Category: Market & Pricing

In December, the most used investment channel by far was the Portfolio Manager which represented 94.36% of funding. The API channel represented just 5.64% of funding for the month. This illustrates a greater use of the automatic investment tool compared to last month (92.7%).

This data illustrates a popular preference for an automated solution. In contrast, the API channel is more appropriate for investors interested in funding loans through a more analytic and customized approach. Unlike other marketplace lenders we offer complete transparency and the API channel is an example of this characteristic. Users can examine more loan attributes to better gauge the risk/reward profile of a given investment.

Previously we have discussed how and why higher risk loans can appear in a “conservative” Portfolio Manager setting. Reaching a target return occasionally requires supplementing a portfolio with higher risk and thus higher return loans. Investors wishing to exert more control over this possibility may want to choose the Bondora API. However, this option requires more time and oversight on the part of the investor.

December was a strong month at Bondora for loan originations. We reached a total of €3,236,780 which is just shy of our record hit in the previous month. Holiday events may have limited what could have been another record-breaking total. Below we have outlined the origination totals by country and rating.

Loan origination by country

Estonia continues to lead the group capturing 50.08% of the total originations. The diversity of opportunities across all ratings makes the country an attractive option for many of our investors who wish to diversify across various risk levels. Finland brought in 30.57% of the total and finally, Spain represents 19.35%. These proportions are roughly similar to November.

Loan origination by rating

The mid-level risk ratings of “C” and “D” continue to bring in the greatest portion of originations. Because Estonia is the only country to offer “AA” “A” and “B” rated loans, these originations total share was just 13.36%. Finally, “E” and “F” rated loans brought in 28% with HR close behind at nearly 23%.

• Investors seem attracted to a more aggressive approach to risk. The average interest rate across the “C-F” rated loans among all three countries is 33.57%. HR loans offer a far greater average interest of 98.06% among the Spain and Finland market. These are the riskiest loans offered on Bondora.
• Ratings “AA-B” brought an average return of 12.10% thereby offering a balance between low risk and lower relative return. These are good loans for more risk averse lenders seeking double digit returns.
• Among our HR originations the higher interest rate of 111.95% in Spain has attracted considerably more originations than the HR loans in Finland offering a 84.17% interest rate. Originations at this rating is Spain were €583,150 versus €151,285 in Finland.

Key takeaways

• The latest (Q3) total across all countries shows a realised performance of 20,64% which is 435 basis points above the targeted figure for the period.
• Bondora exceeded the target figure for total loan performance for last four consecutive quarters.
• First two quarters of 2016 have delivered performance that exceeds any given individual quarter of 2015. Loans originated in third quarter of 2016 are expected to follow the same trend.
• While the actual returns against targeted returns for 2015 were lower by 88 basis points on average, the trend for 2016 shows improvement – on average, the actual returns are 517 basis points higher than the average targeted returns to date.

Actual and targeted bondora net returns by grade and country

Estonia

• The country saw strong performance for the period with every risk rating delivering a return above the targeted goal.
• As one travels down the rating scale to riskier loans the realized return increases incrementally with the exception of the HR rating (27.55%) which was slightly less than the F rating (28.89%). This reflects a risk/return payoff.
• The average return across all ratings is 19.34% which is between Spain (26.23%) and Finland (14.74%).

Finland

• The country has underperformed relative to Spain and Estonia especially within the HR rated loans which have a return of only 1.22%.
• The D, E and F rated loans contributed the greatest amount to the performance, pushing the average total return above the total for 2013 and 2014 and 2015.
• Although the finnish segment across ratings has performed lower than the target in 2015, the returns for 2016 are so far exceeding their targets with few exceptions (B in Q3 of 2016, HR in Q2, Q3 of 2016).

Spain

• Though starting from 2016, only E, F and HR loans have been originated, the country offered the highest average return of 22,08% for 2016 loans.
• As with Finland, loans from 2015 have been performing well below their target but the trend for 2016 is showing considerable improvement.

Actual and targeted bondora net returns across portfolio per quarter

With the exception of Q1 of 2015, all the other quarters from the reported period are performing above the target.

