How does the new Bondora Portfolio Manager work?

The new Bondora portfolio manager which was launched just a few weeks ago, has managed to cause quite a bit of panic among investors due to the lack of information on the inner logic of the manager. I contacted Pärtel, the CEO of Bondora, to get some clarification on whether I understood the portfolio manager correctly and this is a short overview of what you should take into account when setting up your manager.

portoliomanager

Portfolio manager launch

I cannot leave this unmentioned, the launch was one again, expectedly troublesome.

1. The launch of the manager was late by a week. (None of the investors were surprised. This is not a good thing, once someone loses the capacity to be disappointed in you, it shows that they have stopped caring, not something you want from your clients.)

2. The manager was buggy at launch. (The numbers didn’t add up to 100%, the promised visuals weren’t there, and the manager did strange things for some people.)

3. The manager was not launched with enough information. (You could see this by the discussion that erupted in forums and on Facebook, people trying to figure out what to do with the new manager and what the new settings meant.)

Overall, I applaud the attempt at simplicity, but the launch could have gone much smoother, and a lot more communication is needed to make the manager appeal to more people. Several investors have turned theirs off since they don’t trust the manager to make decisions for them, since they won’t know how the manager makes the decisions.

The logic behind the portfolio manager

I’ll go over some of the basic ideas on how the manager works and add some theoretical/sample situations for you to consider.

1. The portfolio manager does NOT take into account previous investments

Pärtel confirmed this as well, stating that the manager’s main goal is to work for future investments and for this reason past portfolio setup is not taken into account. You can still see your portfolio division though, to make decisions based on that.

This means that if you, for example, like me, have 20% of your loans in HR loans, then the ideal way to reduce their part in your portfolio is to not have any more loans added into this category for a while, or keep the percentage assigned low enough that it wouldn’t keep growing (sub 5% probably).

2. The portfolio manager STOPS after the assigned %/number is filled

This was confirmed as well by Pärtel. If you assign your portfolio size to 1000€, then after it has invested that amount the manager stops. This also works, if you for example set 15% of investments into C group then after it has filled 150€ in loans, that credit group stops getting any loans.

The biggest point here being, right now it’s impossible to see how much of any segment has been filled up. Pärtel said that in the next few weeks there will be indicators to show you how much of the manager’s original settings have been filled up and how much have been filled up by segment. This should give you a chance to estimate how successful your managers are.

3. Editing the manager means a hard RESET

If you have set up your portfolio to invest 15% into C loans for example but feel like you want to edit it to 20%, then this means a reset for the manager, and essentially it will start counting the loans again from zero. This means any edits cause previous portfolio manager progress to disappear.

Pärtel said that there would be better indicators here for people to realise that editing the manager essentially causes a reset of the goals. This means that in the long run, the manager should be something you set to run and forget, since otherwise it keeps trying to start over.

4. The new manager focuses on getting money out ASAP

With the old system, since you couldn’t get loans to go out particularly quickly, you could have money sitting around on your account for days without moving. Since the new manager sets to fill out any goal you’ve given it, that means money moves much quicker as long as any loan is available that sets your criteria.

For example, if you set your portfolio to invest 90% into A and 10% into B rating, then the manager invests into either group, no matter how much of the goal has been fulfilled, meaning it could invest 90% into A as long as those loans are available and not wait around for B or keep some amount reserved for it. When 90% A is filled, then it just sits and waits for B group loans.

5. The queue system still works, kind of

With the old system there was a strict queue for getting loans. Everyone was in a long long line for all types of loans and that set the pace for your portfolio. I asked this from Pärtel as well, whether the queue system still works and the answer was somewhat vague. Essentially he said, that the system tries to guarantee investors equal chances at different types of loans, I’m not sure how to take that answer.

In terms of fishing for best loans though, this means that while setting your manager to get AA group loans means that you only get AA group loans, doesn’t mean that you get more AA group loans than other investors who have included that group in their manager.

Overall use of the new manager

I’m looking forward to both more visuals, more overall information, more experience from other investors and the hinted indicators that help you keep track of what your portfolio is doing. I’ve personally set a quite conservative selection into my portfolio as you can see from the projected lower returns and I liberally hand-pick loans to add into my portfolio. For this month about half the loans I’ve picked have probably been manually, I mostly add HR loans manually. The new manager takes some practice, but once the fundamental logic becomes more clear, I hope for overall efficient use.

