The data behind Zopa’s lowered return projections

Published by Neha Manaktala on September 8, 2017

Zopa has an enviable track record of delivering net returns as evidenced by a more than 10 year track record of delivering 4-7% returns  (after losses and fees). The charts below illustrate some of the drivers behind their recent reduction in return projections.

Figure 1 – Zopa 12 month trailing net return since inception [to AltFi Data Returns Index methodology]
Figure 2 – Cumulative net loss by annual cohort – all risk bands. We can observe that the loss experience on more recent vintages is higher than on older vintages. These charts cover all the lending grades of each annual cohort. As such they are affected by changes to the mix i.e. more recent vintages should be expected to have a higher loss experience as they include more recently introduced risk grades made up of much higher interest rate loans.
Figure 3 – Cumulative net loss by annual cohort – C risk band. By studying a single risk band we can analyse the loss experience of a comparable sample of underlying loans – in this case the C risk band.
Figure 4 – Arrears in the A* risk band exhibits an increase in late payments, albeit from a very low base, in the super-prime risk band.

 

Figure 1: Trailing 12 Month Net Return

 

Figure 2: Cummulative Net Loss by Annual Cohort – All Risk Bands

 

Figure 3: Cummulative Net Loss by Annual Cohort – C Risk Band

 

Figure 4: Arrears as a Proportion of Outstanding – A* Risk Band