Investors should not panic over Brexit's bumps

With the UK now on course to depart the EU after 43 years, economists are warning that our economy could be in for a difficult period of adjustment. Despite this, the National Institute of Economic and Social Research (NIESR) estimates that the UK economy grew by a robust 0.6% in the second quarter of this year.

Two weeks on from this result, what does the future hold for British investors, particularly those interested in investing in peer-to-peer (P2P) loans to achieve a fair return on their investment?

Investors should look to profits, not prophets

One sound piece of advice for investors worried about their portfolios is to ignore the slew of forecasts, predictions and prophecies emerging after the Brexit vote. What history shows is that even major market movements -- such as those seen over the past fortnight -- will register as mere 'blips' years from now.

One supposed cause for anxiety is the fall in sterling from around $1.50 to $1.30 today, a drop of roughly a seventh (14%) in a fortnight. However, while a weaker pound makes imports more expensive, companies with large non-sterling earnings will see their bottom lines benefit from this currency shift. Indeed, shares in large pharmaceutical, mining and oil companies have seen their shares soar post-Brexit, simply because much of their earnings are in US dollars and other foreign currencies.

Financial optimists will also point to the drop in the pound on 'Black Wednesday' (16 September 1992) caused by the UK's exit from the European Exchange Rate Mechanism (ERM). This steep drop in sterling was followed by strong economic growth, falling unemployment and lower inflation lasting many years.

With around seven-tenths (70%) of FTSE 100 earnings coming from overseas, the blue-chip index has actually risen by about 3% since the referendum. However, shares in the more UK-focused FTSE 350 have done less well, with the mid-cap index down around a twelfth (8.3%) since 23 June.

In short, with blue chips rising and mid-caps falling, many UK investors with diversified share portfolios may have chalked up small, positive changes to their wealth over the past fortnight -- despite Mr Market's wild oscillations in the final week of June!

Borrowers set to benefit from lower interest rates

With UK economic growth possibly experiencing a temporary slowdown in 2017, Governor Mark Carney has hinted that the Bank of England stands ready to cut its base rate this week to stimulate lending and growth.

The Bank has held its base rate at a record low of 0.5% a year since March 2009, but two cuts of 0.25% would take it to an unprecedented 0%, possibly as soon as this Thursday. Furthermore, the Bank could even join other major central banks by bringing in negative interest rates, so as to encourage banks to lend more of their spare capital to businesses and individuals.

This Thursday, when the Bank's Monetary Policy Committee (MPC) holds its next monthly meeting we could see a 0.25% drop or even a full 0.5% cut as part of an arsenal of actions to help keep the British economy firing on all four cylinders. As things stand, interest-rate derivatives (known as overnight index swaps) are pricing in an almost four-in-five chance (78%) of a 0.25% cut in a week's time and an 86% chance of at least a quarter-point cut by August.

Of course, lower general interest rates will be welcomed by business borrowers and mortgage holders, whose future repayments will go down and we have seen a slew of lower mortgage rates announced by many banks since the referendum. However, lower savings interest rates will be yet another setback for Britain's long-suffering savers, who can barely earn positive after-tax returns on their spare cash nowadays, and certainly not above inflation.

Generating adequate investment income is challenging

Thanks to ultra-loose monetary policy and record-low interest rates, it's a constant, uphill struggle for investors seeking to generate income from their spare cash and other financial assets.

Returns on cash deposits are negligible, while bond yields (the interest generated by fixed-income government and corporate IOUs) have also plunged to all-time lows. Similarly, while gold has been one of the world's best-performing assets in 2016, the yellow metal pays no income and therefore is not much use to income-seeking investors.

Another problem faced by investors is the freezing of redemptions of the riskier commercial property market funds which had similar problems in the credit crunch. Moreover, many property pundits are predicting falls in London prime house prices, at the high end of the market, even though no such predictive outcomes are thought as likely in the rest of the UK. On the other hand, a weaker pound makes property more attractive to foreign buyers, who stand to cash in on sterling's slide and appear to have started to do so in bidding for forced sales of commercial property by the beleaguered commercial property funds mentioned above.

Peer-to-peer lending can help yield-starved investors

As the world's sixth-largest economy, the United Kingdom will eventually strike deals with our major trading partners and our economy will soldier on once again. The closure on the appointment of a new Prime Minister today can only assist in getting matters progressing forwards again.  In the meantime, what can British investors do to strengthen and diversify their portfolios and improve their potential returns?

One increasingly popular option for income-starved investors is to add peer-to-peer lending to their portfolios of mainstream financial assets. Since consumer P2P lender Zopa launched in 2005, more than 141,000 UK investors have turned to P2P lending to increase their portfolio income, lending well over £5 billion of credit to businesses and individuals.

This modern form of investing involves lending to businesses (via secured or unsecured loans) and/or individuals (via unsecured loans). P2P-lending returns typically range from 3.5% to 7.5% a year, before tax and any loan losses not covered by loss-provision funds.

Of course, as P2P lending is not cash savings, your money is not 100% safe (see the 'Risk Warning' below) and is not as yet covered by the Financial Services Compensation Scheme (the government-backed safety-net that protects 100% of the first £75,000 of cash on deposit per person per UK institution). Nevertheless, following the launch of the new Innovative Finance ISA (IF ISA) on 6 April, more and more investors plan to try P2P lending inside this modern tax-free wrapper.

In addition, with banks and other lenders already slowing their lending to SMEs (small- and medium-sized enterprises) according to initial market feedback since the Brexit vote, there is a genuine opportunity for P2P platforms to ramp up their lending and support to credit-worthy British businesses..

Every Assetz Capital business loan is secured

Finally, always remember that no two P2P-lending platforms are the same. At Assetz Capital, we lend only to sound British businesses and not to individuals. What's more, all of our P2P business loans are secured against tangible, realisable assets (such as property, land or other realisable goods), with additional safety margins on some investment accounts such as Provision Funds tested against the Bank of England’s 2016 stress test assumptions. This focus on security is at the core of our strength and should help to reduce the risk of loss for our all-important P2P lenders.

Summing up recent events, Stuart Law, co-founder and CEO of Assetz Capital, comments, "Regardless of what happens in the months ahead, we, as a prudent lender, are confident that we are in a great position to continue to supply credit-worthy UK companies with much needed finance provided it is secured with realisable assets and at sensible loan to value ratios. With an army of thousands of individual P2P lenders, a credit line of over £500 million and a market-leading P2P platform, we stand ready and able to lend sensibly to solid British businesses at fair rates."

RISK WARNING: "As with most forms of investment, peer-to-peer lending carries a degree of risk to your capital; in this case, if borrowers were unable to repay their loans. At Assetz Capital, we seek to reduce this risk to our investors by taking asset security on every loan, with the added benefit of a discretionary Provision Fund for some of our investment accounts."

- July 12, 2016