THE UK’S largest peer-to-peer lenders delivered a FTSE-100 beating return in 2018, amid a turbulent period for the UK’s leading index.
Zopa said a £5,000 investment in a Zopa Plus account would have earned 5.2 per cent or £260 in 2018, 13.5 per cent more than the return from an index tracker.
Meanwhile, RateSetter said the average return on its Rolling Market loans was 3.1 per cent across the year, while Funding Circle’s projected annualised returns for 2018 are 5.1 per cent to six per cent after fees and bad debts.
Other platforms have also reported a FTSE-beating performance. LendingCrowd’s rate of return for the same period was 8.45 per cent and ThinCats delivered a net annualised return of 8.55 per cent.
In contrast, the FTSE 100 lost 12.5 per cent – its worst year since the global financial crisis.
Neil Faulkner, managing director of P2P ratings and research service 4thWay, said the figures show that P2P lending works well within a shorter investing timeframe.
“The real strength of P2P lending is when you have a short-term investment horizon – the stock market is stable over the long term but you need a long horizon to ignore the blips along the way,” he said. “P2P can be done safely over shorter periods, the dips will be less pronounced.”
He added that P2P investors can spread their money across a portfolio of loans, making it easier to more accurately predict if they will yield a positive return. They also have the advantage of fairer pricing.
“Underwriters on P2P platforms can more easily set the price, whereas on the stock market it is set by other investors and even they may not know whether it is fair,” he said.
So should investors choose P2P over traditional stocks and shares? “There’s no real argument against P2P or stock market investing but it is all about your time horizon,” Faulkner said. “You should be looking at both.”