What you can do with it:

– Set and forget, which is ideal of super passive investors

– Force a bigger amount of money into a credit group when you want

– Get more investments our quicker than before

What you cannot do with it:

– No fine tuning your portfolio based on x criteria

– Be able to keep some money in reserve for “good” loans as you could before

 

21 thoughts on “How does the new Bondora Portfolio Manager work?

  1. Few comments/observations from my side:

    a) When you change target portfolio size then the system automatically updates the maximal bid amount of one loan. I changed portfolio size and the system set maximal amount to 200€, as the text field was narrow I did not saw last 0 and thought it was 20€ so now I have one 200€ finish loan :S

    b) When our profile manager has made a bid to a loan and you hard reset it and that loan is not filled yet, portfolio manager makes another bid so I have one loan where the manager made 2×20€ bids.

    I at the moment I have disabled my portfolio manager by setting AA to 100% and portfolio size to 100€ because of these bugs and only use secondary market. I also invested some money to omaraha.

    1. Wow, the 200€ one is really unfortunate! Visually yes, the manager could use some work, especially on smaller screens, the numbers get cluttered. Also, while I get why it wants to recommend sizes to me, then I really would like a chance for it to not do that, since then I have to manually re-edit everything – I mean, what’s the point of “custom” if I don’t get full control. They could just add a recommend button if they really want to.

      Secondly, the double bids one is something that should probably be looked into, but from a logical standpoint, the only fix would be to deny 2 bids into a single loan, but many people bit multiple times to sell on the second market. It should in theory be a rare enough situation, but for those who have active/big portfolios, that might mean 10-20 loans getting double-bid when you edit your manager!

      My manager is running, but as you can see it’s a pretty conservative setup since I don’t want to let it run wild on HR loans, as it would otherwise since those are so easy to fill up.

    2. I had exactly the same issues, I changed the percentages, and I failed to note that the amounts also changed.

      Bad thing is, I got 2x 220€ Spanish (!) loans, one of them had even unconfirmed income. 2x 120€ loans, both C rating and 4x 60€ loans. Boy was I pissed, but, as it turns out, it was all my fault, I should have double checked.

      I set the portfolio allocation to 0 for every rating group and now I wait until they have managed to mature this system somewhat. As of now, I do not trust the new portfolio manager.

  2. I would have really liked, if they would have built it a bit different. Especially about the percentage and total portfolio size part. I would have eliminated (or made optional) the portfolio size and would calculate everything only on top of current portfolio. (is is based on portfolio manager’s portfolio or your total portfolio, doesn’t matter… could be even chosen maybe, it wouldn’t be impossible.)

    Let’s make an example. We have portfolio manager with 50% of AA and 50% of A set up. We have 45€ worth of AA loans and 45€ worth of A loans and we have 10€ free money. If loan (AA or A) comes in, it looks into your profile manager with formula: IF [Money in appropriate group] / ([Total portfolio]+[Free money]) < [Percentage set to group]. With numbers: IF 45€ / (90€ + 10€) < 50%. Because with this formula, there's only 45% in each group, it's less that 50%, so this loan get's an investment from me.

    This would also eliminate the need to set portfolio manager's total size. (It can be added to just skip giving out new loans) It also keeps approx. percentages in portfolio. (As after an investment in this case, i may jump to 55% with 10€, but will not get new investments in that group until it's again under 50%) And it does so with any portfolio size at any point of time, so you don't have a situation you can have right now, that you have set portfolio size 100€ and you have 50€ worth of A loans and 0€ of AA loans. This would be impossible. (Except when you've set that one bid is 50€ worth)

    This is something i would really like to use, but unfortunately they went on a bit different road…

    1. There would definitely be some upsides to the solution that you offered out. I also first imagined the new manager building off the old loans you had, meaning if you set the % to 15% HR, then it would slowly drop the amount of HR loans it takes in to get closer to you “ideal” portfolio setup. It would have probably been a bit more difficult to implement than the current system though, which is probably why they have decided to use this path. Another potential reason might be that since a lot of the older investors such as me, have such strange percentages allotted to loans (I have 5x higher AA and A and B rates than historically on the site), that building off that might have been difficult so they decided to just start from scratch. If they add the measurement tools the new manager may become usable yet.

