Reducing the risk of my Bondora portfolio

The new Bondora rating system has been live for almost four months now, and it’s time to see how my portfolio has changed. I set out to slowly start to lower the risk of my portfolio for two reasons. Firstly, because the lack of the country filter means that allowing in all risk groups in my opinion isn’t reasonable and secondly since my portfolio is getting bigger, then I’d like to make the portfolio a bit more stable as well.

At the end of November this is what my portfolio looked like:


Even though by the old logic 50% of my portfolio consisted of “good” A1000 credit group loans, once the new ratings were added, the picture completely changed. This is why I decided to try to slowly reduce the amount of risky loans, only adding them on manually and allowing the new portfolio bidder to invest into AA, A, B & C loans. The results have actually been less dramatic than you’d expect.


The actual changes are as follows:

AA (0%), A (-1%), B (+3%), C (+4%), D (-3%), E (-1%), F (0%), HR (-3%)

Now, the question is, why are the changes so small? Four months should be a reasonably long time. The answer consists of many components in this case.

1.) There are very little AA and A loans, and my portfolio had more than the marker average for both. This means there just aren’t all that many loans for me to add into those categories even if I want to (I have 1,2% of AA loans while the historical average is 0,3% and I have 6% of A loans while the historical average is 2,5%)

2.) Since E,F&HR credit groups include a lot of my defaulted loans (440€, about 70% of my defaults), the principal amount of those groups is slow to change, because loans in other groups are getting paid back and reinvested, while there is a lot of locked in principal in those groups.

3.) Since my portfolio is at just about 5500€ currently, then to meaningfully change the balance of different credit groups take quite a lot of money to see the impact. At the rate I’m going I’ll get the HR rate to drop to about 12% and about 4% for E&F by the end of the year since I haven’t completely stopped investing into those groups.

This demonstrates very clearly why it’s important to have a long term strategy for your portfolio. If you just wish to change things quickly, then it won’t really work in social lending. The 600 or so loan pieces that I had before I started to slowly lower risk levels will impact my portfolio for a very long time, and to completely overhaul my portfolio I’d have to sell a lot of loans (which I don’t want to do).


3 thoughts on “Reducing the risk of my Bondora portfolio

  1. I would keep myself off from B rating. To me it seems that C group delivers better returns (higher rates, but almost the same default rate as B group has).

    1. Currently the portfolio manager invests into 2x as many C loans as B loans, so I don’t really see B group getting all that much bigger, but I’ll keep an eye out on that.

  2. Kind of funny, how we have essentially the same proportions in regards to Bondora Rating although our investment strategies are pretty different :)

    There is of course always the option to sell some of your riskier loans and replace them with fresh lower risk loans if you want to do the change faster, but that would probably not make much sense, unless you can do it with a decent mark-up.

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