Fancy 7.5% interest? You better act quickly. Bed-maker Warren Evans retail bond is almost at capacity, having attracted £2 million of investment in just two weeks. This popularity means the bond will close before the end of the week.
Warren Evans is the latest company to jump on the retail bond bandwagon. The retailer, which makes and sells beds and bedroom furniture, launched the bond to finance expansion plans, with an aim of raising £2.5 million.
Open to all investors with a minimum initial deposit of £750, the bond promises to pay 7.5% for three years. It is easy to see the appeal. It has been more than six years since high street banks offered anything like that sort of rate in return for locking away savers cash and even the best yielding corporate bonds are more likely to pay around half of that.
Stocks offer the next best yield, but the income isn't fixed and the value of your capital can go down as well as up.
Helping an ethically sourced business set up eight more showrooms and hire 100 more staff in a high unemployment economy seems a more attractive option to lots of investors.
"Retail Bonds have struck a chord with those investors who want to cut out the fund manager middle man and are generally content to hold a bond with a decent coupon through to maturity," said Jason Hollands of financial planners BestInvest.
"However, it is vital to know what you are doing as it is not as straightforward as being swayed by a well-known brand attached to the issuer and a juicy headline yield. These bonds are often owned by subsidiaries, so it is important to understand which bit of the business you are exposed to and where you will sit in the capital structure. This process has not been helped by the dearth of credit ratings."
The London Stock Exchange established a market for retail bonds in 2010 called the Order Book of Retail Bonds (ORB). This means retail bonds can be traded like shares and can be held in inside SIPP and ISA wrappers.
Investors should ensure they understand the risks involved in retail bonds before they buy, and only ever allocate a small proportion of a balanced portfolio to single company risk.