WiseAlpha corporate bonds – a safer alternative to p2p lending?
WiseAlpha is an online platform that offers individual investors senior secured and high yield corporate bonds and loans from UK and EU companies.
Through an instrument called WiseAlpha notes, investors can start investing in corporate bonds from Netflix, Virgin Media or Vodafone with as little as 100 GBP.
- Launched: 2016
- Headquarters: UK
- Regulated by: FCA
- Investment types: Corporate bonds
- Return rates: 2.9% – 14.2%%
- Fees: 0.25% to 1% when investing; 0.25% fee on early sale
- Minimum investment: 100 GBP / 100 EUR
- Currency: GBP, EUR
- Who can register: EU residents
- Secondary market: yes (sort of)
- Auto-invest: yes
- Bonus: 25 GBP when you invest at least 1000 GBP
How does WiseAlpha work
What WiseAlpha does is that it buys corporate bonds issued by well-known companies from global banks. Then it splits them into notes, or fraction of the bonds, in amounts of 0.01 GBP, and lets investors buy these notes.
Investors can buy these notes with a minimum investment of 100 GBP.
You can either actively invest in the bonds available on the platform manually, or set up an automatic investment profile with Robowise and let it do the work for you and create a diversified portfolio.
Why invest in corporate bonds
Corporate bonds are a defensive asset class. They are a lower risk investment compared for example to shares. If a company goes bankrupt, corporate bonds have priority over shares. Below is a diagram describing the order investors are paid when a company becomes insolvent.
Corporate bonds vs p2p loans
Corporate bonds are also a safer alternative to P2P loans.
Corporate bonds are assessed by credit rating agencies like Standard & Poor or Moody’s. P2P loans are also assessed by credit rating agencies, or by the p2p platform itself. But you can’t spend the same amount of time analysing a 500.000 EUR p2p loan as you spend analysing a 500 million EUR corporate bond. Given this, corporate bonds are generally safer than p2p loans.
Also, buying bonds from well-known companies like Netflix, McLaren or Virgin Media seems safer than buying loans from an obscure company in the Baltics.
Corporate bonds have been around for centuries, and are well regulated. On the other hand, p2p loans are relatively new and platforms can suffer from regulatory changes. For example, Mintos recently had to ditch their UK investors because of recent FCA changes.
Opening an account
You’ll need an email address and a phone number to open an account. Once you register you can transfer money into your account either by debit card or bank transfer.
There are no fees when you deposit funds.
Investing in WiseAlpha
WiseAlpha separates the offers into the main market, high yield, perpetuals and special situations.
The main market section contains safer investments, while the other sections contain higher yield and higher risk options.
You can invest in either GBP or EUR bonds, although the EUR offer is more limited.
In terms of risk, the bonds available are either senior secured, senior unsecured or secured.
Senior secured bonds are loans issued by a company that are secured with their assets. They have a fixed interest rate.
Senior unsecured bonds are not specifically secured by any assets but in case of default holders of senior unsecured bonds will receive their funds right after the senior secured holders.
Unsecured high yield bonds (“junk” bonds) have a higher risk but they come with higher interest rates. They are not backed by company assets so in case of bankruptcy, they won’t be worth too much. They have the potential for capital appreciation if the company improves its performance.
Once you select a company, you can see more details about it. This includes financial details, assets, revenue, cash flow and credit rating. If the company suits your interests, you can open an order and buy.
The buy orders usually get filled in a matter of hours.
The anatomy of a bond
In the above image is one of the bonds in my portfolio, from a company name Ardonagh.
The bond is senior secured, it pays interest every 6 months and it matures on July 15th, 2023. I can see its ISIN (international securities identification number) with which I can search for additional details about the bond on other websites.
Its coupon rate is 8.375%, meaning that for every 100 GBP the company borrowed, it pays 8.375 GBP in annual interest.
Because bond prices vary based on the market, the initial 100 GBP notes offered by the company are worth only 94.5 GBP now. This means that for every 94.5 GBP I invest in this bond, I would receive 8.375 GBP in annual interest, making the current yield to be 8.9%.