  3. It is possible to keep some money in reserve if your target allocations in different risk groups don’t add up to 100%. The first box on the portfolio manager with the symbol € above it shows the percentage of the portfolio, which will always be kept free: ” Proportion of your target portfolio you would like to keep on your Bondora account. If your target portfolio size is 10,000 euro and you will set cash proportion to 10% then the system will always keep 1,000 euro on your account.”

    1. The issue with that though, is that while it keeps the free money on your account, it also won’t invest it. Yes, it will be available for manual investing (which is good if you have a strategy to invest manually), but it won’t be invested into the “good” opportunities, which is the point here. (With the old system you knew how often you got into loans, so you could predict which managers to keep active that there would always be money on your account for when a A1000 opportunity came up.)

    2. I think Kristi means something that people used to do where they set up one PM to invest always (the highest quality loans) and another one with the setting of let’s say “leave €100 on account”. So whenever funds dropped below €100, the other PMs stopped investing, but you still had funds for a full investment into the quality loans if any became available.

      Another option was to manually pause your more aggressive PMs whenever you were running low on funds.

  4. Hi!

    I wanted to comment the last cannot do fact.
    If I understanded correctly, then you can reserve money if you like. You just can not divide 100% between different risk groups. For example, if you divide 90% between groups, then you reserve 10% of your money. At least that is what portfolio manager says…

  5. Since you can’t chose the Country you invest anymore, this is a reason to close my bondora account. Besides, the new Portfolio manager confuses me very much.

    1. While hopefully the rating system is good enough to justify leaving out countries, a lot of investors have closed theirs as well to wait for more information.

  6. Don’t numbers 2 and 4 contradict eachother?
    In the first it says the “portfolio manager STOPS after the assigned %/number is filled”, whereas the example in the latter states it will fill up 90% into B, even if you only assigned B 10% of the desired portfolio size with the rest being assigned to another group.

    1. So sorry, that was a typo on my part, messing up the letters. There is no paradox. I wanted to just emphasise the benefits on the old version with that example.

  7. Could you please explain, how do you choose the HR loans you invest to, by which criteria? As I understand, there is no guarantee to get them paid back.

    1. I generally pick two types of HR loans, either Estonian that seem interesting (work experience, home ownership, purpose… not entirely scientific) or those with ridiculously high interest rates (close to 90%), so only one loan needs to succeed to balance out three failing ones.

  8. Hi Kristi,

    Just stumbled on your blog today. Really informative and smartly written. Congrats upfront and keep going. I already subscribed. Furthermore I wanted to ask you sthg about the Portfolio Manager in Bondora. I also think that it is very complicated and since I am new in social lending I have some questions marks in my head :) Anyway, I was trying to se-up a CONSERVATIVE Portfolio Manager. As I would like to start with € 100,– , the Portfolio Manager asks for more money as Investment Amount and it says ”
    Your target investment amount is too low to achieve the recommended level of diversification. Consider increasing your investment amount. ”

    I am wondering if I put € 1000,– just to get started, does it mean that I have to invest minimum € 1000,– in order to get started with the Portfolio Manager?

    It’s rather confusing, maybe you have an answer for me.

    Would be appreciated.

    Kindly, Michael

    1. It’s simply stating that with a €100 portfolio you can’t achieve a diversification level that would be sufficient. If you change that to €1000, you are likely to see the same message.

      The target portfolio size doesn’t mean you have to invest that much. It simply means that this is your planned amount over X period and based on this amount it calculates how much would be a desirable investment per loan with such target (if you change the amount to be bigger, it will invest larger amounts per loan) and will stop investing if you have reached this target.

      In other words, if you set it to €100, then it will likely invest in €5 pieces in every Rating you have selected and will stop the PM once your €100 target is reached.

      If you set it to €1000, I think it’ll still invest in €5 pieces (you can check it from the Portfolio Manager row: “Investment per loan”), but will only stop if the €1000 is reached. In other words, if add only €100 to your account, it’ll invest that €100 and will reinvest whatever repayments you get once there’s at least €5 on your account.

      Of course, if you set it to €1000 and have for example 20% on D, then it means that the Portfolio Manager will invest up to €200 (20% out of the €1000) into D Rating and you could end up with a portfolio consisting of 100% of D loans initially.

    2. Thank you for the kind words, Michael! As Taavi has stated, the warning is just trying to emphasise the need for diversification, but it does it in a very confusing way. Just set it to 5€ per loan and allow to invest into the groups you’re comfortable with. For a conservative portfolio I wouldn’t recommend going below group C. Even then, most of the loans will be in C group because there are just so many of them.

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