Post by fogey on Apr 23, 2017 17:01:10 GMT
The more I look into this the more certain I am that this product needs to be considered as a long term investment of at least 3 years and also it is best realised as a single lump sum (or very close to this) deposited at the start of the 3 year investment term. There are no direct comparisons available for this product but the latest offers from BG (with ads featuring prominently on this forum) comes very close.
To qualify for their seductive offer you have to commit for at least 3 years when they are currently promising 6.22% pa, which is not too far removed from the BM figures at the moment.
But in the ad it states that ...
100% Capital Returned – In addition to your monthly interest payments, your entire investment capital is repaid at the end of the bond term.
but if you read to the bottom of the page it also says ...
Risk Warning
Past Performance is not indicative of future results. Investment through the B & G Fixed Income Bonds involves lending to companies or individuals and therefore your capital is at risk and interest payments are not guaranteed if the borrower defaults and investors should note that it could take the time it takes to liquidate an asset held as security, such as selling a property, in order to get money back at an acceptable price. Detailed risk information is available in the invitation document that is provided exclusively to eligible investors.
So in actuality you have no real idea of how much of your capital will be returned at the end of the term and you may also have to wait considerably longer for any liquidation of assets secured against these loans "in order to get money back" !
They are also offering this product within an ISA and so they have been given an approval for this. How can they be allowed to do this by the FCA when the advertisement is so blatantly ambiguous and therefore potentially misleading ?
So how does this apparently tantalising offer compare with BM ?
Assuming that the underlying loans perform similarly then ..
With BM you have a very detailed view of your accumulating interest rate ... it is almost exactly 1% lower than the summary page headline rate, providing your deployed funds remain close to 100% of your investment. From my limited experience over the last 2 months this is certainly true and my daily rate is my headline rate minus 1%, currently giving me 7.45%. During the loan drought last autumn this certainly was not the case and I believe that investors will have suffered as a result, especially those that have chosen to liquidate recently.
With BG you have no idea of how well your underlying investment is growing.
With BM you can see how many of your loans are at risk of defaulting and eventually how much crystallised loss you have to bear. So you can liquidate at any time you wish but you will have to bear the cost of any potential losses at the date of liquidation and then wait to see if you get any further dregs of compensation. So in effect this can be regarded as a form of early withdrawal penalty, such as you may see on a conventional long term fixed rate deposit bond.
With BG you have no clue as to how many defaults have occurred within your underlying (part) loans and you are unable to liquidate your investment until the end of the 3 year term. So if you need to convert to cash at short notice it is impossible. You may end up losing capital at the end of the term but you have no idea of what this might be for 3 years after investing.
With BM the product is still evolving and significant steps are in the pipeline to reduce any further capital losses to 0.5% (perhaps even lower with time). The product is designed to reduce risk with time, so that what may appear to be an uncomfortable situation at the end of the first investment year may improve considerably by the end of a 3 year investment term. You have to wait and see what happens and in the interim trust your investment to the skills of BM in this very specialised area.
I think BM may already see this product as a multi-year term investment ...
"Over a 3 to 5 year time horizon, on a well diversified portfolio, defaults will be incurred, but the overall net performance should still be attractive: e.g. 6-8%. There may be the odd bump, there will be no "fast-bucks" and patience will be required. But the outcome should be worth it."
So this is the situation as I see it at the moment. You have a choice now to sell out and receive very little back ( if anything ) or to hang on and wait for your fortunes to improve.
Everything here is exactly what you might expect from p2p investment and it is transparently obvious to me at the moment. As an initial introduction to p2p it is a very useful education experience.
There are other opportunities out there, you just have to weigh up the possible returns against future risks and then hope. But even those schemes such as RS have lost a lot of their appeal as a relatively safe investment due to the current uncertainly over their provision fund as investors may also be required to support it in future and thereby take a haircut loss in the process.