Portfolio update june 2018

It’s been a long while since I’ve done a portfolio update and a lot has changed, so I thought I’d share! Definitely some huge changes within the last year in terms of asset classes and I’ve had to make many changes to be more liquid to be ready to finance my new home (which will hopefully be finished in October).

Real estate is now pretty much gone from my portfolio. If you remember, I owned a small 12m2 dorm room style apartment in Northern Tallinn, which offered reasonable returns, but was also the most illiquid investment in my portfolio. Due to ridiculous price growth and lack of time and enthusiasm to manage the property, I sold it at the start of the year, cashing out a solid 20%+ yearly return, so overall not bad. Any exposure I have towards real estate now is real estate fund stocks and crowdfunding projects.

The rest of my portfolio is currently divided up between the stock market and P2P investments, with stock market investments totalling 25% of my investments and P2P investments 74%. The missing 1% is random trivia not worth mentioning here.

Stock investments are mostly single stocks from the baltic stock market, a total of 83.5% of stock investments or a total of 21% of portfolio, and some index fund investments, which total 16.5% or a total of a bit over 4% of total portfolio.

From the Baltic market positions which are bigger (more than 5% of total portfolio) are TKM (Tallinna Kaubamaja) and SAB (┼áiauliu bankas), some smaller positions are in LHV (LHV bank), Tallink and the just-IPO’d Tallinna Sadam and a few tiny positions of SAF, TEL, APG, Merko, Eften. This is the lazy money I keep in my portfolio, mostly to buy and keep forever.

For index positions, these are currently much smaller than usually since I’m waiting for my home purchase to be finalised to finally start building an international portfolio, so it’s half invested into the third pension pillar (LHV Indeks pluss) and the rest is in a convenience index investing product that I’ve left ticking for tax reasons, kasvukonto (has a bit of EXSA, VAL, SPYW).

Social lending and crowdfunding are currently the core of my portfolio due to their high liquidity and current high returns. After years of testing through many different sites, I’ve kept only three among my investments, maybe will add a fourth when more finances free up or these shrink up (as Omaraha is currently).

Biggest portion of P2P investments are via Mintos, which is currently a whopping 40% of my portfolio, mostly due to the cashback and super fast secondary market. This is where my new home’s furniture money is currently earning interest.

Second biggest position, which has however been shrinking is Omaraha. Due to lower loan volumes and drops in interest rates, the effective returns are way below what they were even last year, and I’ve been slowly transferring money out to stop if from just sitting there. Will see how it goes. Currently at 24.5% of portfolio and slowly decreasing.

Last position is my higher risk part of the portfolio, investments into real estate developments mostly, which is Crowdestate. This houses a bit less than 10% of my total portfolio, however growth isn’t particularly fast since there aren’t too many projects. This is about the level I intend to keep this investment at.

There you go, current overview! At the end of the year I will have to liquidate some investments due to high expenses associated with hope purchasing, but hopefully once I sell the current home I’ll be able to patch up the damage and have a chance to add some new assets.

 

Crowdestate – still overrun by investors

While some other P2P portals have to work to get more investors to come on board, then Crowdestate is struggling with a different issue – there is just too much money to be used and not enough projects available. While this is also not a good problem to have for a site – if investors get too frustrated they will leave the site since they cannot employ their capital, then it’s great fuel for potential growth.

However, from the investor’s point of view it is rather annoying. Having enough money is good in the sense that projects get filled – it hardly ever happens that your money gets booked and then returned later (having earned no interest while booked), and if a project does fail there are some fundamental reasons why investors do not find it attractive.

The downside of having that much money however is that it’s quite impossible to actually get into most projects by hand. The current setup is that autoinvest has priority over manual investments, and autoinvest is not capped the same way pre-booking is (you can invest however much you want via autoinvest).

This means that most projects that are smaller than 500K are pretty much set to be filled by autoinvest. More people will start using the strategy that I do – when I see a project that I like I temporarily turn on autoinvest – and there will be even less of a chance to manage to invest by hand. In that sense it’s good – no more wasted time waiting by the computer and clicking refresh and cursing when the page refused to load.

So, there isn’t that much reason to log on when projects go live anymore. Another reason to log on could be the secondary market, but within about a week of development bots were built to trade on the secondary market, so it’s impossible to buy anything manually (unless the returns are pretty low) or for some reason all the people who run bots run out of money (which will probably not happen). So the secondary market did provide an easier way to exit, but the purchasing function is unusable for a regular investor.

All in all this means, that there isn’t much to do. If you see a project the best way to manage to invest is to set up autoinvest (and remember to turn it off later), and go enjoy the warm summer weather. Definitely a much more passive and less time restricted investment than it used to be. Now, if there were a few more projects :)

Omaraha loan volumes and interest rates

For a significant amount of time Omaraha was one of the P2P lending sites that offered highest returns. This was largely due to the way their auction system worked – investor could essentially bid how much money they were willing to invest into a loan and at which rate. The system started filling the loans from bottom up (lowest to highest rate) and then the person taking out the loan got an average rate based off those.

