Summary: Wisealpha offers something a little different from most other P2P platforms in that you invest in bonds of other companies, which theoretically give rise to less risk than owning the underlying equities. However, their cut of fees is relatively large for this type of product and it may be possible to approximate a similar investment with other platforms at a greatly reduced cost.
Here is Wisealpha compares to my other investments of similar stature:
|Platform||Link||Target Rate (%)||My XIRR (%)||Current (%)||Live Rating|
MARCH 2019: Wisealpha wrote to me on Twitter to say that trades done by the robo-model do not incur fees, so I am happy to be corrected on this point. To be fair having being on the automated model for a couple of months now things appear to be ticking along nicely, with a constant stream of interest payments.
FEBRUARY 2019: No change.
JANUARY 2019: Have adjusted my portfolio to the auto model for ease of use. This has liquidated some of my investments at some cost, which together with a valuation of certain bonds I held, has wiped out all my profits.
What is Wisealpha?
Wisealpha offers something innovative to the market: private investors can now invest in bond investments at very low minimum investments. Investing in specific securities such as these has been out-of-bounds to most individuals, not least because of the size of these facilities – often running into the hundreds of millions. Essentially Wisealpha use their access to the products, and resell it on using the crowdfund model, taking a part of the interest in the process.
The bond market offers some very distinct advantages for investors. Firstly, the borrowers are usually massive companies, with equally transparent accounts. This is a marked difference to the unsecured personal loan market where there is no identification of the borrower, or the P2P business loan segment such as Funding Circle where its borrowing businesses tend to be tiny, and only there because they could not get borrowing elsewhere.
Additionally, loan security could be considered to be slightly better than others. Debt ranks before security, so in the case of a business failing, it will be the senior and junior holders of debt who get paid first, rather than shareholders. This may seem a little unfair, but debt holders do not share in the profits of the business, neither are they paid a dividend.
As you may expect, investing in these bonds is slightly more risky than putting your money in a bank account, as the company you invest in may cease to trade. As a result, the interest rates on the bonds vary, with the main determinant being how much the market is willing to pay to hold the debt – the higher the risk, the higher the rate.
Even with bank interest rates on the floor at present, this has led to the average rate offered by Wisealpha to be competitive and as a result attract investors.
Here is a table showing Wisealpha’s features:
|Loan Security||Company Assets|
|Fees||1% of account value/yr|
|Available in ISA?||Yes|
|Active on forum?||No|
|Sign-up offers?||£10 on £100 investment|
The initial sign up bonus gives you a £10 credit once you have invested your first £100. Visit the site here to activate.
There is a fair bit more to consider when investing with Wisealpha than other platforms, with a few options available. Depositing to the account is easy, which can be done via bank transfer or debit card (a recent new option allows a Euro wallet to invest in Euro-denominated bonds).
Once the money is in your account you can choose to invest in bonds in different ways. The option with most control allows you to pick your own bonds. These will be displayed in the market, which shows their coupon price, effective rates and amount available. Clicking on a company name will give more information about the bond and a set of abbreviated accounts.
It should be noted that the price of the bonds vary with market conditions. A company that becomes distressed will see the value of its bonds decrease sharply, as it becomes less likely that the debts be honoured – this increases the effective yield to an investor. Conversely a company that does well will see its debt become more expensive to acquire, which reduces the yield.
Wisealpha offers no advice, and presents the information ‘as is’, so the onus is on the investor to do their own research. Simply taking the highest yielding bonds is likely to be a poor strategy as some present better value than others. Therefore a degree of financial literacy may be required.
Wisealpha have anticipated this and offered a couple of different ‘hands off’ ways to invest. The first is ‘Smart Interest’, which simply pays you a fixed rate each year – almost like a bond within a bond. The money is diversified across all bonds in the market and you can choose to commit for a period of up to 7 years, with the amount of interest going up with the commitment.
A second choice is a new ‘Robo-wise’ product, which promises to diversify your investment across all the bonds in the market. This actively balances your portfolio, by automatically purchasing new parts of loans when they become available. This theoretically lowers risk as your investment is spread as widely as possible.
Bonds work in a slightly different way to personal loan products. Typically the interest rate (the coupon) would be paid at specified periods in the year, with the capital amount repaid at maturity.
How are funds protected?
Most importantly, Wisealpha is not covered by the Financial Services Compensation Scheme. This is more relevant as many similar platforms (Vanguard, Moneyfarm) are, which provides more peace of mind in the event of platform insolvency (for Pramounts up to the protected limit). If Wisealpha ceased to trade in theory repayments should continue as investors still own the bonds.
There also is not a provision fund for losses. However, unlike other P2P platforms, an event where a debt was defaulted on comes with severe consequences for the firms, as debt is often issued with terms and conditions (known as covenants) which means that a solution would have to be found otherwise the loan holders could enforce their rights. There has not been a situation yet on the platform where a loan has gone genuinely bad, but if one did owing to the size of the entities, recouping money could be a long process.
Pros of Wisealpha
There are many things to like about Wisealpha:
Genuinely different: The P2P is filled with lenders giving out business and personal loans, however Wisealpha are among a handful of firms offering this type of investment. In most cases an investment here gives diversification to complement current investments.
Transparency: Wisealpha provide a great amount of information for each bond investment, allowing users to make their own decisions.
Wide range of business: The platform is mature and there is a good range of investments, at differing levels of risk and return.
Flexible investments: There are self-select, ISA, auto-invest products and fixed-term bond products, each of which will appeal to a broad range of the markets.
Cons of Wisealpha
There are also some things to be wary of on Wisealpha:
No FSCS protection: This can be a major downside, especially if you are investing in the auto-invest/bond options, as you can pick up similar types of product on platforms that do offer protection.
High Fees: The fee is 1% a year of everything you invest, and 0.25% if you choose to sell your bond before maturity. These type of fees can eat into your account, particularly if you take on the lower-paying, safer loans.
Variable valuations: Cost of bonds vary with market conditions, so if an underlying company starts to suffer, the value of the bond goes down as well.
My Wisealpha Investment Strategy
My Wisealpha strategy has changed in recent months; having bought bonds on the self-select market, I switched to the Robo product in order to become more hands-off. Unfortunately if you have a reasonably large portfolio this will result in fees: you will pay the selling fee plus any difference in the market price, which may have changed from when you bought.
Some general tips:
Don’t be seduced by high rates: High rates are there for a reason: the market regards these loans as higher risk. Although the loan security ranks ahead of equity holders, it will be behind preferred creditors such as suppliers, so one failure could be costly.
Read the documentation along with the company web-site: Accounts on the Wisealpha site are often abbreviated, so a better source would be the investor section of the website.
Don’t forget to diversify: If using the self-select market, there should be sufficient diversification on a par with any other P2P platform.
Wisealpha offers P2P investors a way of investing into a different asset class, and this is valuable for the diversification opportunity alone. However, it may take more work than others to appraise the loans, and for those coming into an auto-select product it may be cheaper to simply purchase a basket of bonds via a company such as Vanguard, which may not get you the same specific bonds but should generate a broadly similar performance at a much lower cost.
Disclaimer: This article represents my own opinions and should not be substituted for investment advice. Please research before you invest with any firm. Typically P2P investments are not covered by the Financial Services Compensation Scheme (FSCS) in the way bank deposits are, and there are no guarantees that you will receive the returns advertised (or even a return at all).