Custom automated strategies provide a flexible way for investors to automate their investments in loans via Notes on Mintos depending on their own preferences and goals. In this article, we explain how custom automated strategies work, which investment criteria they offer, and how to fix common issues.
How custom automated strategies invest
Custom automated strategies search the available investments on Mintos for opportunities that match your criteria, and make investments on your behalf. By using custom automated strategies, you can save time compared to manual investments, and at the same time maintain a high degree of control over your investment criteria.
As market conditions change over time, you should review and update your strategies regularly. The pool of investments matching your criteria today might be different from when the strategy was created, and as a result, the strategy might not be executed efficiently (more on that later). Accordingly, you should ensure that the selected criteria will result in a balanced and adequately diversified portfolio in line with your investment goals.
You can create as many custom automated strategies as you like. If you have multiple strategies, they will be executed in the order (priority) you assigned. You can use this logic to create a cascading set of strategies for your goals. Let’s say your main focus is on high returns, and you also want to make sure your money is invested efficiently. In this scenario, you could create a primary strategy that includes investments with high interest rates and a secondary strategy that includes investments with slightly lower interest rates. The secondary strategy keeps your money working if there are not enough investments that match your primary strategy at any time.
Setting investment criteria
You can set your preferred parameters for many investment criteria when creating or updating a custom automated strategy:
- Market – Primary or Secondary
- Lending company issuing the underlying loans
- Country the underlying loans were issued in
- Mintos Risk Score of the investment
- Type of the underlying loans
- Whether the underlying loans have a buyback obligation provided by the lending company
- Interest rate of the investment
- Term of the investment
- Maximum amount to invest with this strategy (a.k.a. the strategy target)
- Minimum and maximum amount per investment
- How the strategy will diversify investments
- And more
After you set the investment criteria and activate the strategy, it will search for matching investments and start investing. Active strategies will continue to invest until they reach the strategy target, as long as there are matching investment opportunities and sufficient funds in the account. Any time a strategy drops below the target – for example, when an investment matures – it will invest up to the target again. Strategies can be activated and stopped anytime.
Checking the market
When setting investment criteria, it’s important to keep an eye on the market to make sure the strategy can be executed efficiently. For example, if the investment criteria are too strict, the strategy might not find matching investments.
Before activating a strategy, you can check the market using the widget on the right-hand side.
Show matching results will tell you how many investments currently match the selected criteria. Investors can also check this report for an overview of the available investments broken down by interest rate and Mintos Risk Score. It’s important to note that the supply of Notes is dynamic, and what’s available for different investment criteria will change over time.
A low number of matching investments can indicate that the selected criteria might not be efficient under current market conditions.
Spreading capital across multiple assets is considered one of the best ways to manage investment risk, as each investment will only make up a small part of the portfolio. Custom automated strategies diversify investments across the selected lending companies. Investors have 3 options when managing this diversification:
- Dynamic diversification
This option is enabled by default, and will generally provide the most effective diversification to reduce concentration risk within the criteria set for this strategy and the current market situation. The calculation of the diversification is based on outstanding investments, Notes available for investment, and average weekly investments in the last 4 weeks on Mintos. The diversification is recalculated daily.
To ensure the strategy does not become too concentrated, Dynamic diversification will have a cap of 15% on the exposure to a single lending company. This initial cap will be increased proportionally if there are not enough lending companies included in the strategy to reach 100% fulfillment with a 15% cap per company. For example, if 2 lending companies are included, the initial 15% cap will be increased to 50% for each company to make sure the target can be reached.
- Custom diversification
If you want to manage your own diversification, you can select Custom diversification. This allows you to manually assign the desired maximum allocation for each selected lending company. For example, you can choose a 10% maximum distribution for one lending company, 20% for another company, and so on. If you want to assign the same maximum allocation to each selected lending company, a convenient Set equal option is available.
If you switch off diversification, the strategy will invest without maintaining diversified allocation limits. Please note that this may increase your investment risk and should be avoided.
Custom automated strategies will invest funds based on the chosen level of diversification. The diversification percentage for each lending company – whether calculated by Mintos or set by the investor – acts as an allocation limit. This means that the strategy will not invest more than the indicated percentage.
Before you set a Custom diversification, make sure to check the market data. If your diversification limits don’t match the market supply, your strategy might not invest efficiently. It’s also important to note that Custom diversification is only calculated when the strategy is created or updated. That’s why you should review and update strategy settings regularly to make sure the strategy can invest efficiently under changing market conditions.
If you’re using Dynamic diversification, you don’t have to worry about setting or updating your diversification settings.
Fixing common problems
Custom automated strategies are a powerful tool for investors. But there might be situations where a strategy is not investing as expected. This is often caused by the chosen strategy settings. In this section, we’ll take a look at some common problems and how investors can resolve them.
The strategy doesn’t reach its target
In some situations, a custom automated strategy might not invest the available money in the account, even though it hasn’t reached the strategy target yet. In many cases, this is caused by one or more of the following:
- Not enough matching Notes
The market for Notes is constantly changing. So if the chosen criteria are too restrictive, the strategy might not find enough matching investments. For example, interest rates fluctuate, and some underlying loan types have seasonality. As a result, the minimum interest rate configured for the strategy might be higher than the investments offered, or some loan types might not be available. If you see this happening, you should review your strategy settings, or create a new strategy with looser criteria and lower priority to invest uninvested money.
