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Thoughts on Bond Buying Through WiseAlpha?

Gilts, bonds, and interest-bearing shares
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Thoughts on Bond Buying Through WiseAlpha?

#236911

Postby Investor » July 15th, 2019, 11:09 pm

I've been chewing over buying bonds through WiseAlpha.

For anybody who has invested with them, what's your delay / default ratios been on the bonds, if I may ask?

I am curious as regards the credit rating agency ratings for the investments on the platform. Most of these are ‘B’ rated with S&P etc. These are classified as not being prime. The ratings agencies that WiseAlpha link to from each bond's rating go as far as to call them "speculative".

This is naturally highly concerning and has been the main reason I've not invested with WA.

Considering many of them are major, long-established brands, why are they rated ‘B’ or ‘B1’ i.e. relatively high risk?

Have these companies failed to pay bond coupon or capital at any time in the past?

Thank you.

Alaric
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Re: Thoughts on Bond Buying Through WiseAlpha?

#236913

Postby Alaric » July 15th, 2019, 11:35 pm

Investor wrote:Considering many of them are major, long-established brands, why are they rated ‘B’ or ‘B1’ i.e. relatively high risk?


Probably because there's little collateral. If you lend money to a Corporate Body and take a charge over some of its assets, that's lower risk than if you are solely relying on their good name not to default.

scrumpyjack
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Re: Thoughts on Bond Buying Through WiseAlpha?

#236953

Postby scrumpyjack » July 16th, 2019, 9:57 am

A very quick look at WIsealpha suggest that when you ‘buy bonds’ through them, you are not actually buying the bonds. You are buying a ‘participation note’ in those bonds, so your ‘ownership’ is indirect and I would have thought potentially very much at risk if Wisealpha for any reason goes down the pan.

It’s a BVI co, not British, so regulation may be even worse than for a British company. It is not covered by the FSCS

It charges a 1% pa fee, which given today’s low interest rates is quite a large chunk of the return and also charges 0.25% when your money is encashed.

Personally I wouldn’t touch it with a bargepole!

formoverfunction
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Re: Thoughts on Bond Buying Through WiseAlpha?

#246612

Postby formoverfunction » August 23rd, 2019, 6:17 pm

Investor wrote:I've been chewing over buying bonds through WiseAlpha.

For anybody who has invested with them, what's your delay / default ratios been on the bonds, if I may ask?

I am curious as regards the credit rating agency ratings for the investments on the platform. Most of these are ‘B’ rated with S&P etc. These are classified as not being prime. The ratings agencies that WiseAlpha link to from each bond's rating go as far as to call them "speculative".

This is naturally highly concerning and has been the main reason I've not invested with WA.

Considering many of them are major, long-established brands, why are they rated ‘B’ or ‘B1’ i.e. relatively high risk?

Have these companies failed to pay bond coupon or capital at any time in the past?

Thank you.


I've been investing now for a few months. So far, I've invested in 40 bonds in 13 industries. All sterling.
The last few notes they've issued have been interesting: Burford at a discount (but, not at the 85p low), REA after it's recent fall and Aggretated Micro Power's SPV AMPIL2 . So, UK listed and ORB bonds. The difference being the small outlay.
For me that means I'm investing the kind of cash I used to push off to p2p. Maybe a few hundreds here and there in each bond. Really what's left at the end of the month after I've taken living expenses, made my 2 monthly "top-ups" etc.
The results so far have been good. Before charges I have a yield of 8,5% and YTM of 12,6%
I've made some capital gains and received a couple of consent solicitation payments. What the issuer pays to amend the T&C's (Prospectus). One or two bonds have given me returns in excess of 20%.
I haven't had any fail to pay me, including Debenhams. They've made the expected payment and a consent solicitation payment.
For the amount of money I have invested in the platform/Bonds/"notes" I've spent a considerable amount of time and effort. That's not required. I've done that because I'm convinced long term, and if it all works out, this is an asset class that we should all hold and WA are making that possible without £100,000 per bond price tag.
In referece to your concerns about rating, nearly all corporates are rated less than aaa. If you look at Moodys they have a good explanation of the ratings https://www.moodys.com/researchandratings
I've invested time, as well as cash (I'm also a WA shareholder), so if the platform keeps growing I'm as efficient and comfortable with Senior Debt as I am with listed equity.
Transactions are easy and there are updates on another site of press releases, presentations, RNS, so with a bit of effort (and if you want to drill down) it's possible to see much more than WA publish.
You might want to have look at these sites: http://www.p2pindependentforum.com/ and https://www.guybutler.co.uk/
On the Guy Butler site ( you are a professional investor aren't you :) you'll find research notes on a number of the bonds on the WA site.

