Mintos have launched new auto-investment strategies
In 2018 Mintos launched its ‘Invest & Access’ feature which allowed investors to have their investments performed automatically by a Mintos algorithm. It proved popular, with around 50% of investments being made via Invest & Access. At the time, we saw quite a few flaws in the way Invest & Access worked, and published a post about what the potentia downsides were. To some extent we feel that our concerns have proved accurate, as many investors have reported poor performance and unexpected portfolio allocations. Problems have included high levels of defaulted and suspended loans, lack of diversification, lower than expected interest rates, and longer than expected maturities.
Mintos seems to have accepted that the Invest & Access feature was not working well, and has now replaced it with three new strategies called Diversified, High-Yield, and Conservative. Below we highlight some of the key features of each, and what the potential problems with each are.
Diversified
- Includes all current loans ranging from A+ to C- Mintos rating
- Includes loans with and without buyback guarantees
- Maximum allocation of 15% to any LO
- Excludes late loans
- Simple
- Diversification has benefits
- Includes low rated loan originators
- Not possible to set a minimum interest rate
- No restrictions on maximum loan length
- Includes unsecured loans without buyback guarantees
- Unlikely to generate the optimal balance of risk and return
Conservative
- Includes loans ranging from A+ to B- Mintos rating
- All loans have buyback guarantees
- Maximum allocation of 15% to any LO
- Companies must have at least 80% current loans and less than 10% pending payments
- Lower risk than the other strategies
- Takes into account pending payment levels and loan performance
- Diversification has benefits
- May still include high risk loan originators - Mintos ratings can sometimes be optimistic
- May be difficult for the algorithm to fully invest funds meeting this criteria, taking into account the 15% limit on each loan originator
- No restrictions on length of loans purchased
- Returns may be lower than investors expected
High Yield
- Includes loans ranging from A+ to C- Mintos rating
- Chooses loans that are in the top 60% of those available
- Maximum allocation of 15% to any LO
- All loans have a buyback guarantee
- May suit some investors who are not concerned about risk
- The 'high yield' portfolio algorithm could construct a very high risk portfolio
- This algorithm will buy the loans that more sophisticated investors are avoiding
- A 'top 60%' interest rate threshold may not generate significantly higher returns
- Mintos does not promise to select loans with the highest rates available from each LO
- No restrictions on length of loans purchased
The new strategies are better than Invest & Access, but we still think there are many problems that need highlighting. The main issue we have with all of the strategies is that they will, in our view, end up investing in many loan originators that are at high risk of default. Even the ‘conservative’ strategy invests in loans with Mintos ratings as low as B-. Mintos tends to only give ratings below B- shortly before loan originators are suspended or default, which means that we don’t think the ‘conservative’ strategy will generate a conservative portfolio.
We see even bigger problems with the ‘high yield’ strategy. This strategy will buy pretty much any loan as long as the interest rate is higher than average. But constructing a portfolio with a high average interest rate, is unlikely to generate high investment return once defaults are considered. There’s a high risk that this algorithm will effectively act as the Mintos garbage truck, that buys the loans that no one else wants to buy, because the risk is too high.
Some other issues apply to all strategies, including the (most popular) diversified strategy. For example Mintos does not guarantee that the algorithm will select the loans with the highest rates available from each loan originator. There are also no restrictions around minimum interest rates, or maximum loan maturities. In short, investors are asked to place a lot of faith in the algorithm, without really knowing how it works, and whether it will select loans that meet their expectations. In fact, we’ve seen comments from some investors who have used these strategies, that things have often not gone to plan. For example, one investor was surprised to see that she had purchased a loan with a seven year maturity.
So, what's a better alternative?
Use several 'customised' strategies
A customised strategy is simply the new branding that Mintos is giving to its auto-invest strategies. It lets investors ensure that only loans that meet their requirements are met. You can create as many strategies as you like. We recommend setting up a strategy for each loan originator that you invest in, so that you can limit the amount of exposure to each loan originator.
Only purchase high quality loans
Many loan originators were suspended or defaulted during 2020. A couple were surprises, but most of them were predictable. The key to generating satisfactory returns on Mintos is avoiding loans from high risk loan originators. To choose better quality LO's you could use our published ratings for Mintos loan originators, or you could perform your own analysis and research.
Develop a diversification strategy
Being highly diversified on Mintos may not be the best strategy. Your diversification should consider how many LO's you feel comfortable investing in. If it is 7 or fewer, you will need to allocate more than 15% to each LO, which is the limit Mintos uses in its auto-invest strategies. We think having a less diversified, higher quality portfolio may be optimal, particularly for investors who are investing across several P2P platforms (which we recommend doing).
