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Five Year Review: Lending Club Notes Outpace Stocks and Bonds

For most of us, five years may not feel like a whole lot of time. But for many investors, the past half-decade probably felt interminable. Let’s recap a little of what investors have experienced over the last five years:

  • After hitting a high in 2007, the stock market dropped by more than 50% until it bottomed out in 2009.[i]
  • The S&P 500 also saw a doubling in its volatility, as measured by standard deviations, at the bottom of the bear market in 2007-2009.[ii]
  • Large-scale bankruptcies like those of Lehman Brothers and Washington Mutual launched a meltdown of the financial industry that’s still being felt today.
  • Greece, Italy, and Portugal currently teeter on the brink of extreme financial distress.

Not the sunniest picture, is it?

How The Past Five Years Have Impacted Investors

I’m no macroeconomics expert, but from where I sit, it sure looks like there is more uncertainty ahead. After five years, what does the average long-term, buy-and-hold investor have to show for his experience (beyond some massive financial bruising and a growing distrust of the stock market)?

Well, for starters, markets haven’t really gone anywhere. I think it’s fair to describe the after-effects of the past five years as:

  • feelings of loss of control (NYT)[iii]
  • expectations of further chaos (BMO)[iv]
  • more young investors planning to pull money out of the stock market (NYT)[v]
  • trust in the financial profession at a historical low (EdelmanTrustBarometer)[vi]

Does that sound a bit like you, your friends, your family…?

It’s been a long slog in the markets, and as a result, many investors are now searching for a better way to invest.

Lending Club: A Novel Idea That’s Generated Five Years of Consistent Returns

Contrast the experience of stock market investors with the experience of investors in Lending Club Notes over the past five years. Lending Club has produced positive quarterly returns since inception—for 21 straight quarters.[vii]

It was five years ago that our company first began offering borrowers a better alternative to high APR loans from faceless credit card companies. When Lending Club opened its doors for business, it did away with many of the inefficiencies of the credit business by making lending more transparent and convenient.

It was a novel idea that consumers would be able to borrow money to consolidate their debt, do home improvements, pay for life events—anything, really—and that investors should be able to invest in their credit. More novel still was that in the process of doing so, borrowers could now access personalized credit at rates that were frequently materially lower than those being offered by credit card companies.

On the other side of the coin, after five years in business, Lending Club has also turned many of us into lenders. Individuals now have the opportunity to invest in [viii] notes that are tied to numerous personal loans, supporting an innovative lending platform and earning market-beating returns in the process. Heck, if you are looking for an investment for your retirement planning, you can even invest  in Lending Club Notes by opening an IRA now. [ix]

Lending Club Investors’ Performance Over the Past Five Years

In contrast to the roller coaster ride experienced by stock market investors over the past five years, Lending Club investors should be quite satisfied with performance they’ve seen.

Below, we’ve compared the five-year performance of a composite of all Lending Club Notes with the performance of an S&P 500 ETF ($IVV)[x] and a High Yield Corporate Bond ETF ($HYG)[xi]:
Total Return chart

1. Source: www.ishares.com. The iShares Core S&P 500 ETF seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the S&P 500. Presumes dividends from dividend paying equities in the index were reinvested. Results are net of fees and expenses of the ETF.

2. Source: www.ishares.com. The iShares iBoxx High Yield Corporate Bond Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the iBoxx Liquidity High Yield Index, a corporate bond index compiled by Market Indices Limited. Presumes interest payments and principal were reinvested. Results are net of fees and expenses.

3. Presumes selection of a portfolio matching overall performance of the portfolio of the Lending Club platform as a whole, taking account of defaulting Member Dependent Notes and servicing fees and presuming reinvestment of all principal and interest payments into additional Member Dependent Notes with matching performance. Actual performance of any portfolio of Member Dependent Notes by an investor may vary. Past performance does not guarantee future results.

Average Annual Return chart

1. See disclosures in table above for information regarding the descriptions and general methodologies of the iShares IVV and HYG ETFs. Source: www.ishares.com.

2. For 2007, results are annualized based on total returns from July 2007 through December 2007. For 2012, results are annualized based on total returns from January 2012 through September 2012. All results are net of fees and expenses.

Range of Total Returns chart

1. See disclosures in table above for information regarding the descriptions and general methodologies of the iShares IVV and HYG ETFs. Source: www.ishares.com.

2. For 2007, results are annualized based on total returns from July 2007 through December 2007. For 2012, results are annualized based on total returns from January 2012 through September 2012. All results are net of fees and expenses.

What you can see from the data is that Lending Club Notes have had higher total returns, higher average returns, and higher minimum returns than the S&P 500 and a representative index of high-yield corporate bonds.

True, there weren’t any massive one-year returns with Lending Club Notes, but neither were there any one-year slumps. Instead, over the past five years, Lending Club Notes have provided consistent returns for investors from 8.5% to 10.1% annually.[xii]

In fact, 93% of Lending Club investors with 800+ Notes earn net annual returns between 6% and 18%, and 100% of investors with 800+ Notes have experienced positive returns. (800 Notes can be purchased with a minimum investment of $20,000).[xiii]

We’d say those are some pretty impressive numbers.

There Is a Better Way: Solid Returns with Lower Volatility

In addition, Lending Club investors haven’t seen a great deal of volatility in their returns over the past five years. Returns were stable and consistent, with 21 consecutive months of positive returns.[xiv]

As Lending Club celebrates our five-year anniversary, we look back and congratulate our investors who have been able to perform so well with us. We also look forward to the future and hope that investors who have struggled in the stock market will stop by and give our platform a try.

We are standing by…

What has your experience been with Lending Club notes? We’d love to hear from you in the comments!

 


[i] Based on the price action in the S&P 500; data from http://www.spindices.com/indices/equity/sp-500.

[v] http://bucks.blogs.nytimes.com/2012/05/29/younger-investors-jaded-about-the-stock-market-survey-finds/, citing Charles Schwab Quarterly Retirement Pulse Survey, May 29, 2012, conducted by Koski Research.

[vii] Based on platform performance as of October 16, 2012.

[xii] Based on platform performance as of October 16, 2012.

[xiii] Return calculations based on accounts that have invested in 800 or more unique borrowers. 800 Notes can be purchased with $20,000. All data as of October 16, 2012. The availability of Notes/unique borrowers is dependent on your investment criteria. There is no guarantee that you will be able to invest in 800 or more Notes/unique borrowers promptly, if at all. The foregoing is not directed to the specific investment objectives, financial situation, or investment needs of any particular person and should not be considered investment advice. You should consider reviewing the prospectus with a financial advisor prior to investing. Past performance is no guarantee of future results.

[xiv] Based on platform performance as of October 16, 2012.

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