- Chosen lending companies don’t have sufficient supply
When using Custom diversification, you might unintentionally allocate a percentage of your money to investments from lending companies with no supply. In this case, the strategy will not be able to fill the allocated portion. To avoid this, you can try Dynamic diversification, which takes the supply of Notes and invested amounts into account, and is updated on a daily basis. If you’re using a Custom diversification, make sure to check and update your diversification settings regularly.
For example, the strategy might be set up to invest 5% into investments from a specific lending company, but only enough to fulfill 4% are available. In this scenario, the remaining 1% would stay uninvested, and the strategy might not reach its investment target.
- Lending company allocation isn’t up to date
The available investments related to a specific lending company can change over time. As a result, if you’re using Custom diversification, the allocated part of the strategy may not be reinvested. To make sure a given strategy meets your goals, you should review strategy settings regularly. You can also use the built-in functionality to check for matching investments, as explained above. If you’re using Dynamic diversification, the allocation will be automatically recalculated on a daily basis.
- Minimum investment amount is too high
Custom automated strategies have a minimum investment per Set of Notes. If you have an available balance that’s smaller than this amount, it won’t be invested by the strategy.
The available balance is a good indicator for the issues described above, so investors should regularly check this number – for example, via the mobile app. If you see uninvested money unexpectedly accumulating in your account, check the limits of your strategies to avoid missing out on potential returns.
The strategy isn’t sufficiently diversified
Custom automated strategies provide you with a lot of control when it comes to managing diversification. Consequently, you need to consider whether the chosen settings will lead to a well-diversified investment portfolio that’s in line with your investment goals.
Common diversification problems arising from strategy settings could be:
- Strategy target is set too high
The allocation limit for each lending company is calculated based on the diversification settings and strategy limit set by the investor. If you set a strategy limit that is much higher than the available funds for investing, the investments might end up more concentrated than you intended.
Let’s say you want to invest €1 000 evenly across investments from 10 lending companies (which is generally in line with recommendations for sufficient diversification on Mintos). If you set a strategy limit of €100 000, the allocation limit for each lending company becomes €10 000, assuming equal distribution. As a result, the entire amount actually available – €1 000 – might go to investments from a single lending company, creating a portfolio with insufficient diversification.
To ensure your strategy diversification can be calculated correctly, it’s important to set a strategy target that you realistically plan to fill within a year or so.
- Invested amount is too low
If the strategy limit or available balance is too low, the strategy won’t be able to invest in a sufficient number of assets for proper diversification. To solve the issue, you could set up the strategy in a way that it can invest in 100 different underlying loans or more.
- Number of lending companies included is too low
Sometimes investments are concentrated in a small number of lending companies, which is not efficient for diversification. To avoid this happening, you should include 15 or more lending companies and use Default diversification to make sure proper allocation limits are set. When using custom allocation, you should allocate no more than 20% of the portfolio to investments from one lending company, and no more than 50% to any combination of 5 companies.
- Number of countries included is too low
The investments are concentrated in a small number of geographies, which is not efficient for diversification. You should include a sufficient number of countries (6 or more) and use default diversification to make sure proper allocation limits are set. When using custom allocation, you should allocate no more than 33% of the portfolio to one country, and no more than 50% to any combination of 3 countries.
Alternatively, you can manage your diversification at the account level by combining multiple strategies to create a diversified portfolio. You can also subscribe to our newsletter to receive regular updates on your account-wide diversification level. See example
The strategy isn’t up to date with market developments
Custom automated strategies don’t automatically follow market trends. So if you’d like to make adjustments to your strategies based on market developments, you’ll need to review and update them manually.
- New lending companies aren’t included
We constantly add new lending companies to Mintos, however, they aren’t automatically added to existing custom automated strategies, even if their investments might perfectly match the strategy’s criteria. To add new lending companies, you’ll need to actively update the strategy. To stay informed about new lending companies, you can follow our blog or subscribe to our newsletter.
- Changes in Mintos Risk Score
When creating a custom automated strategy, you can use the Mintos Risk Score as one of your investment criteria. It’s important to note that this setting acts as a filter for selecting lending companies with matching investments at the time the strategy is created. If the Risk Score for these investments changes at a later time, the strategy will not automatically adjust how it invests. You will need to manually update your strategy if you wish to make changes based on the quarterly updates of the Mintos Risk Score.
Keeping up with developments
Custom automated strategies provide many options to finetune your automated investments. But at the same time, they are not activate-and-forget strategies. So to make sure they can keep investing in an efficient manner that’s in line with your goals, it’s important to review and update your strategies on a regular basis, at least once a month. You should also keep up with the latest market developments, such as by following our blog or subscribing to our newsletter.
If you don’t want to constantly follow market trends or find regularly updating your strategies takes too much time, our predefined Mintos strategies might be a good alternative for you. Investing with a Mintos strategy that matches your investment goals can save you time and effort, as it will automatically track the market on your behalf.