Actual and targeted bondora net returns across previous 7 years

For the past three full years from 2013-2015, Estonian and Finnish segments of the portfolio have been showing relatively stable performance, with Estonia hovering between 20-22% overall returns and Finland between 10-13% returns. Performance for the Spanish segment has been poor in the first years (2013, 2014) in Bondora but has been showing yearly improvement and is expected to reach it’s target levels for 2016 loans.

November is the first month in which the manual investing feature was not available to users. The Portfolio Manager continues to be the most popular option for investors given its ease of use and automation.

In November the Portfolio Manager represented 92.7% of investment inflows. The API interface ended at 7.3% of inflows. This is a slight increase over last month when API represented just 6% of the total.

Users can choose from a variety of risk tolerances when using the Portfolio Manager. However, in a recent post we discussed the importance of monitoring your portfolio even after making this selection. Taking an active approach is important because some high risk loans (HR) can appear even in a “conservative” portfolio selection. Additionally, an investor should not choose a more aggressive risk profile unless they are comfortable with higher expected loss rates. These riskier loans carry higher interest rates but at a higher chance of default.

The loan origination totals for November were excellent at Bondora. Originations marked a new record for us with € 3,338,570 of loans originated. The previous record was €2,782,475 in August of 2016. In comparison to October 2016 our originations have increased by 36%. Below we’ve listed the detail of originations by country and rating for the entirety of November 2016.

Loan origination by country

Estonia leads with just over half of the total originations at 51.06%. Spain and Finland catty 17.76% and 31.18% respectively. This marks a shift from last month where Estonia represented 63%. This month Estonia’s originations decreased while Finland increased. Spain remains largely unchanged since last month.

Loan origination by rating

While each country experienced an increase in originations over October Finland saw the most dramatic change. Finland’s October origination was €499,185 while November totaled €1,040,950 representing a 108% increase in just one month.

• The single largest origination share was the HR rated loans in the Spanish market at 14.97%. Only E, F and HR ratings are available in this market. Therefore, the higher concentration in HR originations might represent a bigger draw to high-interest loans given that there is a significant risk profile among all three ratings. 84% of the originations occurring in Spain this month were concentrated in the HR rating.
• Estonia continues to draw the heavy originations at the C, D and E level all of which offer higher interest rates. Interestingly, these same three ratings each offer even higher interest rates in the Finnish market. However, in Finland C, D and E rated loans only total 14.09% of the total originations. This is less than half the total of C, D and E originations in Estonia.
• The stronger ratings of AA, A and B available only in Estonia, still do not attract many originations. Though these ratings are not seen in either the Spain or Finland market our investors continue to be attracted to lower rated (higher interest) loans in all three countries.

KEY TAKEAWAYS

• Our realized net returns for Q2 exceeded four of the five previous quarters.
• Spain and Finland each also had Q2 realized net returns which exceeded four of the five previous quarters.
• Estonia and Finland outperformed their targets by 519 basis points and 376 basis points respectively.
• Spain fell below the targeted goal while Finland earned a greater realized net return than any quarter in 2015 or 2016 to date.
• The “F” rated loans delivered the highest realized net return for Estonia, Spain and Finland in Q2.

ACTUAL AND TARGETED BONDORA NET RETURNS BY GRADE AND COUNTRY

ESTONIA:

• While the “E” and “F” rated loans generated higher realized net returns than they did in Q1 the other ratings all fell below the previous quarter returns.
• Estonia continues to be the only country where “AA” and “A” rated loans are available.
• The “AA” rated loans outperformed their target by 79 basis points.
• Across all ratings the median return was 18.33% and the average was very similar at 18.79%

FINLAND:

• Every rating except “HR” outperformed the targeted realized net return.
• The “B” and “C” level ratings offered better realized net returns than those same ratings in Finland for the previous five quarters.
• “B” and “C” ratings outperformed the same ratings in Estonia.
• The median return across all ratings for Finland was 18.38%

SPAIN:

• The “E” rating experienced a significant drop in performance compared to Q1 2016.
• The median performance in Spain for Q1 2016 (13.15%) was higher than the total realized net return for the country in 2015 (10.80%).
• The “F” rating outperformed the same rating in each quarter of 2015 for Spain.
• At the moment the eventual total realized net return for Spain appears to be on track to outperform 2013 through 2015. We’ll watch to see how this develops.

