The recent market weakness has created a possible a buying opportunity for P2P Global Investments (P2P), the specialist investment trust that provides exposure to a portfolio of peer-to-peer loans. Its shares have fallen from more than £11.50 in February to around £10 and now trade at a small discount to NAV with a prospective yield of 6%.
Peer-to-peer loans allow people with spare cash to lend directly to people or businesses who want a short-term loan. By cutting out the middleman they are able to offer ‘savers’ a higher return on their money, while allowing borrowers to obtain funds at a cheaper rate.
The peer-to-peer industry has grown dramatically since the financial crisis and is now well established in areas such as the UK, Continental Europe and America. It is also spreading further afield to places like Australia and New Zealand.
P2P Global Investments raised £200m when it floated on the London Stock Exchange in May 2014 and has since had two further share issues including separately listed C shares that came to the market in June.
The fund invests in a portfolio of peer-to-peer loans with targeted annualised returns of 5% to 15% spread across multiple platforms, countries and credit risks, with the aim of generating an attractive level of income and capital growth. It hopes to pay an annual yield of 6% to 8% with quarterly distributions, and if held in an ISA there would be no tax to pay on the income.
The investment manager is Marshall Wace LLP, a global asset management firm, although the discretionary management of the peer-to-peer loans portfolio has been delegated to Eaglewood Capital Management, which specialises in this area.
At the end of September 65% of the assets were invested in loans originating in the US, with 30% in Europe including the UK and 2% in Australasia. The other 3% was made up of direct equity stakes in various peer-to-peer platforms.
Its underlying NAV has risen in each of the 16 months from launch to the end of September with a total gain of 7.65%. There have also been four dividends paid in 2015. These have been 12.5 pence per share, 16.5p, 10.5p and 18.5p, which give the fund a historic yield of 6%.
Initially the shares rose quite strongly and over the last 12 months they have traded at an average premium to NAV of almost 9%. This has now turned around with the share price falling 11% in the year-to-date, which means that they are now trading at a small discount.
One of the reasons for the waning enthusiasm is the recent demise of the Stockholm-listed peer-to-peer platform Trustbuddy. Operations were suspended after the discovery of “serious misconduct” including the misuse of client money, and the company has since filed for bankruptcy. No losses were incurred by P2P Global Investments as it had no exposure to Trustbuddy due to its due diligence procedures.
The peer-to-peer industry has grown dramatically and this has allowed the creation of other similar funds including VPC Speciality Lending Investments (VSL) and Ranger Direct Lending (RDL), with more on the way.
P2P Global Investments has the longest track record in the sector and has a market value of over £450m. Its largest shareholder is Neil Woodford’s investment management company, which owns 16% of the issued share capital.
The recent fall in the share price has created an interesting potential buying opportunity. If you invest via an ISA there is a good chance that you could earn a tax-free 6% yield. The shares could also appreciate in value if it becomes clear that interest rates on savings accounts are going to remain at rock bottom for longer than expected.