This meant that if you kept an eye on how the loans got financed you could get into loans at ridiculously high interest rates while the borrower could still get a reasonable total rate. Best example of this is probably in the 7- and 10-year loans which have been removed by now, where investors were rather shy to commit, meaning you could get into loans at the max rate allowed – 60% gross (48%net for investor). This was also possible for 5-yr loans.

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All good things must come to an end though, and the 7-yr and 10-yr loans were removed (largely due to the total rates failing to comply with the legal max interest rate limits) and the cap for max interest rates was also brought down, so you could no longer make autobidders with such insane rates. Good for the borrowers, sad for the investors.

Current situation

Somewhat as a result of those changes the average interest rates started to come down. A section of borrowers disappeared from site (those who got higher rate loans, but were no longer able to), and since the site itself had become much more popular among investors and the total available cash number kept increasing (up to 1mil at times), which started to push down the average rates.

As a result the drop has actually been rather immense. Another contributor has probably been the fact that Omaraha has elected to be less of a black box – before you had to take the time to figure out the interest rates yourself, now, however they show you the maximum rates that offer a chance to get into loans. Today’s stats:

rates

As it stands, since the buyback rate offered (used to be at 80% for a long time) has started to slide back closer to 60%, then clearly the squeeze is two-fold both less security in buyback and lower interest rates. Since they’re also reduced the max amount per loan that an investor can contribute, this makes previous strategies much harder to use as well (it’s no longer as efficient to “ladder” interest rates for separate autobidders).

As a result Omaraha has dropped to somewhere in the middle of the pack when it comes to returns with one significant downside – lack of a secondary market, which means making an exit is much more difficult than on some other sites. As a result, for the first time in two years I’ve actually taken out some money since it started to build up too much.

 

Crowdestate now has a secondary market – good or no?

It’s definitely interesting that after years of hoping and waiting for Crowdestate to open a secondary market, there are interestingly a few downsides to it that are tied to the current situation on site and the economic situation.

The good

It’s definitely good to have an option to sell investments. Due to a large amount of projects having a ~2year deadline, then the flexibility of being able to sell, means more people would probably have the courage to lock in their money into projects.

Also, the secondary market will be an interesting way to play around with increasing your earnings, people can be quite emotional when buying, especially since with CE projects the fear of missing out is rather big, so people might want to buy into deals if they miss it.

The bad

I think the biggest issue currently is the fact that adding a secondary market is likely to make it even more difficult to get into projects. People would be motivated to make multiple bids (automatic bids) through more than one account and then sell one of the pieces. I know that I had this idea, so I’m assuming others did as well.

This means that there will likely be even more autobidders active, which means that even less of chance to get into projects manually. One of the last projects listed was pretty much completely filled with automatic bids, meaning manual access was impossible.

While playing around like this means potential for better income (essentially making profits from reselling pieces), then I’m seeing a lot more disappointed investors who aren’t able to participate in projects. But who knows, maybe they’d be happy to have the chance to buy from the secondary market?

Overall, the best fix for this would be to have more projects listed to decrease the competition for investors to get into projects, but currently it seems like there isn’t much in the pipeline, and I’m unlikely to increase the amount I place per investment due to wishing to keep some level of diversification (currently capped at 500 per project) and therefore like most other p2p investors I’m also currently moving any free money to Mintos to take advantage of the cashback offers.

Mintos cashback vol 3

Well, 2018 has started well – by mid-march I will have achieved the cashflow returns that took me all of 2017 to reach. Goes to show that sometimes having a bit of luck and cash at the correct time happens completely accidentally.

My biggest portfolio move this year was selling the small 12m2 rental apartment I had in Tallinn. While it was offering good rental returns, then in the long run it wasn’t in a very good house and 16m2 apartments have slowly started to gain popularity. Also, the prices of 12m2 apartments have reached ridiculous heights and since I needed to cash out something from my portfolio since I bought a new home which is being built, and I have to have cash available for various expenses in late autumn.

This deal however ended up being surprisingly well timed because I was able to drop most of the money from the sale into Mintos’s cashback program, which over the course of the last month has created some nice returns

Screen Shot 2018-03-06 at 10.49.40

Of course the campaign has been very popular – there are days when there are no 60+mo loans and days when even the supply for 48mo+ loans has run out, but checking every now and then allows you to pick between countries and loan lengths to boost your portfolio. Since I’ve been investing mostly into Mogo loans anyway then I didn’t really feel much increased risk from temporarily increasing my exposure to them.

While this is a short term boost to investments (since when the cashback ends I will slowly have to start withdrawing money from the repayments), then it’s safe to say that Mintos has helped me boost my returns for the year significantly. Those who still have some cash laying around, then the campaign lasts for another 10 days (until March 16).