Wise alpha thoughts

Fatbritabroad

I realise I've asked this before but now this site has a bit more track record what are peoples thoughts?

What's the advantage /disadvantage of doing this rather than a bond fund? I'm considering this as form what i understand the rate changes with libor on some loans which is an interesting feature

I don't like investing in things i dont understand hence This is partly for education purposes. I understand what a bond is but don't understand why for example virgin need to borrow at what seems a fairly high rate? Or how these bonds differ from retail bonds

Just considering from a diversification pov from my equities and p2p investment with a relatively small amount. (5k). Fully understand capital at risk

As an aside if I was considering a standard corporate bond fund as a diversifier to my 100% equities which ones are worth a look?

firestone

The idea of just a set income and holding to term with no growth with WiseAlpha would seem to be a good idea in someways and would be interesting from a company like HL or a building society perhaps as an alternative to a fixed term bond
But assume you know you are buying WA notes not the bonds.For the type of secured & unsecured bonds on the site using funds i guess you would look at the likes of Royal London High Yield or GAM Credit Opportunities

Malthusian

I understand what a bond is but don't understand why for example virgin need to borrow at what seems a fairly high rate?

Where are you seeing a fairly high rate? The rate I see on Wisealpha's website is in the region of 5.5%, which seems very average to me for an ultra-high-risk investment which could lose all your money.

The main disadvantage vs a bond fund is that you are investing in Wisealpha notes which are designed to mirror the loan notes of much larger companies. If Wisealpha goes bust, all the loan notes are sold and investors should get back the current value on the open market, asssuming the accounting is kosher. This means you might lose money if the bonds are down at the time - you wouldn't have the option of holding until maturity.

In theory a bond fund could be wound up if its parent company went bust, but it's more likely another fund manager would take it over, unless you invest in a very obscure one.

Also, if Wisealpha goes bust, I'm not convinced that the FSCS would step in to cover the insolvency administrator's fees as it did with Beaufort. Given that investors are investing directly in Wisealpha, instead of Wisealpha holding investments on their behalf, if Wisealpha went bust then the administrator's fees might come out of the returns to investors. I'm not convinced this would be an FSCS protected claim as it was with Beaufort.

Bond funds offer the ability to invest in corporate bonds while reducing the risk of permanent and total losses to a minimum via diversification, as most mainstream bond funds have virtually no risk of every single one of the companies they invest in going bust. Wisealpha is in my opinion for investors who think they can get 8% returns with no risk "because it's not like Virgin or Travelodge will ever go bust" (in the same way that Carillion and BHS could never go bust).

Fatbritabroad

Malthusian wrote: »

Where are you seeing a fairly high rate? The rate I see on Wisealpha's website is in the region of 5.5%, which seems very average to me for an ultra-high-risk investment which could lose all your money.

The main disadvantage vs a bond fund is that you are investing in Wisealpha notes which are designed to mirror the loan notes of much larger companies. If Wisealpha goes bust, all the loan notes are sold and investors should get back the current value on the open market, asssuming the accounting is kosher. This means you might lose money if the bonds are down at the time - you wouldn't have the option of holding until maturity.

In theory a bond fund could be wound up if its parent company went bust, but it's more likely another fund manager would take it over, unless you invest in a very obscure one.

Also, if Wisealpha goes bust, I'm not convinced that the FSCS would step in to cover the insolvency administrator's fees as it did with Beaufort. Given that investors are investing directly in Wisealpha, instead of Wisealpha holding investments on their behalf, if Wisealpha went bust then the administrator's fees might come out of the returns to investors. I'm not convinced this would be an FSCS protected claim as it was with Beaufort.

Bond funds offer the ability to invest in corporate bonds while reducing the risk of permanent and total losses to a minimum via diversification, as most mainstream bond funds have virtually no risk of every single one of the companies they invest in going bust. Wisealpha is in my opinion for investors who think they can get 8% returns with no risk "because it's not like Virgin or Travelodge will ever go bust" (in the same way that Carillion and BHS could never go bust).

Thanks yes its not that the rate is not conducive with the risk from my pov just that i expected virgin would be able to borrow at lower rates than that
I understand capital is at risk id just do the same as i do with ablrate and diversify across loads of the loans (with ablrate is just invested 50 or so pounds in each loan to start with and built up slowly)

londoninvestor

Fatbritabroad wrote: »

why for example virgin need to borrow at what seems a fairly high rate?

Virgin Group isn't doing any of the borrowing here. Virgin Media is owned by Liberty Global (a US media firm), and Virgin Money is in the process of being bought by Clydesdale/Yorkshire bank. The only connection with Virgin is that Virgin Media pays, and Virgin Money will pay, a licence fee for using the brand name.

OldMusicGuy

Fatbritabroad wrote: »

Thanks yes its not that the rate is not conducive with the risk from my pov just that i expected virgin would be able to borrow at lower rates than that

Corporations like Virgin issue bonds because it is easier and less restrictive for them than getting large bank loans (although typically they may have bank loans as well). So to finance their operations they will offer bonds to investors. These are at a higher rate than investors can get from a bank because they carry more risk. The only way corporations can get people like you to invest in their bonds is by making them more attractive than investing in a no risk fixed interest bond from a bank.

In this case you also appear to have WiseAlpha sitting between you and the corporate bond.

Malthusian

Fatbritabroad wrote: »

Thanks yes its not that the rate is not conducive with the risk from my pov just that i expected virgin would be able to borrow at lower rates than that

Any lower than 5.5% and you may as well invest in a diversified corporate bond fund.

janesmith

I've been chewing over WiseAlpha for quite a while

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 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 interest or capital at any time in the past?

Malthusian

janesmith wrote: »

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

Best to ask the ratings agency as an in-depth investigation into a company's financial position and future cashflows is beyond the scope of random people down the pub.

Having a major long-established brand has absolutely nothing to do with financial solvency. BHS was an extremely major long-established brand, so was Kodak.

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

No. Otherwise they'd be rated D (C for Moody's).