Exceptionally low interest rates might be great news for the spenders and debt-holders amongst us, but they have given savers and lenders a real headache since the banking crash of 2008. In search of greater rewards than the meagre interest rates being offered by traditional banks and financial institutions, thousands of people in the UK have turned to peer-to-peer lending. Offering interest rates significantly higher than those being offered by banks, peer-to-peer platforms have reported a burgeoning demand for their services. But what does this relatively new phenomenon entail? And is it the right investment product for you?
What is Peer to Peer Lending?
Peer-to-peer platforms allow you to invest your savings and capital by offering it as loans to ordinary consumers. Whereas the interest rates being offered by banks have been exceptionally low for some time, the returns offered by peer-to-peer lending platforms are significantly higher. There is no bank, building society or large financial institution in the middle, so the overheads associated are far lower. The platform is there merely to arrange and process the loan on behalf of both the lender and the borrower, so both end up with a much fairer deal.
Assessing Your Approach to Risk
Before you embark on your first foray into the peer-to-peer market as a lender, it is important to clarify your own attitude towards risk. According to Lendingmemo.com, you have two main positions to take as lenders. You can choose the path of ‘stability over returns’, where you concentrate your lending portfolio on borrowers with excellent credit ratings.
Your chosen peer-to-peer platform will assess the risk involved in lending to an individual or business, and communicate this to you in the form of a grade. The borrowers with good credit scores will be rewarded with lower interest rates. This gives you the opportunity to pursue a highly secure investment opportunity, but with relatively modest returns.
On the other hand, you could choose the ‘returns over stability approach’ to peer-to-peer lending. By targeting those with poorer credit scores who are willing to pay a far higher rate of interest, you can secure greater returns, but you must be willing to live with an elevated risk of borrowers falling behind with their payments or defaulting on their loans. Which approach you take will depend on your wider portfolio of investments, your need to secure a particular return, the timescale of your investment and the total amount you wish to lend.
Another option however is to let the platform manage the risk for you. Platforms such as Lending Works offer fixed interest rates to lenders by blending the rates paid by borrowers, so your portfolio is automatically diversified between higher and lower risk borrowers. For many, this approach is the most straight forward way of building your peer-to-peer portfolio.
Are You an Active or Passive Lender?
Active lenders interested in peer-to-peer lending will play an integral role in how and where their funds are used. If you take this approach, you will get the chance to select who your funds are loaned to, as well as the terms of the loans made on your behalf and how your investment fund is dispersed in order to spread the risk of lending. This may be a great option if you have time to spare and an active interest in investment markets – although you will need to learn about all the factors involved, which include credit scoring, debt management, bankruptcy law and several other related issues.
If you simply don’t have the time to spare, or you want to invest a significant amount of money, taking a passive approach to peer-to-peer lending may be a more prudent course of action. Expert lenders and individuals with an in-depth knowledge of peer-to-peer loans will take control of the day-to-day investment decisions – consulting with you on the main direction of your portfolio. You will have to entrust your capital to peer-to-peer lending experts, but this is a great way of investing large amounts over a prolonged period of time. This path may also be attractive to you if you have a wider portfolio of investments that require your time and attention.
If you are contemplating peer-to-peer lending as a way of growing your capital for the future, it may be a good idea to clarify your priorities and speak to an expert in the area before making a commitment. However, with some careful planning and the right help behind you, there is nothing stopping you making a complete success out of your first foray into the peer-to-peer market.
Not company earnings, not data but vaccines now steering investor sentiment
By Marc Jones and Dhara Ranasinghe
LONDON (Reuters) – Forget economic data releases and corporate trading statements — vaccine rollout progress is what fund managers and analysts are watching to gauge which markets may recover quickest from the COVID-19 devastation and to guide their investment decisions.
Consensus is for world economic growth to rebound this year above 5%, while Refinitiv I/B/E/S forecasts that 2021 earnings will expand 38% and 21% in Europe and the United States respectively.
Yet those projections and investment themes hinge almost entirely on how quickly inoculation campaigns progress; new COVID-19 strains and fresh lockdown extensions make official data releases and company profit-loss statements hopelessly out of date for anyone who uses them to guide investment decisions.
“The vaccine race remains the major wild card here. It will shape the outlook and perceptions of global growth leadership in 2021,” said Mark McCormick, head of currency strategy at TD Securities.
“While vaccines could reinforce a more synchronized recovery in the second half (2021), the early numbers reinforce the shifting fundamental between the United States, euro zone and others.”
The question is which country will be first to vaccinate 60%-70% of its population — the threshold generally seen as conferring herd immunity, where factories, bars and hotels can safely reopen. Delays could necessitate more stimulus from governments and central banks.
Patchy vaccine progress has forced some to push back initial estimates of when herd immunity could be reached. Deutsche Bank says late autumn is now more realistic than summer, though it expects the northern hemisphere spring to be a turning point, with 20%-25% of people vaccinated and restrictions slowly being lifted.
But race winners are already becoming evident, above all Israel, where a speedy immunisation campaign has brought a torrent of investment into its markets and pushed the shekel to quarter-century highs.
