Another close, disgruntled look at peer lending performance

A while back I posted an relatively positive note on peer2peer lending.  That post got linked by a well known blogger and has received quite a few hits since then.  My problem is that at that time I did not look very closely at the degradation of performance due to the pernicious effects of defaults on an aging portfolio even though that degradation was clearly there at the time. I knew at the outset that this kind of thing would happen so I was not completely naive but it has gotten quite a bit worse since my post so that I believe that my original reportage, while well intentioned, was inaccurate and it's getting more inaccurate by the day.  Let's remedy that here.  Here is the decay in three charts:




1. Declining return time-series. The blue line is the annualized compound growth rate of the account since the beginning of 2012. Red is the rolling 12 month return. Account means the value of the account at month end and it is net of defaults and fees so what an investor would expect to see in real life.  Note that the account has a moderate to low risk lending profile and is set to automated investing. Fees, if I recall, are about 1 percent.

2 and 3. Shift left in monthly returns. These charts are the distribution of monthly returns, first for the first three years starting at the beginning of 2012 and then for the last three years ending as of 7/1/2017. Return is defined as the change in month-end account value after fees and defaults so what an investor would expect to see in real life.

No conclusions or comments. I'll let the charts speak for themselves.