JoyofBrex8889
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Re: Thoughts on Bond Buying Through WiseAlpha?

#246666

Postby JoyofBrex8889 » August 24th, 2019, 12:03 am

Having observed problems with numerous minibonds, I am not much happier with the investments WiseAlpha is offering. The names might be well known, but who actually has title over the investment assets? Will there be anyone offering liquidity in order to sell?

Unregulated bond fractions issued out of the Virgin Islands? Does that sound sensible? Sounds a bit too punchy for me. I can meet my investment objectives without taking such risks.

I am ultra wary if anything outwith the scope of FSCS compensation. Bond exposure is easy to get via an ETF using a platform within scope of FSCS.

The complicated corporate structure appears to offer low chance of recovering my funds should insolvency occur. The British Virgin Islands registration is a big red flag for me.

Not for me,and if any family menber of mine were to ask me I would strongly dissuade them.

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Re: Thoughts on Bond Buying Through WiseAlpha?

#246961

Postby 88V8 » August 25th, 2019, 9:08 pm

JoyofBrex8889 wrote: Will there be anyone offering liquidity in order to sell?


Read a comment in The Times that the next crash will be worse for bond holders because banks and stockbrokers are no longer acting as counterparties in corporate bonds.
If so, we're on our own.

V8

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Re: Thoughts on Bond Buying Through WiseAlpha?

#247052

Postby WorkShy » August 26th, 2019, 12:58 pm

I cannot see any reason to invest via WiseAlpha.

The underlying instruments are high-yield/speculative grade/junk corporate bonds. Nothing wrong with investing in such bonds, but why do you need WiseAlpha? Just buy them individually or, even more sensible, just buy a bond fund. Even better just buy a US high-yield bond fund and hedge the fx risk. The US high yield bond market is much deeper, more liquid and better diversified than it's UK equivalent.

The other issue is counterparty risk. You own a participatory note, effectively a total return swap, on the returns of these bonds. You're exposed not only to the underlying credit risk of the bond issuer but also to WisaAlpha, which is a small SME with little track record. It's not clear what it's balance sheet strength is. Why do you want to pay WiseAlpha a fee to take on their credit risk!

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Re: Thoughts on Bond Buying Through WiseAlpha?

#247181

Postby Gan020 » August 27th, 2019, 8:38 am

WorkShy wrote:I cannot see any reason to invest via WiseAlpha.

The underlying instruments are high-yield/speculative grade/junk corporate bonds. Nothing wrong with investing in such bonds, but why do you need WiseAlpha? Just buy them individually or, even more sensible, just buy a bond fund. Even better just buy a US high-yield bond fund and hedge the fx risk. The US high yield bond market is much deeper, more liquid and better diversified than it's UK equivalent.
!


Just buy them individually. Well, the minimum trade size on most of them is 100k as far as I'm aware and I don't think most Lemon Fool investors run to that on an individual investment. Which is the USP WiseAlpha are offering in that it gives a PI access to such bonds for a fee of 1%. The only one I can see on a quick glance which isn't is BUR1 which is avaiable on ORB through most decent brokers. I'd be happy to be learn more as I'd be delighted to buy any number of these bonds direct.

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Re: Thoughts on Bond Buying Through WiseAlpha?

#247189

Postby Gan020 » August 27th, 2019, 9:18 am

I've spent very many hours over the last year looking at WiseAlpha.

