Jun 14, 2023
The Power of the Utilization Rate
Lend, is our latest product offering which allows investors to invest in shares of residential mortgages, and earn monthly dividends. And at the core of Lend is an insightful metric, the Utilization Rate, designed to help provide investors with a clear understanding of investment activity and risk. Today, we want to delve deeper into the power of this metric and explore how it can provide value for our investors.
Understanding the Utilization Rate
The Utilization Rate is a simple, straightforward metric that tells you what percentage of available capital is actively invested in mortgages.
To calculate it, we divide the total amount of capital invested in mortgages by the capital raised from investors. This ratio offers an instant snapshot of Lend's investment activity, giving you an idea of how proactive we are in putting your capital to work.
The Utilization Rate for Lend
In essence, Lend's Utilization Rate shows how much of the capital is being actively used for mortgages, versus how much is held in cash from month to month.
In the Utilization Rate section, 'Mortgages Balance' refers to the portion of the capital raised (or Lend's assets) that is actively used for mortgages. On the other hand, 'Cash Balance' represents the part of the capital raised that is kept as liquid cash.
The Utilization Rate mirrors the investment activities within your portfolio as a shareholder in Lend. As a result, this rate can also help shed light on the level of dividends you can anticipate to earn as an investor.
Benefits of the Utilization Rate
The Utilization Rate serves up some key insights for investors. Firstly, it gives you an at-a-glance view of the fund's activity level. A high Utilization Rate means we're actively investing, and your capital is being used to generate returns. Conversely, a low Utilization Rate might suggest a more cautious approach - something that could happen during periods of market uncertainty.
Secondly, the Utilization Rate is a handy risk indicator. When all capital is utilized, it's 100% exposed to the ebbs and flows of the mortgage market- all of its rewards but also all of its risks. While a lower Utilization Rate means less exposure to market risk, it also points to lower potential returns.
Limitations of the Utilization Rate
While the Utilization Rate is a helpful metric, it's important to bear in mind its limitations. The rate doesn't take into account the quality of the properties or how diversified the mortgage portfolio is - both vital considerations when gauging risk and potential returns. So, while the Utilization Rate can give you a glimpse of investment activity and risk, it shouldn't be the only tool you use to evaluate an investment opportunity. It's best used as part of a broader decision-making framework, taking into account other factors such as property and mortgage quality, and market conditions.
Why We Chose the Utilization Rate
As we built Lend, our focus was on simplicity and transparency. We want our investors to have an easy-to-understand, yet powerful tool to assess their investments. The Utilization Rate is the perfect fit. Despite its simplicity, it delivers valuable insights. Acting as a scale for investment activity and risk exposure, it offers investors a new view of how their capital is being utilized.
To Conclude
We've included the Utilization Rate as one of Lend's foundational features, aiming to bring you a clearer understanding of Lends’ activities and mortgage portfolio. In the coming weeks, we'll be adding more features to Lend, each of which will come with a detailed breakdown of why we selected it and how it can serve you, our investors.
We invite you to explore the Utilization Rate in our Lend product and see first-hand how this powerful metric can elevate your investment strategy.
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