ACTUAL AND TARGETED BONDORA NET RETURNS ACROSS PORTFOLIO PER QUARTER

Since Q4 of 2015 the actual realized net return has exceeded the targeted figure.

ACTUAL AND TARGETED BONDORA NET RETURNS ACROSS PREVIOUS 7 YEARS

Spain and Finland each have a three-year trend of progressively outperforming the previous year. While Estonia saw a drop in performance from 2014 to 2015 the country has still delivered the highest realized net return of any other country for the past three years.

DISCLAIMER

Please note that past performance does not guarantee future results as economic environment, competition, performance of risk models, loan pricing and recovery processes can improve or deteriorate over time.

We do not recommend to set unrealistic expectations although 84.2% of investors on Bondora peer-to-peer lending marketplace have earned more than 10% annually (investors who have invested more than 1,000 euro over a period of 12+ months). Investing on Bondora is not suitable in case you expect to invest less than 1,000 euro as proper risk diversification shall not be achieved and returns can be highly volatile.

PS! In case you are looking for technical details on the net return calculation then please read an earlier article on the subject here.

October marks the final month for manual investing within the Bondora platform. We discontinued this feature on November 1st of this year. The loan funding per channel represents the final movement of investors to the more popular Portfolio Manager option.

Throughout October 86% of investments flowed through the Portfolio Manager. Manual investing represented only 8% of loan funding activity. The API platform represented just 6%.

The automation of the Portfolio Manager tool continues to make it a favorite with investors. Those interested in taking a more active approach while seeking stronger returns may choose to explore the Secondary Market. On Friday of last week we shared some ideas on how to leverage the filtering option to find opportunities.

While the Portfolio Manager can be initiated in minutes Bondora offers opportunities for investors to closely manage their risk. Remember that the “Investments” page hosts 30 different search attributes for the detailed investor combing through their holdings. This is important because even those choosing a “Conservative” level of risk may have some HR rated loans in their portfolio. These higher risk loans are occasionally necessary for reaching a desired return.

Loan originations totaling €2,445,710 in October were helped by Finland which had a 24% growth over last month in both amount and interest rate. Below we’ve listed the detail of originations by country and rating for the entirety of October 2016.

Loan origination by country

Estonia continues to represent the largest proportion of originations at 63% of the total. Finland is poised for continued growth as their share increased from 15% last month to 20% in October. Spain originations came in at 16%.

Loan origination by grade

78% of the originations in Estonia this month were concentrated among equal representation of C, D and E ratings. The country continues to offer opportunities for those interested in A and AA loans. Estonia’s originations, in total, represent a stronger rating than the totals of those in Finland and Spain.

• Estonia’s interest rates range from 21-35% in the C-F rating range allowing investors to strike a balance between aggressive return and modulated risk. The E rated originations offer both the highest share of the total and the second highest interest rate.
• Spain’s originations are almost entirely consolidated to the HR rating and as a result offer the highest interest rate of 121%. Spain’s growing origination share among the other two countries may signal a growing interest by investors in these high-interest, higher risk loans.
• Finland’s originations gradually increase moving from the B to HR range. The HR loans offer the second highest interest rate of all loans at 95%. Investors looking to mitigate risk will be attracted to the stronger B and C ratings, which show returns of 15% and 21%.

KEY TAKEAWAYS

• The total realized net returns in Q2 of 2016 exceeded the metric in all four quarters of 2015.
• The realized net return of Estonia, Finland and Spain all far outpaced the performance of the S&P 500 (US). The total realized net return for these three countries was 23.48% and 19.46% in Q1 and Q2 respectively whereas the S&P 500 returned only 2.9% and 1.4% in the first and second quarter.
• Both Finland and Estonia exceeded their targeted returns by 4.11% and 5.00% respectively.
• Spain leads the group in cumulative realized returns so far in 2016.
• The HR rating has yielded the strongest return (31.60%) in the Estonian market whereas the F rating was the strongest return (28.60%) for Spain and E (24.67%) for Finland.

