Digging into the data: how returns at Funding Circle compare to other investments

In this edition of ‘digging into the data’, we look at the historical performance of returns at Funding Circle over the last five years compared with other investments and peer-to-peer lending platforms. We also look at the tax investors will save if they take advantage of the new Innovative Finance ISA at Funding Circle, which is due to launch next tax year (2016/2017).

Funding Circle compared to other investments

First, we wanted to examine how the cumulative, or compounded, Funding Circle return compares to other investments, including equities and corporate bonds.

Funding Circle cumulative return vs. other investments

Source: FTSE 100 total returnsBloomberg Global Corporate Bond index (BCOR), Funding Circle

Looking at historical returns between 2011 and 2015, we can calculate that lending through Funding Circle during this time delivered a better cumulative return than investing in the FTSE 100 and corporate bonds. Investors earned an average cumulative return of 37% at Funding Circle, compared to 27% on the FTSE 100 and 12% in corporate bonds.

We can also see that the average cumulative Funding Circle return is more stable than investing in equities, which carries a larger risk of volatility in the short term.

It’s important to add that although other investments may have yielded lower returns on average over the last four years, they have other attractive characteristics such as providing a diversified portfolio across risk return profiles. Past performance is also not necessarily a guide to future returns, and your capital is at risk with any type of investment, including peer-to-peer lending.

Funding Circle returns versus other peer-to-peer lending platforms

Digging into the data in more granular detail, we examined how returns at Funding Circle have compared to two UK peer-to-peer lending platforms.

Because peer-to-peer lending is still relatively new, only a few platforms have a loanbook mature enough to indicate consistent returns. Therefore for this calculation, we looked at platforms (P2P1 and P2P2) which have originated over £1 billion of loans, and weighted the historical returns by amount lent in each year.

Funding Circle weighted return vs. other p2p platforms

Source: Peer-to-Peer Finance AssociationFunding Circle

Again it is important to note that past performance is not necessarily a guide to future returns, and your capital is at risk with any type of investment. Not all platforms operate in the same way and it’s important that each investor chooses the platform that is right for them.

However based on this, Funding Circle has delivered the highest of any major peer-to-peer lending platform.

This data includes our 2011 cohort (£17.3 million of lending out of £1.1 billion) which did not perform in line with expectations. If you remove this cohort, the weighted return between 2012 and 2014 increases to 7.06%. The data doesn’t include the 2015 cohort because it has not yet seen a full 12 months of performance. For more information on how individual cohorts perform against expectations, visit our statistics page.

How much tax could you save by lending through an Innovative Finance ISA at Funding Circle?

With the new ISA season just around the corner, and investors looking to make the biggest tax savings they can, the Innovative Finance ISA will be an attractive proposition for some.

If you decide to use your ISA allowance of £15,240 to lend to businesses through Funding Circle across 5 years at the current estimated return of 7.3%, you could earn an estimated £6,335 in interest, resulting in a total pot of £21,676.

By lending through a Funding Circle ISA account, you could save £1,334 as a basic rate taxpayer and £2,692 as a higher rate taxpayer.

As with all projections, the nature of modeling is that it provides an estimate.

Conclusion

At Funding Circle you can earn attractive returns and fuel the UK economy by lending directly to British businesses. To help maximise returns, investors should lend small amounts to lots of different businesses. Since Funding Circle opened its doors in 2010, every investor who has lent no more than 1% of their portfolio to at least 100 individual business has earned a positive return, and 92% have earned at least 5%.*

It’s only a few weeks until the launch of the Innovative Finance ISA so we hope you found this analysis useful. If you have any questions about these calculations, please join the conversation over on our forum.

Enjoy lending,

The Funding Circle team

 

Notes

* This data is based off actual returns for people lending for at least 1 year. For more information, visit our statistics page.

Sources

Peer-to-Peer Finance Association

FTSE 100 total returns

Bloomberg Global Corporate Bond index (BCOR)

Returns table 1

Returns table 2

Returns table 3

Natasha

Head of Corporate Communications

 

7 thoughts on “Digging into the data: how returns at Funding Circle compare to other investments

  1. Do your ftse 100 returns include dividend reinvesting? Could you share the more detail on your ftse 100 calculations? E.g your exact start and end dates. Thanks!

      • Hi Dale, thank you for your question. Our FTSE 100 return takes into account the impact of dividend reinvestment. The dates will track from year start till end – 1 Jan/31 Dec. You can see our data and sources used at the bottom of the article.

    • Thank you for your question. The first entry point on the cumulative returns graph relates to the return on investment after one year, assuming a start date of 01/11/2016.

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