Investments into peer funding models that back alternative loans, namely bridging finance, have far outperformed the alternative equity market, according to research from bridging lender West One Loans.

The lender’s research found that in the year up to Q1 2013, private investments into short term secured finance generated an average yield of 11.2 per cent.

Over the same period, shares listed under the FTSE Alternative Investment Market (AIM) yielded an average of 0.96 per cent, 11.6 times lower than the gain offered through bridging loans.

The total annual return generated by peer-to-peer investments into short terms also remains 16.9 percentage points above that of the FTSE AIM.

Though the total return offered by such investments has steadily declined, West One Loans report that strong yields and the fact that capital is secured against ever-appreciating real estate mean that investing into bridging loans is unlikely to not deliver a significant profit.

Indeed, over the same period AIM shares gave investors far weaker dividend yields and showed a degree of capital depreciation, meaning that total return from alternative equity remained at -5.7 per cent.

The funder also pointed out that between February 2011 and March 2013 (shown on the graph above), total returns from bridging loans investments were also far less volatile than their less traditional counterparts.

Over the two-year period, secured peer-to-peer loans showed a maximum variation of 3 per cent, while the FSTE AIM fluctuated by 55.5 per cent at its peak.

Mark Abrahams, Director at West One Loans, was quick to highlight the advantages of investing in an industry that is estimated to be worth £1.6 billion in gross lending.

He said: “Equity investments of all sorts are an increasingly risky source of income, and many respected fund managers seem to agree.

“The medicine of quantitative easing is addictive – and not necessarily the best cure. Even the slightest hint that the authorities could re-impose economic reality is met with panic on exchanges across the world.”

Mark added: “In the hunt for yield, peer-to-peer models are the future. Lenders and borrowers no longer need to squeeze economic activity through Victorian high streets, and many sophisticated investors are flourishing in this environment. The trend for disintermediation is accelerating.”

He went on to say that investment in such secured products would mean that investors could decide exactly to what extent they were exposed to the risks that were attached to a business in need of finance.

He said: “Peer-to-peer lending is an increasingly popular way to gain access to exciting projects, while secured loans can give investors the guarantee they need that their capital investment is safe.

“Short-term secured loans can offer sophisticated investors the chance to chart their own approach to small business and development projects. Critically, this is without the risk of owning a portion of these ventures, as is the case with many, far more volatile alternative equities. Equally, by their very nature secured loans don’t expose investors to the risk associated with unsecured peer-to-peer models.”