improved so far this year after a lousy January. But then I’m only re-investing in B-D new loans (but I’ll trade into E loans if they have a clean payment history for the last 18 months.)
All my new money is going into Groundfloor where I’ve had an average return of 11.8% over the past 30 months. While around 10% of my portfolio technically goes into default, they’ve always ended up paying in full … just late, with a penalty interest rate. The only downside I’ve seen so far is that there’s no secondary market – but I haven’t really felt the need for one since their loans are shorter-term (6-12 month).

Kate
Kate
Mar. 10, 2018 8:55 pm

Peter, thank you for all your information and analysis and especially for sharing your filters and your results with Prosper and Lending Club, etc. I took a conservative approach in late 2013 because I was a novice. Your filters were amazingly helpful in selecting the Lending Club A & B notes (similar at Prosper.) The first year return was something like 11% but only because the defaults didn’t start until a year after my first block purchase of notes. My returns were boosted when I began buying C notes, but as you have noted, surprise, surprise when those 2015 & 2016 notes turned into stinkers.

In my case, in late 2014 I sold most of my A notes on the Folio platform in order to bulk up C notes quickly. I have to laugh when I look at my portfolio today and see that almost all of the A notes that were left (because they were lower quality and didn’t sell at a profit on Folio) paid in full by their 36 month due dates.

Meanwhile, I have been busy turning all of my incoming principal and interest and some added money into A & B notes again. I managed to reduce C note percentage from 40% to 20% and now have 20% in A’s again. Whenever I looked at your returns, I was behind by several percentage points, but now my LC average is 6.96% and the separate average I keep for Folio trading is 7.73%. I think the advantage for my Folio notes is that I buy notes that are 12-16 months old with a good FICO chart and only those with 725 FICO score or higher–so there are none of those awful notes that only pay for several months and are near total losses.

I’m crossing my fingers as I say this: my defaults SEEM to have bottomed and to have leveled out. I’m keeping my tightened filters and conservative orientation. Around 6.75%-7.50% return is okay with me for this amount of risk. Nonetheless, I mostly have been putting new money elsewhere since the stock market has been doing well; and I’m intrigued by Fundrise (East Coast eREIT. I was initially interested in the Heartland eREIT, but thankfully gave the prospectus a careful read and came across that Chicago property in a terrible crime area. My husband’s family in the Chicago area had a hilarious time at Christmas with that one. In fact, my husband brought it up as a joke for weeks. We added to the East Coast eREIT instead.)

If I go below 6% on the loan platforms (given my conservative interest rates,) the risk/reward Peter discusses will definitely come into play. I’m averaging 5% to 6% with short maturity, individual corporate bonds (top of the junk at BBB- and BB+) that have a 94% success rate (over the whole junk group from BBB- down to CCC) with help from Steve McDonald at the Oxford Club.

Folio is a YUGE pain to use, but I persevere when I have time to go through a few pages of loans (filtered the best I can manage.) I wish they would offer more filters because I have to go through so much junk that is easily avoided on Lending Club and Prosper. I always reject people with public records. I can’t believe that information is going away.

Thanks again to Peter. And thank you to the thoughtful commenters who also have taught me so much.

QVP1
QVP1
Mar. 17, 2018 9:19 pm
Reply to  Kate

Yeah, Prosper and LC are no longer investable. The risk/reward no longer works. I have also been in Fundrise since 2015 and am still happy overall. Although, this quarter’s dividend payment is going to be significantly less than the historical average. 🙁 I’ll ride it out for a few more years and see how it goes.

Johannes
Johannes
May. 4, 2018 11:44 pm
Reply to  QVP1

@QVP1 Yes, I was dissapointed by Fundrise’s latest quarterly payment in April as well. I really hope this is not a consistent downward trend..

Nick
Nick
Mar. 12, 2018 6:41 pm

Hi Peter,

Thanks for providing this analysis on the quarterly basis and I have been follow your post for more than a year. Currently, I try to open an account with P2BInvestor. However, they do need pre-existing relationship in order to activate the account. Since you are on the advisory board, can I ask you some questions regarding the referral? If possible, can you please reply to my email directly?

Thank you!

Lou
Lou
Mar. 18, 2018 8:11 am

I stopped reinvesting in Prosper 2 years ago. I started with them from the beginning. My return is now 3.32% and still dropping on 12k invested. Prosper won’t get another cent from me in investments.

A Journey to FI
Mar. 18, 2018 6:50 pm

Thanks Peter, appreciate the transparency in every report you share with the community. Similar to your case I’ve been experiencing this downward path and unfortunately have given up. I heavily invested in D,E,F and G loans so paying the consequences of my aggressive strategy. At this point, I’m patiently liquidating my portfolio and pouring that money into more attractive investment vehicles. Thankfully, I didn’t have a ton of money at LC so this experiment has not broken the bank.

LAURIE
LAURIE
Apr. 4, 2018 2:22 pm

PETER, HOW IS DIRECT LEND FROM A TAX REPORTING STANDPOINT OUTSIDE AN IRA? IT’S NOT LIKE LC WHERE INDIVIDUAL NOTES HAVE TO BE ENTERED IN YOUR TAX RETURNS…

Johannes
Johannes
May. 4, 2018 11:46 pm
Reply to  LAURIE

Why are you screaming? 😉

Laurie
Laurie
May. 5, 2018 5:40 pm
Reply to  Johannes

Sorry, shoulder surgery made typing difficult.

Jesse D
Jesse D
May. 8, 2018 11:39 am

Hi Peter –

Do you have any experience with the tax treatment for AlphaFlow?

I steered clear of AlphaFlow because my understanding is you must file a State Tax return, in every state represented in your AlphaFlow portfolio. With a diversified AlphaFlow portfolio, you would likely have properties in many states.

Please correct me if your understanding/experience is different. Thanks!

Johannes
Johannes
May. 8, 2018 2:46 pm
Reply to  Jesse D

No, you don’t have to file in every state where they hold investments. I had the same question, and in Jan 2018 reached out to AlphaFlow (where I’m already invested). This was the response from Nick Giovacchini, their Director of Client Services:

“From the way we’ve set up the investment, it generates what’s called ‘Intangible Income’ which means that you’d only need to file state tax returns where you normally file them.”

Lou
Lou
May. 21, 2018 6:35 am

My 6 year experience with Prosper has been terrible. I was one of the first investors, back in 2006. I stopped in 2009, but restarted in 2012. My total invested is $6000 and my return has been about 2%. I will certainly never invest in Prosper again.

I also think your declining returns confirm the skepticism that I have seen on other boards regarding P2P lending. The SP500 wins.