ACTUAL AND TARGETED BONDORA NET RETURNS BY GRADE AND COUNTRY

ESTONIA:

• Ratings B through HR have delivered substantial double digit returns.
• Every rating except A has exceeded the corresponding target return.
• On average all ratings (excepting A) have yielded 6.67% more than the targeted return.
• The HR rating offered the greatest return (though highest risk) of any rating in not only Estonia but also Finland and Spain.
• The median realized return among all ratings in 2016 Q2 was 18.38%.

FINLAND:

• Every rating in the Finnish market outperformed the targeted return.
• The E rating generated the highest return with 24.67%.
• The median realized return across all ratings in 2016 Q2 was 18.41%.
• The B rating offered reasonable risk mitigation while also bringing a return of 14.83%.

SPAIN:

• The F rating experienced a 28.60% return which is higher than any return within the Finnish market and third highest across all the countries served.
• The average return across all ratings was 19.33% which is higher than the same metric for Estonia (18.66%) or Finland (19.20%).
• The greatest difference between returns in Spain in Q2 was 15.13% which positions between Estonia (28.09%) and Finland (10.19%).
• Market conditions have driven the targeted returns in Spain higher than any of the other countries.

ACTUAL AND TARGETED BONDORA NET RETURNS ACROSS PORTFOLIO PER QUARTER

The realized return continues an established trend of outperforming the targeted figure.

ACTUAL AND TARGETED BONDORA NET RETURNS ACROSS PREVIOUS 7 YEARS

Though some countries experienced slight declines in returns in 2013 and 2014 the totals still represent double digit gains for every one of the last seven years. The average return for 2009-2015 is 19.87%.

DISCLAIMER

Please note that past performance does not guarantee future results as economic environment, competition, performance of risk models, loan pricing and recovery processes can improve or deteriorate over time.

We do not recommend to set unrealistic expectations although 84.2% of investors on Bondora peer-to-peer lending marketplace have earned more than 10% annually (investors who have invested more than 1,000 euro over a period of 12+ months). Investing on Bondora is not suitable in case you expect to invest less than 1,000 euro as proper risk diversification shall not be achieved and returns can be highly volatile.

PS! In case you are looking for technical details on the net return calculation then please read an earlier article on the subject here.

This week we are looking at the statistics of loan funding and each channels share of the total investments on Bondora platform.

The trend of more investors choosing the Bondora Portfolio Manager (PM) over API and manual investing continued last month. Over the past month 82% of investments were made using PM compared to its 71% share in June 30, 2016. The increased share of the Portfolio Manager investments has mainly come at the expense of manual investments. This broad adoption of the Portfolio Manager reflects the usability and effectiveness of the evolved interface.

Bondora PM offers an array of settings. These choices enable the investor to employ a strategy that is every bit as unique as that of a manual or even API user. Diversified risk is easier than ever with the “minimum investment per loan” option. This feature allows the user to invest smaller sums across a greater number of loans thereby defraying risk.

The cumulative effect of the PM interface is a smart approach to risk with swift execution. This benefit is evidenced by the fact that each investor’s bid will be applied only to loans with an equal, or lower risk profile than the composition of their whole portfolio. This consistency keeps the users capital in the market where it can grow without unnecessary risk. Additionally, the speed of the interface has increased with the advent of a faster PM. Recent changes have enabled the PM to start running as soon as the loans reach the market. This speed is in contrast to the older model that ran periodically on an hourly basis.

Share of manual investments has decreased down to 11%. As already mentioned, manual investments have been decreasing for a while now and the reason being that manual investing is much more limited in terms of speed of investing and data analysis comapred to the Portfolio Manager and Bondora API.

Investments through API represented just over 6% of total investment amount on the platform over the month. The share of API investments has been either steady or very slowly increasing. This is explained by the fact that Bondora API has mainly been an choice for those investors more comfortable with programming skills and the nuances of the lending market.