In this month’s Mintos Insight, the team at Mintos takes a look at how major asset classes performed in 2022 and how this has “impacted growth in January 2023.”
For multiple asset classes, it was a year of “record lows.” Sanctions against Russia (due to the war in Ukraine) and retaliatory measures by Russia “had a large impact on financial services in 2022.”
When the war began in February 2022, there were “concerns about its implications,” the team at Mintos wrote in a blog post.
A “perfect storm” comprising contractionary monetary policy, surging energy prices, and the lingering after-effects of the COVID-19 pandemic “echoed throughout the markets, leading to an overall weaker performance in 2022 than expected.”
However, it wasn’t all “doom and gloom” for the alternative investment market in 2022.
CEO and Co-Founder Martins Sulte shares:
“2022 was a year of uncertainty brought about by unprecedented global economic events. Despite these challenges, Mintos has continued to grow, while interest rates in EUR have increased from 9% to 14%. While it is impossible to predict what the future will bring in 2023, existing data at Mintos has been promising so far. We are hopeful that while growth may lean towards the conservative side, 2023 will be a year of stability and continuous advancement for our investors.”
In 2022, interest rates were “raised significantly to the highest levels seen in 15 years by The Fed in order to reduce upward pressure on prices (the cause of inflation).”
At its worst in 2022, the U.S. Aggregate Bond Index “was down 13.06%.”
The ECB was “not far behind The Fed–by December 2022, the three key interest rates were increased by a total of 0.75%.”
Beyond interest rate hikes, the ECB also “confirmed that it would implement quantitative tightening by offloading 5 trillion EUR worth of bond holdings.”
This offloading “will likely cause investors to bet against bonds, as investors anticipate a fall in bond prices (yields perform inversely to prices).”
Investors typically “bet against German bonds, since it is commonly used as a hedge.”
When Mintos last looked at the 10 Year Government Bond yield in Germany, “the yield was continuously rising.”
By the end of 2022, it was “almost at 2.6% with a slight dip to 2.2% by the end of January 2023.”
As noted in the update from Mintos, REITs were also “one of the worst-performing asset classes of 2022, with rising interest rates and low demand.”
REITs remained volatile “for most of 2022, but showed slight signs of recovery towards the end.”
Ultimately, however, “the majority of REITs ended the year in red. A drop in total returns in December pulled the FTSE EPRA Nareit Europe down by over 25% in 2022.18”
Loan investments on Mintos
Loan investments “tend to have a low correlation with the markets: as they are not publicly traded, they are often less influenced by the same market drivers, providing a buffer against market downturns.”
The average net return on Mintos “for the year 2022 was 7.8%, signaling a year of growth.”
The average interest rate “hovered at 14%, up from 9%.”
As mentioned in a blog post by Mintos:
“While growth has been positive, it should be noted that the war in Ukraine significantly impacted loan repayments by Russian companies in 2022. But payment flows have surely been reestablished, despite limitations imposed by the Central Bank of Russia. As of publication date (6 February 2023), €9.1 million has been repaid.”
Mintos Activity: January 2023
In January, there was “almost €20m worth of investments per week. The average interest rate for January stands at 12%, at a slight dip from December.”
This can largely be attributed “to a seasonality effect – lending companies do not need access to new financing as aggressively in January as they did in December.”
Another reason is “an increase in demand from investors, since rates fluctuate with supply and demand.”
As more people invest, “the interest rate is more likely to fluctuate.”
Peteris Mikelsons, Head of Partnerships at Mintos, said:
“The positive trend of increased investments continued into January, with monthly investments surpassing the €71m mark. The average interest rate for EUR investments slightly decreased to 13.4% at the end of the month (vs 13.6% in December).”