Wise Alpha

[Andrew365]

Moderator's edit: This warning is from the Wise Alpha site

"WiseAlpha's products are only suitable for investors who have due professional experience and expertise. These include the following categories of investors - high net worth, self-certified sophisticated, advised, investment professionals and institutional investors. "


All,

I came across a new business via an article on one of the founders (reputable article source) Wise Alpha. They have created 'fractional bonds' allowing retail investors access to corporate bonds that have generally been accessible to very large investors. I am posting this as it is an interesting product development offering another potential area for returns for retail investors. The website also offers a 'Bond Academy' to educate investors.

In my opinion it seems legitimate product / business and they clearly highlight the risks involved.

 

[cremeegg]

Seems interesting, the basic idea, that they buy corporate bonds and sell fractions so that the minimum investment is reduced from €100,000 to €100 is reasonable.

Not every entity in the chain seems to be regulated, the custody arrangements seem opaque.

The fees quoted are a flat 1% which also seems reasonable, I wonder if there are any hidden fees.

 

[RedOnion]

It's a great idea. However, let's not understate the risks with investing in corporate bonds.

It's interesting to read the risk statements that the regulator has made them put on their website. These are not for the average retail investor.

There have already been a few bonds that they sold that have gone badly - New Look, House of Fraser being some big ones that have been through debt restructuring, with debt write-off or conversion.

I would worry about a company claiming that bonds offer higher reward than equities with less risk:
"It’s worth remembering that since many corporate bond issuers are FTSE 250 size companies, many have issued both bonds and listed equity so both provide exposure to a similar set of companies. From this perspective, bonds offer less risk and more reward."

Not every entity in the chain seems to be regulated, the custody arrangements seem opaque.

I thought it was strange to have a company registered in the British Virgin Islands...
The company structure creates an added credit risk - you're not actually buying the bonds, but notes issued by an unregulated entity that holds the bonds. Assuming everything is above board, if the issuing entity was liquidated, the bonds would be sold immediately in the market. No option to hold to maturity in a distressed bond.

The fees quoted are a flat 1% which also seems reasonable, I wonder if there are any hidden fees

1% on a 4% bond is chunky enough.
In terms of hidden fees, you're not actually getting the same yield as the market. I checked a few of the big ones where it's easy to get a live market price, and they're materially different. The platform is obviously taking a margin, but it's not very transparent.
Which gets to another point - you're at their mercy in terms of pricing if you need to sell before maturity. They offer a secondary market, but there has to be a buyer available.

I'd love to see how it stacks up against a bond fund in terms of fees. (can't compete on diversification, liquidity, and regulation)

 

[noproblem]

Gosh, that was like reading a Dr's prescription, written in Latin, for us mere mortals to understand. Difficult thing to say but there's times it's easier to understand Leo and his lot and that's saying something. Just an observation mind, so no malice intended RedOnion.

 

[RedOnion]

Gosh, that was like reading a Dr's prescription, written in Latin, for us mere mortals to understand

Yikes. I fixed a few typos, but I don't think that's what you were referring to?!

Summary:
Corporate bonds aren't risk free. The markets have priced that risk, but using this platform means while you can access the bonds, it's at a lower return than the market is willing to accept.

Better?

 

[noproblem]

Good man, no flies on those red onions. Yes, you got it right and thanks.