DBS

30 “In the absence of bank loans or credit lines, the corporate bond market remains a viable alternative for SME financing.” – The Growth and Emerging Markets Committee of the International Organization of Securities Commissions HIGH YIELD BONDS SOURCE: BOFA MERRILL LYNCH AND BLOOMBERG AS AT 27 NOV 2015 TANGIBLE, ENGAGING INVESTMENTS Since a portion of debt based securities, in particular crowdfunded bond and debenture investments, have historically had renewable energy as their underlying assets, it would seem that they are well placed to be a part of fulfilling the growing demand for socially responsible investments. As renewable energy has been steadily excluded from other alternative funding routes (e.g EIS/SEIS/VCT), the DBS route has remained open. Despite the reductions/removals of subsidies cutting the level and number of investments in renewables projects in the UK 60 , interesting opportunities still remain; for example, Triodos Bank launched a five year UK renewables crowdfunded bond offering 5.5% annual interest in May 2016. Underlying assets such as property are certainly tangible, especially if investors can visit and even use them: One method of engagement is the fringe benefits that are sometimes offered with unlisted bonds. A crowdfunded bond example is the pub bond offered by the Downing Crowd platform. This gives those who invest in a pub trading company a 20% discount at pubs included in the investment. Not only does this encourage investors to visit the sites for themselves to verify their existence, but it provides themwith an opportunity to take an extra benefit and become very familiar with their investment. EASY TO ACCESS AND DIVERSIFY The number of online platforms providing alternative finance has increased significantly in the last few years and there are now almost 150 active UK based platforms which focus on debt and equity fund raising. Ninety-five of these focus on debt, primarily peer to peer lending, and around a quarter of those also offer debt based securities. This does not include fairly numerous websites offering DBS, with no references to FCA authorisation and which appear to be unregulated sales agents: we do not consider these to be authentic platforms. Nevertheless, it does include such firms as Rockpool which is a very experienced, authorised investment manager which also runs EIS investments and inheritance tax services. The nature of these online platforms means that finding offers of debt based securities is not difficult, although the quality of the deals does need to be carefully scrutinised by advisers as it can vary significantly. In addition to over 20 sites providing authorised platform services, we have found at least four aggregators. They aggregate information for research and comparisons, but also act as a portal to multiple origination platforms using a single account log-in, allowing advisers and users to transact, with the aim of simplifying the selection process. Not only does this equate to reduced administration for advisers and an extra layer of due diligence on the platforms that it accommodates, but it can also provide easy access to low cost diversification across multiple platforms; there’s no need to fill in 8.5% 7% 5.5% 8% 6.5% 5% 7.5% 6% 4.5% JAN 2013 APR 2013 JUL 2013 OCT 2013 JAN 2014 APR 2014 JUL 2014 OCT 2014 JAN 2015 APR 2015 JUL 2015 OCT 2015 S&P FREE CASH FLOW YIELD US HIGH YIELD CORRELATION OF 10 YEAR UK GOVERNMENT BONDS AND FTSE ALL SHARE 1.0 0.8 0.6 0.4 0.2 0 -0.2 -0.4 -0.6 -0.8 -1.0 1985 2015 1990 1995 2000 2005 2010 SOURCE: BANKUNDERGROUND.CO.UK, JANUARY 2017 Although the graphic is based on US data, similar trends have been seen in other major markets over recent decades, including the UK.