Rezaah Ahmad, founder and chief executive of WiseAlpha, explains the creation of the digital bond marketplace.
Why did you create WiseAlpha?
While working in the banking industry, I was struck by how closed and elite the corporate bond market was. Clearly, a full-scale liberalisation of this market was necessary. It’s crazy that you can invest easily in the equity of a large company, such as Ocado, but can’t easily buy its bonds
What’s next for the platform?
We are the UK’s only digital bond market and we want to expand into a platform that is scalable globally. People are on the hunt for better yield and reliable interest income, so providing access to the corporate bond market is essential. Not everyone wants to go on a wild stock market ride and many want greater portfolio diversification.
Corporate bonds are being called the must-have investment product for 2020. Why?
Recent years have seen a rise in prominence of “exciting” alternative assets that have become problematic. I’m thinking particularly of cryptocurrencies, which have been heavily exposed to fraud and volatility. By contrast, bonds are a major, established asset class that has delivered superior risk-adjusted returns. Corporate bonds issued by recognised corporations have been unavailable to most of us, while smaller businesses’ bonds and peer-to-peer (P2P) loans have become plentiful. It’s like going into a shop and only finding cheap cola instead of Coke or discount chocolate instead of Cadbury. With WiseAlpha, both the quality and well-known option is available.
Why is P2P lending so problematic?
Peer-to-peer lending promised returns above savings account rates and this won it a fair few investors before the regulators started to clamp down. While it may be a potentially interesting option for investors who are aware of the risks, rising loan defaults, declining returns and platform failures have shaken people.
Do you think bond trading will become as big as the stock market for individual investors?
We expect bond trading to become bigger than stock trading. People generally make money more consistently with bonds. Once the right levels of awareness are in place, alongside surrounding market infrastructure, then people will be exposed to the benefits. I also think that a strategic shift is coming in the UK stock-trading market. Those stock platforms that partner with WiseAlpha will likely grow market share significantly.
Why has it been so difficult for consumers to invest in corporate bonds and why should they start now?
Until very recently, corporate bonds had typically only been sold to institutional investors or very wealthy individuals at a minimum price of £100,000, which is obviously prohibitive. A cosy relationship circle of the biggest banks and asset managers dominates the market, with investors being forced to invest in funds to get fixed-income exposure. With WiseAlpha, people now have the option to purchase fractions of bonds for as little as £100.
What happened to the London ORB market for corporate bonds?
The Orderbook for Retail Bonds market hasn’t taken off as one might have liked, after its establishment in 2010. Very few companies now have their bonds listed there and it’s not nearly as easy to use or access as WiseAlpha.
How can investors use your platform and can you show them which bonds to buy?
It’s easy to use WiseAlpha. You simply log on and start scrolling through the dozens of companies whose bonds you can invest in. All the tools are there to help you find the right investments within minutes. For those uncertain of picking their own bonds, we have a robo-management tool that enables users to create diversified portfolios that rebalance themselves.
What sort of returns can investors expect and how easily can people diversify their portfolio?
The bond market has a rich range of risk and return. Corporate bonds can offer interest coupons from 2 per cent for highly rated companies all the way up to 15 per cent for higher risk. Our robo-portfolios currently return between approximately 6 and 8 per cent on a yield-to-maturity basis. Investors can choose how to balance their portfolios based on simple options. Plus, they can frequently reassess their choices.
As published by Raconteur in the Sunday Times.C
As with all investments your capital is at risk. Invest via our Fractional Bonds.