Peer-to-peer lending analyst 4th Way has described Zopa’s returns as ‘unexciting’ and has warned that some investors aren’t following the ‘basic principles’ when investing with Funding Circle.
The analyst has published reviews of the two P2P lending giants. While it praised the platforms’ management and level of returns, it said it is hard to properly judge them as they do not disclose as much data on loans and bad debts as they previously did.
4th Way removed Zopa’s Plus ratings in November, citing a lack of regular information.
The review, published today (18 January) said Zopa’s accounts would still get the full three star Plus rating based on current information.
However, 4th Way highlighted that Zopa is forecasting average returns for a middle performing investor of less than four per cent in its Core and Plus accounts for the first time.
Read more: Who are the ‘big three’ in P2P now?
“Interest rates are not exciting and lenders can expect some variability between their results,” Neil Faulkner, head of research for 4th Way, said.
“But this is one of the most competent and learned platforms available.
“Excellent at assessing rates and risk, and highly experienced in all aspects of their operations. It adds some useful diversification into a different kind of investment: personal loans. It would only look silly in your investing portfolio if you are going all out for high-risk, high-reward.”
Funding Circle’s rating were removed in 2018 when it stopped providing data, which coincided with when it became a public company.
4th Way’s Funding Circle review said that from the “limited figures” Funding Circle still provides, the average returns have remained distinctly positive.
It said the worst projected returns in recent years have come from loans that went live in 2017.
Funding Circle is currently projecting returns of 5.4 to six per cent for this year.
Faulkner said it is not surprising that investors complain about losses or issues accessing their funds, given the size of the platform, but suggested one issue may be a lack of diversification.
Funding Circle, and the wider industry, recommend a minimum investment of £2,000 so funds are spread across enough loans to manage risk.
4th Way suggests this doesn’t always happen.
“The sensible, and more knowledgeable, investors are lending at least £2,000 and committing to do so for quite a few years,” Faulkner added.
“They will also be quite relaxed about the precise date they will get all their money back.
“We’ve seen enough evidence at 4thWay to know that a good proportion of lenders don’t follow those basic P2P investing principles. It’s likely that a substantial number of those lenders will sell up at a loss.”
Faulkner cites an example of a prominent unnamed commentator who invested in just 20 Funding Circle loans and then complained that he had bad debts and sold for a loss a few months later.
“He really should have known better, and yet many individual lenders will not have his investing experience,” Faulkner said.