ZOPA has said that most customers who invest using its Plus account are earning returns “at or above” the platform’s target rate and that it is working on a new way to give investors greater diversification.
The peer-to-peer consumer lender offers a higher-risk Plus account and a lower-risk Core account, both of which auto-diversify investors’ funds across at least 100 loans. It said that Zopa Plus has been its most popular product for new money since it launched in March 2016.
“It’s important to remember that, over time, most investors will trend towards the target return,” said Natasha Wear, head of investment products at Zopa, in a blog post on the P2P lender’s website.
“So, if you’re overperforming or slightly underperforming at the moment, it doesn’t mean you always will be.”
Zopa is planning to introduce a new dashboard on investment performance for investors who have been investing for at least a year.
It is also working on new technology which will allow lenders to invest in smaller loan chunks as a way of enhancing their diversification.
“With Core and Plus, your money is invested in a basket of different loans,” said Wear.
“When you first invest, we divide your money over at least 100 different loans. Any fewer than that and we’re not comfortable. But the more loan chunks you have, the more likely you are to earn close to the target rate – that’s just how the laws of statistics at work.”
Wear added that 90 per cent of people who have invested in Plus for between a year and 18 months have seen returns so far within 1.6 per cent of average; while 90 per cent of Plus investors who have been active for 2.5 years are within 1.1 per cent of average.
According to Zopa data, loan length also plays a role in an investor’s ability to meet or exceed their target returns.
“Time…averages out when defaults occur,” said Wear. “In the early days of your investment, it might seem like you’re earning a return well above target – this could just mean that your expected defaults haven’t happened yet.
“Or perhaps it seems like you’re underachieving – which could just mean that you’ve had more of your expected defaults early, and can look forward to a stable period with fewer defaults.”