When the bond matures, the company will buy it back at its par value, at 100 GBP. This means that if I keep this bond until it matures, the yield to maturity of the bond will be 10.1%.
If I decide to sell my bond before the next interest payment, the buyer will have to pay me also the accrued interest for the period I kept the bond since the last payment. For the bond in the image above, I should receive 8.36 GBP in accrued interest if I decide to sell the bond tomorrow.
On the bond details page, there are other interesting details:
I can see that so far the company is paying their interest with no delays. I can see the Moody’s and Fitch credit ratings and can go to their site to see what that rating actually means.
There’s also a call schedule, specifying if and when the company can buy its bond before it matures, and at what price. This is especially important to check when you buy a bond at a price higher than its par value (100 GBP).
Let’s say you don’t want to spend time by researching each company you could potentially invest in. You can choose the auto-invest tool the platform offers. Its name is Robowise and it will handle buying/selling bonds and loans for you based on the level of risk you selected.
You can also select in what industry sector you’ll be willing to invest. You can even select individual companies based on your interests. This will cover all your needs for greater customization.
Based on the selected criteria, you can see what are the companies Robowise is investing.
Exiting your investment
After you buy a bond, you can either wait for the bond to mature, and meanwhile receive payments every 6 months, or sell it before it reaches maturity on the secondary market.
You add a sell order, and this one will be matched with a buy order from another investor. From what I’ve seen, it takes from a few hours to a few days for the orders to be filled.
Taxes and fees
WiseAlpha takes an annual fee between 0.25% and 1% of the account value. The 1% is for the first 20.000 GBP invested, and the 0.25% is for anything over 100.000 GBP. That’s rather high.
Some of the bonds come with 0% fees, so you also have the option to bypass the fees.
There’s also a 0.25% fee when you sell a bond before it matures on the secondary market. There’s no fee when the selling is done by Robowise in order to balance your portfolio.
You can read more about the fee structure here.
Taxes are not deducted automatically. You’ll need to do that yourself in your home country.
How is my portfolio doing
I’ve started investing with WiseAlpha in December 2018, and kept adding small amounts since then almost every month.
So far, my GBP portfolio is doing really well, with an expected 9.9% yield to maturity.
I also have a small EUR portfolio opened, although the current EUR bonds offer is a bit lacking. WiseAlpha is working on adding more EU bonds to the website, and in the past year, their number has increased.
More on WiseAlpha
A great way to interact with other WiseAlpha investors is through the community forum. The forum went live in November 2019 and is very active.
In December 2019, WiseAlpha launched its Bond Academy, a great learning resource. Currently, it has 3 extensive courses with very good information included and nice quizzes to test your knowledge.
Conclusions on WiseAlpha
WiseAlpha offers an interesting product for individual investors. You don’t need large amounts of money to buy corporate bonds. They are a safe alternative to the usual peer to peer lending options found on other platforms.
The platform lists only well-known companies (Virgin Media, Deutsche Bank). It’s easy to do your own research on these companies outside of WiseAlpha platform.
You can choose the level of risk you’re comfortable to take by either investing in senior secured bonds or high yield unsecured bonds. If for some reason you want to sell your investment earlier, you can sell it on the secondary market (paying a 0.25% fee to WiseAlpha).
There is an annual service fee of 1%, which is not great, as it will cut your profits a bit, but I think I can live with that.
The Robowise feature is great, and it saves you time. You can choose the level of risk you’re comfortable with and then it will do the work for you. I’ve used it for a few months but then decided it’s more fun and educational to invest directly.
The website is modern and intuitive to use. The information offered about the companies listed is great and contains lots of financial details. There’s also an investor guide on the website explaining what their product is and how it works. You can find it here.
WiseAlpha has a welcome bonus when you register through a referral link. If you invest more than 1000 GBP in the first 30 days since you opened your account, you’ll receive a 25 GBP bonus. You can see more details about the offer on this page.