(Graphic: Vaccinations per 100 people by country, https://fingfx.thomsonreuters.com/gfx/mkt/azgvolalapd/Pasted%20image%201611247476583.png)
SHOT IN THE ARM
Others such as South Africa and Brazil, slower to get off the ground, have been punished by markets.
Britain’s pound meanwhile is at eight-month highs versus the euro which analysts attribute partly to better vaccination prospects; about 5 million people have had their first shot with numbers doubling in the past week.
Shamik Dhar, chief economist at BNY Mellon Investment Management expects double-digit GDP bouncebacks in Britain and the United States but noted sluggish euro zone progress.
“It is harder in the euro zone, the outlook is a bit more cloudy there as it looks like it will take longer to get herd immunity (due to slower vaccine programmes),” he added.
The euro bloc currently lags the likes of Britain and Israel in terms of per capita coverage, leading Germany to extend a hard lockdown until Feb. 14, while France and Netherlands are moving to impose night-time curfews.
Jack Allen-Reynolds, senior European economist at Capital Economics, said the slow vaccine progress and lockdowns had led him to revise down his euro zone 2021 GDP forecasts by a whole percentage point to 4%.
“We assume GDP gets back to pre-pandemic levels around 2022…the general story is that we think the euro zone will recover more slowly than US and UK.”
The United States, which started vaccinating its population last month, is also ahead of most other major economies with its vaccination rollout running at a rate of about 5 per 100.
Deutsche said at current rates 70 million Americans would have been immunised around April, the threshold for protecting the most vulnerable.
Some such as Eric Baurmeister, head of emerging markets fixed income at Morgan Stanley Investment Management, highlight risks to the vaccine trade, noting that markets appear to have more or less priced normality being restored, leaving room for disappointment.
Broadly though the view is that eventually consumers will channel pent-up savings into travel, shopping and entertainment, against a backdrop of abundant stimulus. In the meantime, investors are just trying to capture market moves when lockdowns are eased, said Hans Peterson global head of asset allocation at SEB Investment Management.
“All (market) moves depend now on the lower pace of infections,” Peterson said. “If that reverts, we have to go back to investing in the FAANGS (U.S. tech stocks) for good or for bad.”
(GRAPHIC: Renewed surge in COVID-19 across Europe – https://fingfx.thomsonreuters.com/gfx/mkt/xegvbejqwpq/COVID2101.PNG)
(Reporting by Dhara Ranasinghe and Marc Jones; Additional reporting by Karin Strohecker; Writing by Sujata Rao; Editing by Hugh Lawson)
BlackRock to add bitcoin as eligible investment to two funds
By David Randall
(Reuters) – BlackRock Inc, the world’s largest asset manager, is adding bitcoin futures as an eligible investment to two funds, a company filing showed.
The company said it could use bitcoin derivatives for its funds BlackRock Strategic Income Opportunities and BlackRock Global Allocation Fund Inc.
The funds will invest only in cash-settled bitcoin futures traded on commodity exchanges registered with the Commodity Futures Trading Commission, the company said in a filing to the Securities and Exchange Commission on Wednesday.
A BlackRock representative declined to comment beyond the filings when contacted by Reuters.
Earlier this month, Bitcoin, the world’s most popular cryptocurrency, hit a record high of $40,000, rallying more than 900% from a low in March and having only just breached $20,000 in mid-December.
Bitcoin tumbled 10.6% in midday U.S. trading Thursday.
Other U.S.-based asset managers will likely follow BlackRock’s lead and add exposure to bitcoin in some form to their go-anywhere or macro strategies as the cryptocurrency market becomes more liquid and developed, said Todd Rosenbluth, director of mutual fund research at CFRA.
“It’s easy to see how strong the performance has been of late and look at a historical asset allocation strategy that would have included a slice of crypto and how returns would have been enhanced as a result,” he said. “Large institutional investors are going to be able to tap into the futures market in a way that a retail investor could not do.”
There is currently no U.S.-based exchange-traded fund that owns bitcoin, limiting the ability of most fund managers to own the cryptocurrency in their portfolios.
BlackRock Chief Executive Officer Larry Fink had said at the Council of Foreign Relations in December that bitcoin is seeing giant moves every day and could possibly evolve into a global market. (https://bit.ly/2XXFHrB)
(Reporting by David Randall; Additional reporting by Radhika Anilkumar and Bhargav Acharya in Bengaluru; Editing by Arun Koyyur and Lisa Shumaker)
Bitcoin slumps 10% as pullback from record continues
LONDON (Reuters) – Bitcoin slumped 10% on Thursday to a 10-day low of $31,977 as the world’s most popular cryptocurrency continued to retreat from the $42,000 record high hit on Jan. 8.
The pullback came amid growing concerns that bitcoin is one of a number of financial bubbles threatening the overall stability of global markets.
Fears that U.S. President Joe Biden’s administration could attempt to regulate cryptocurrencies have also weighed, traders said.
(Reporting by Julien Ponthus; editing by Tom Wilson)
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