Harmoney Results — Issue 2

My Harmoney Investing Results as of 07 October 2015

No, we still have not seen a data release from Harmoney of overall loan performance on the platform. There has been very little information for investors to gauge results. Quoted below are some stats from their one year anniversary message.

We’ve:
– Facilitated over $100 million of loans in under 12 months;
– Received $1 billion in personal loan enquiries;
– Created 65 new jobs;
– Welcomed Trade Me and Heartland Bank as shareholders;
– Funded 90% of loans in 48 hours;
– Welcomed 3000 active investors, with an average balance of $6,000;
– Generated an average realised yield of 13%.
Source: Harmoney Investor email 10 September 2015 and press release.

I’ve been an investor through the Harmoney platform since early September 2014 so my results presented here are for the first 13 months.

First, I present some screen shots of my Harmoney dashboard taken on 7 October 2015. Click images for a larger version.

Dashboard 1 at 7 October 2015

Dashboard 2 at 7 October 2015

In the last month, Harmoney has updated the dashboards to show more data on the front page. I really like the Account Summary display here in the second image. It’s an easy place to track cash and principal. Even so, I do recommend keeping your own records.

Results as of: 31 Jul 2015 07 Oct 2015
(1) Total notes invested in 174 221
(2) Total notes paid off 26 45
(3) Total notes written off 1 1
(4) Total notes with principal remaining 147 175
(5) Notes currently in arrears 9 8
(6) Wt. average age of portfolio (months) 4.3 5.0
(7) Total dollars deposited $3,250 $3,800
(8) Outstanding principal $3,406 $4,033
(9) Cash available $10.96 $20.69
(10) Total return net of fees, tax (17.5%) and write-offs 10.90% 11.48%
(11) Imputed before tax return (net of fees and write-offs) 13.21% 13.92%
Other Portfolio Statistics
Weighted Average rate 18.79%
Weighted Average FAR 16.06%
Line 1: Invested in 221 notes

So far I’ve only ever funded one note per loan, or $25. I’m going for maximum diversification. If you invest in fewer than 100 loans, your results will be less predictable and the risk of a negative return will be higher.

Line 2: 45 notes have been paid off

As you can see the number of notes paid off is still high and climbing. I suspect a lot of these are due to rewrites. I won’t go into it again, but I’ll reiterate that charging a service fee on the same principal twice when a borrower is only repaying it once is double dipping on fees. You can read more about the issue at Monetary Meg including a response from Harmoney, and a meeting she had with Harmoney.

Line 5: 8 notes are in arrears

Of the 8 loans in arrears, 6 have not made a payment in the last month and 4 have not made payments in the last 2 months. The amount in arrears is $14.71 but the potential loss from write-offs is higher. I expect a couple of these will be written off in the next month.

Line 6: A weighted average of 5.0 months

The portfolio is not ageing very fast because of regular new deposits and early repayments decreasing the inventory of older notes. Because default rates are highest in the first twelve to eighteen months, I’ll feel better when my portfolio is more mature.

Line 10: An 11.48% return after tax and fees

Because the amounts and dates of my monthly investments vary, I’ve calculated my return using the XIRR function. It works like an IRR or individual rate of return function but it allows for uneven and irregular cash flows. I only track deposits, withdrawals, and the current balance (i.e. outstanding principal + in funding + cash). This return is after the deduction of fees and tax.

Line 11: Equivalent to 13.92% return before tax

A before tax return was obtained by dividing line 10 by (1 — RWT rate) or 0.825. Compared to my weighted average FAR, or forecast annualised return, of 16%, this result of 13.92% is a bit lower than I would have predicted. The notes in arrears, higher service fees from early repayments, and uninvested cash are drags on earnings, but difficult to separate.

Harmoney used to display FAR on the front page of the dashboard and then it was removed to the performance tab. With the introduction of a new dashboard, it’s been left out entirely. I’m not bothered by this though because I could never get my calculations to agree with it and I wondered if it was overoptimistic. Currently the FAR from the old dashboard is 17.58% but I’m not expecting that high a return.

Outstanding Principal by Credit Decile at 14 Oct 2015

So far, I’m happy with the performance of my investment at Harmoney. My before tax return of 13.92% is better than any other fixed interest product I know of, but I realise this is higher risk.

Recently, some investors have voiced concerns about the alignment of incentives between Harmoney and investors and questioned the quality of borrowers and lending criteria. Yes, as a company Harmoney is in this to make money. They do this through the fees they charge borrowers for arranging loans and the fees they charge investors for servicing those loans. While I too am not happy about the rewrite issue, its not enough to make me jump ship right now. So far I haven’t seen any changes in loan quality or higher than expected defaults. I don’t think Harmoney can afford to make reckless lending decisions because as soon as they get that reputation, their source of funds would dry up. P2P consumer lending is a new asset class with good diversification potential and the returns are still much higher than the alternatives. I’ll be continuing to add new funds every month. I am still cautious so I won’t be investing a large proportion of my savings in it and I will be watching for new entrants into the P2P space in the hope that some competition keeps fees in check.

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