We deep dive into both the key metrics and the two leading indicators of portfolio performance that every Validus investor or prospective investor should know.
Defining Investment Portfolio
In general, “investment portfolio” refers to all of your invested assets. It would include everything you own, for example, real estate to shares. Metaphorically speaking, your investment portfolio is akin to a house, and all of your assets are housed under that roof. This definition of an investment portfolio is the same concept applied within the context of the Validus platform. All of the loans you invest in, diversified across SMEs and product types, comprise your portfolio.
Your Investment Portfolio on Validus platform
Before we deep dive into your portfolio performance, we will start by explaining how this portfolio is built on the Validus platform and how allocating specific loan facilities occurs.
Once a borrower (SME) is underwritten and approved for a loan, the deal, or what we call a “facility,” will be listed for financing. It will then be made available for funding on the Validus platform. Investors can easily access these facilities via the web or the Validus mobile app (downloadable via the App Store or Google Play).
You may read our investor’s guide on the different facility types to learn more.
As an investor on the Validus platform, you can decide if you wish to leverage the Auto-Invest feature or select the facilities you would like to invest in on a frequent manual basis.
Putting the Auto-Invest feature to work helps you to “set and forget.” It allows you to set your concentration exposure by indicating your preferred maximum exposure amount per borrower per product type and risk-grade band. It will automatically allocate any available funds according to your preferences and helps to optimise fund utilisation and maximise returns across a diversified portfolio without active monitoring and selection. It makes an excellent option for busy professionals or investment managers juggling multiple asset classes and portfolios.
There is no right or wrong choice between playing an active or passive role – we see varied preferences across our incumbent investor base. We strive to make all options available to suit a wide range of investor profiles.
While your dedicated RM (relationship manager) will be available to assist, you retain complete control over your investment portfolio. For example, an investor may elect to start with Auto-Invest, to test a few theses around certain products or concentration ratios. Once familiar with the opportunities, allocation speed, and performance of their portfolio, they may revisit the settings and adjust as they learn.
Maximising my investment portfolio
- How much am I restricting myself on the Validus platform?
- How is the current borrower demand for loans matching investors settings I have set for?
As a general rule of thumb, the more limits set on your investment portfolio, whether selecting only a particular product, interest rate, exposure per borrower, tenure, the more possible opportunities you might be missing out on. The same goes for any other investment opportunities available in the market. Based on our experience, our best-performing investment portfolios were highly diversified across borrowers, sectors, and products. As with a traditional investment portfolio, this safeguards against any unforeseen slowdowns in certain sectors and doesn’t put all of the investors’ eggs in the basket of a single borrower.
We also encourage investors to consider taking advantage of the settings on the Validus platform by adjusting your auto-invest or allocation, based on frequent reviews of performance, where any changes can quickly be implemented on the platform and updated to execute in real-time. Your preferences and investment goals are sure to change from time to time, and checking in once in a while allows you to take stock and recalibrate your experience on the platform.
Current utilisation shown on your Validus account is equal to the Principal in outstanding facilities divided by the Portfolio balance. The higher the Principal in outstanding facilities- the higher the utilisation of the investor’s account. The higher the utilisation of the investor’s account (or the less idle funds sitting in their account), the higher potential to accrue a greater share of interest earnings on these facilities over time.
Two indicators of a portfolio performance you must know
Besides maximising your investment portfolio on the platform, it is crucial to know how the actual returns are reflected on the Validus platform.
There are two indicators of portfolio performance:
- Net returns – consisting of net repayments of the matured and repaid facilities
- Accrued and outstanding interest – consisting of the accrued interest on the outstanding facilities, pending to be repaid (expected returns)
Net returns shown under your Validus account would be represented as a derivative of your gross interest earnings on the Validus platform, less any insurance premiums paid for coverage on certain loans, the Validus admin fee (including GST), any principal amounts written-off, and any withholding tax deductions (including GST).
A new investor on the platform would only see the first wave of (net) returns reflected under the account after investing on the platform for several weeks or months, depending upon the tenor of the first loans they elected to invest in. The net returns only reflect real earnings on loans that have matured and been repaid.
It is essential to consider that you are accruing interest on any of your outstanding facilities, but this will not be reflected under your net returns until they have been repaid. Many investors early on wonder why three months will pass without net returns rising, and it’s important to remember that this is due to the tenor of the loans and bullet repayment structures in many cases.
To help investors better understand the status of all the facilities they have invested in throughout the year, the platform also reflects a weighted average interest rate and the weighted average tenure of your Validus portfolio. This helps in understanding the actual performance of the overall portfolio, as well as the portfolio liquidity. If the weighted average tenure of your portfolio is three months, you can expect your earnings to multiply by four as your investments will mature in 3 months and can be reinvested four times over 12 months.
Defining weighted average interest rate and weighted average tenure
Weighted average interest rate is the weighted average expected interest rate to be paid for your invested facilities year to date. In contrast, the weighted average tenure is the weighted average amount of time (months) until the facilities in your portfolio mature for invested facilities disbursed year to date.
Apart from the above, when investing on the Validus platform, you will see the breakdown of your portfolio allocation by product, industry, and repayment status. This overview provides you a clear understanding of your outstanding facilities.
The health of your investment portfolio depends on your actual portfolio allocation, settings, and the supply of facilities at any given point in time (and, in turn, how your settings allow you to participate if you are using Auto-Invest).
We recommend reviewing your portfolio at least every quarter (your dedicated RM will always be available to check-in) to ensure you are on track to achieve your goal while investing on the Validus platform.
<Tl;dr> Similar to how you would spread your money across different investment instruments to reduce risks and expand your portfolio, diversification should also apply to your investment portfolio on the Validus platform. It plays a significant role in whether you will meet your investing goal on the Validus platform, allowing you to not only adjust your portfolio in consideration of risk-return appetite but to ensure you are allowing yourself access to greater opportunities for deployment, utilisation, and ultimately potential ROI.
However, as with any investment, we highly encourage investors to do their research, understand the products we offer, ask questions, and consider how such products may add value to their portfolios. Schedule a chat today with your dedicated RM, or drop us an email at [email protected] to request assistance on getting started.