I like the proposition of making the large denomination corporate bonds available to the PI and feel I have the skills to understand the investment risk involved in these bonds as I already own various retail bonds and bond funds. I worry that your average PI will be attracted by the high interest rates, not understand the risks involved or fully understand the products. (reset dates, early calls etc. I note they have now pulled all the perpetual bonds from the headline products which they used to show with "likely" call dates. I do not know how they determined this. Indeed I was in disagreement that they were likely to be called at all, but instead more likely to be reset at the call date and it kind of worried me that investors were being misled or that WiseAlpha did not understand what bonds they were offering to their investors)

However, I have three concerns which have put me off investing:
1. Platform Risk. As far as I can work out WiseAlpha are sitting in the middle and taking a 1% fee on all interest earned. The start-up costs for this business should not be high and I'm pretty sure 1% should give them a decent profit so I think it's a sustainable business subject to other entrants to the market. They hold exposure between the purchase date of the £100k lump and the time taken to shift it on to PI's, which would require payment of interest to the bank. Scale reduces this risk. That's if they even buy the bond until demand reaches say £50k, which would cut the interest bill but introduce another risk.

2. You can't sell your bonds unless you find another investor to take them off your hands, so you are mostly left with running them to maturity. There is a 2.5% charge for selling out. Wow, that's a large charge, far larger than the spread in the market and high considering you can only sell out if they already have another buyer. When I buy my bonds I plan to run them to maturity but I often don't. I really wouldn't want to be stuck in a bond I didn't want or couldn't sell as I saw a bettter place I could put my capital.

3. The 1% fee I find excessive but note that a large actively managed bond fund is very similar. They aren't actively managing the fund though, just providing a platform.

OK, so
1. Platform risk concerns me but I might be comfortable investing small sums. Not large ones. If it was Hargreaves Lansdown offering this service I'd be a lot happier.
2.Bond sale liquidity. This is a red line for me. If I can't sell then I'm not interested. My recent experience with Burford where I sold all my bonds over par in the last 9 months once I'd realised I'd assessed the risk incorrectly re-inforces my view that one of the attractions of bonds is a liquid market and without it I'm not using WiseAlpha (noting all the bonds offered are high yielding thus carrying risk to start with).
3. Noted

I'll not be using WiseAlpha due to 2. bond liquidity. I appreciate this may not be an issue for others.

For a 1% fee I'd prefer to keep using an active corporate bond fund manager for this type of investment.

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Re: Thoughts on Bond Buying Through WiseAlpha?

#247212

Postby formoverfunction » August 27th, 2019, 11:14 am

Gan020 wrote:
WorkShy wrote:I cannot see any reason to invest via WiseAlpha.

The underlying instruments are high-yield/speculative grade/junk corporate bonds. Nothing wrong with investing in such bonds, but why do you need WiseAlpha? Just buy them individually or, even more sensible, just buy a bond fund. Even better just buy a US high-yield bond fund and hedge the fx risk. The US high yield bond market is much deeper, more liquid and better diversified than it's UK equivalent.
!


Just buy them individually. Well, the minimum trade size on most of them is 100k as far as I'm aware and I don't think most Lemon Fool investors run to that on an individual investment. Which is the USP WiseAlpha are offering in that it gives a PI access to such bonds for a fee of 1%. The only one I can see on a quick glance which isn't is BUR1 which is avaiable on ORB through most decent brokers. I'd be happy to be learn more as I'd be delighted to buy any number of these bonds direct.


To have the exposure I've opted for would require a portfolio of just over £4,000,000.

BUR1 is available via both my brokers, there are a couple others on the site you can buy via execution only. The majority you'd require a private client broker and as you say £100,000 per go.

For part my investments on WA are less 2% of a normal equity position. Overall less less than 1% of my portfolio. I expect that to grow over time as the platform matures. At the moment the popular issues go same day/next day. So you almost see £150,000 of "notes" go before your eyes. I suspect, and hope, the number of live accounts has grown over the last few months.

I hold "bonds" through other vehicles. IT's & EFT's, but that hasn't stopped me exploring the idea. In fact, my top holding look very similar to NCYF, but without the prem. of 10%. I also hold direct (via ORB) and not.

I don't consider them to be anything like mini-bonds, althought I have been attracted the high yield on offer and the ability to be very diversified.

For the broad opportunity, and as an alternative to parking side cash in P2P of UKID, I'm happy to pay the 1%.


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