Retail bond tempts small investors with 5.25 per cent yield

The latest retail bond to target small investors is offering a yield of more than 5 per cent.

Over the past year or so it has been fairly quiet on the retail bond front, but in the second half of 2017 two launches have caught the eye, both offering small investors yields in excess of 5 per cent. 

In July LendInvest launched a retail bond paying interest of 5.25 per cent, which proved popular. Due to high demand the offer was oversubscribed, with the £50 million target met.  

The latest bond launch, which is also offering a yield of 5.25 per cent over a five-year term, comes from BlueZest Secured Retail Bond PLC (the issuer), an affiliate of BlueZest Mortgages and Loans Limited (BlueZest), a specialist mortgage lender for landlords and small business owners. 

The bonds, which carry a minimum investment amount of £1,000, are explicitly targeting income-starved savers and investors. Savings rates have on the whole been gently nudging higher over the past year or so, but rates remain low. 

The best one-year Isa rate is 1.36 per cent from Charter Savings Bank or 1.35 per cent from Virgin Money and Leeds Building Society.  

But savers tempted by the much higher level of income on offer should bear in mind that retail bonds are no free lunch. Unlike savings bonds from banks, your money is not underwritten by the Financial Services Compensation Scheme. 

Investing in bonds therefore requires just as much scrutiny of company balance sheets as investing in shares. Look at cash flow and debts and profits, among other things, in order to assess whether the issuer will grow as hoped in order to pay the interest payments.  If the issuer fails, investors face the prospect of losing all their capital.

In the case of BlueZest Secured Retail Bond there are certain investor protections in place, which are outlined in the prospectus. One measure is a mortgage indemnity policy, in order to limit losses in the event of a severe downturn in the property market.

Chris Slater, chief executive of BlueZest, says: ‘The BlueZest Secured Retail Bond arrives at a time when demand in the UK’s residential property market continues to outpace supply. BlueZest is determined to support professional property investors, providing a crucial alternative funding source, enabled by our retail bond.’ 

The offer period opened earlier this week (November 27) and is expected to close on 12 December. Participating brokers include AJ Bell, Alliance Trust Savings and Equiniti Financial Services. Once launched the bonds will pay interest on a quarterly basis until the bonds mature in December 2022. The bonds, due to the retail bond structure, are tradable, so do not have to be held until maturity. 

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