Customise each strategy
Make sure that you use of all the options that Mintos provides. In particular ensure that minimum interest rates, maximum loan length, maximum loan amount, loan state, and buyback guarantee settings are selected.
Monitor your account
Running multiple custom strategies will generate better returns, but it does require regular monitoring. In particular you will want to make sure that your funds are being fully invested. If not, you should investigate why they have not been. You may need to lower your return hurdles, increase allocations to other loan originators, or move the uninvested funds to another P2P site.
Consider investing manually
We think the optimal returns from Mintos can best be created through a combination of multiple customised strategies combined with manual investing. Manual investing is useful to take advantage of discounted loans in the secondary market, short term rate spikes, and for purchasing loans that require some prior review and analysis (such as mortgage loans).
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It seams that Mintos has update their strategies (in a good way).
Conservative no longer accepts B and B- and High Yield chooses highest interest rates available.
Diversified stays the same… (I think they could have limited each LO to 10% on this one)
Now i’m tempted to use Conservative, tweking auto-invest is a hassle.
Could you please update your article ?
Thanks.
Just like the sentiment with all investors, stay FAR away from these strategies. And if Mintos does not give what you need, there are tons of other solutions.
Miguel, yes this looks like an improvement. But you still would have NO control on for how long you are investing. Do you really want a lot of mini-investments (even as low as 74 cents in my experiment) for 5 or 7 years? Whatever Mintos says these kind of investments will be in your portfolio and they are virtually impossible to sell on the secondary market. The hassle (as you call it) of manual investment or of tweating your auto-invest keeps you safer.
Agreed! – Miguel we will update the page but we still strongly recommend taking 15 minutes to set up your own strategies.
Te way i see it, one wouldn’t need to sell it in the secondary market. When you “cash out” they transfer your (current) investments to other investors using the Mintos strategies. The late loans stay stuck until the borrower pays or buy back kicks in (a couple of months i presume). So the duration of the loans is not much of an issue. The issue is if the LOs get suspended or Default, but Conservative minimizes that… I think.
Maybe i’m missing the point here…
Thanks anyway.
There’s several risks I see here
– Inflated ratings: several LOs have a rating on Mintos of A or B that do not really match up with the ratings given here. Red flags are ignored, and adjustments are slow in coming. Akulaku still has its B+ rating, Capital Service has B-, and CrashWagon likewise.
– If an LO goes belly up, you can still stand in line to hold the bag. Since you cannot reasonably do investigations on all LOs (and even if you do, you can’t exclude them), you cannot prevent anything by due diligence, you are at the mercy of Mintos. Meanwhile you invest in a LOT of LOs, so the chance you hit a bad one is bigger.
– You will still get the loans nobody else (who manually selects) wants. Mintos has to ‘sell’ the loans to someone, so you’ll get the rubbish, since you can’t complain. Here, have some 72-month loans which just pay interest in the meantime, and a 90%+ sum at the end (Yes Mogo I’m looking at you!).
All good points!
They fixed some issues
https://www.mintos.com/blog/now-live-new-mintos-investment-strategies-creating-more-choice-for-investors/
Well this throws out of the conservative strategy many frankly terrible LOs that should never have been there! The most interest aspect for me is that they have also excluded highly regarded Creditstar that for Mintos is only a B and pretty stable Creamfinance that for Mintos is only a B-.
This is what Mintos is about. They are more and more becoming the market for the LO’s that need a hand to adultery. Many big LO’s start their own platform. I stay away from Mintos is they can’t offer the protection an investor needs. And these kind of new products surely shows they still don’t understand their customer and are only looking to satisfy shareholders and LO’s.
I have to very much agree with you. I started with Mintos as based on the reviews I had read, I deemed it a “safe” choice. But after getting knack of the market i realised that there are much better products out there, which better suit my needs and allow me more freedom. Hence, I started to slowly move my money out and it was even before all this began to happen. Unfortunately, I’m still in the process of doing it 😀
Give this guy a beer, not Heineken because it’s toilet water. I’m 450 EUR off from freedom. 🙂
Excellent comment! Your advice is spot on. Mintos offers a lot, but certainly it does not offer protection for those that are not prepared. It is frankly scandalous that they offer these supposedly reassuring strategies to the “unaware”. The last thing to do on Mintos is to automatically follow anything they propose. There are some good LOs and some good loans to invest in, but it takes work to select them. I probably do more than 80% of my investments manually, it is not passive investment at all. But I have less than 0,2% in recovery / long term pending payments.