WiseAlpha has launched an online adviser called Robowise focused on creating portfolios entirely of bonds for retail investors, a move commentators have criticised for being too limited and even “utterly irresponsible”.
Robowise allows investors to choose from portfolios and risk profiles, either balanced or adventurous, with the former focusing on investment grade and senior secured bonds, while the latter adds exposure to high yield and subordinated bonds.
The robo-adviser buys and sells different bonds to rebalance the investor’s portfolio on a continual basis to maintain diversification.
Cash arising from the repayment of bonds may be reinvested, including in new bonds becoming available through WiseAlpha, and investors can choose whether to reinvest their interest payments or withdraw them.
Heather Hopkins, founder and managing director for NextWealth, said this service is likely to be targeted at retirees looking for income.
Where’s the appeal?
However she found the robo-adviser’s decision to invest only in fixed income assets to be limiting and an odd selling point.
“I don’t quite understand its appeal,” said Hopkins. “Bonds are an important investment vehicle but would only rarely be used exclusively by investors.”
Based on information from WiseAlpha’s website, Hopkins said it looked like they were targeting individual investors and corporates.
“From a retail standpoint in my perspective, this seems to be a very niche proposition,” she continued. “I may be missing the obvious, but I don’t see a large market for this offering.”
‘Utterly irresponsible’
Clive Waller, managing director at CWC research, said that restricting clients’ portfolios to investments in a single asset class “would be utterly irresponsible”.
“If one accepts this, then another platform would run equities and another property etc, etc.”
He said he would be surprised to see any other robo-advisers follow suit.
“Thus, the big question is – who decides on asset allocation between asset classes? The investor? Surely not. If the answer is a professional manager, the whole point seems to go up in smoke.”
Waller also questioned the timing of the launch, noting that short bonds offer a negative return after charges and longer-term bonds are looking risky as interest rates normalise and the long bond bull market comes to an end.
“That said, bonds are a huge part of the market, not least because institutions are compelled to hold (government) bonds for legislative or regulatory reasons,” he added.
Flexibility
WiseAlpha said investors can direct Robowise away from certain companies and industry sectors, based on their own requirements and can adjust settings to turn Robowise on or off.
Investors also have the option of using trading technology for day-to-day basic portfolio and cash management.
WiseAlpha said it predicts this will offer investors the opportunity to earn income of between 3% and 15% per annum, while backing some of the UK’s household names such as Virgin Media and Ocado.
Chief executive Rezaah Ahmad said: “This is a very important milestone. First we opened up this wonderful asset class, with its broad spectrum of returns, to the everyday investor.
“Now we’re empowering them to pre-select and put their portfolios on autopilot, with advanced tools previously only available to sophisticated institutions and global banks.”
The firm said it expects the prospect of superior returns to prompt a longer-term shift of consumer investment into corporate bonds, moving away from peer-to-peer (P2P) lending and traditional retail investor asset classes, such as equities.
Ahmad adds: “While racy new asset classes such as P2P, equity crowdfunding and cryptocurrencies may have attracted huge attention in recent years, financial innovation and product diversity are fuelling substantial growth and attracting senior talent to the corporate bond market.”
Appointment
Alongside its launch announcement, WiseAlpha confirmed Tom Macura, a 10-year veteran of Goldman Sachs, latterly European head of credit trading strategies, has joined the group as chief operating officer.
Macura said: “WiseAlpha’s visionary strategy to open up the world of corporate bonds to retail investors is, I believe, one of fintech’s most exciting developments at present.
“I look forward to driving WiseAlpha’s technological and operational capability as it seeks to build industry-leading standards.”
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