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Beware the lure of the 9.5% boutique bond

Boutique hotel booking business Mr & Mrs Smith's new retail bond might sound tempting but this product is 'extremely high risk'.


by Victoria Bischoff on May 02, 2012 at 11:51

The group added that it expects to continue making losses in 2012, but anticipates its strong revenue growth will result in global profits in the future.

So why didn't the company take a cheaper bank loan? A spokesperson for Fidelitas Capital, which is acting as adviser on the bond, assured Citywire that the company chose to raise capital this way to engage the customer and increase brand loyalty – it wanted to raise its profile.  

‘It’s fair to say the business development is in its early stages – it is very young – but it is high growth. You don’t see many companies make 50% revenue growth year on year,’ he said.

Mr & Mrs Smith currently has more than 460,000 members, and claims its database is growing by around 10,000 a month.

The risks

Podd said there are ‘obvious concerns’ and is worried to hear people talking about this bond in the same breath as regulated retail bonds listed on the London Stock Exchange, such as those launched recently by the likes of National Grid and housing association Places for People.

In our minds, a bond is supposed to be in the lower risk part of your investment portfolio yet the company is continuing to make losses and there is not enough growth or information provided for someone buying shares in this company let alone an illiquid bond, Podd added.

A spokesperson for Moneyfacts, meanwhile, reminds investors that this bond is not covered by the Financial Services Compensation Scheme (FSCS) so if the business goes bust savers would have to join to queue of creditors looking to get their money back – though they would rank above shareholders in the case of insolvency.

‘It’s a corporate bond and classed as an unsecured loan to the company, so instead of borrowing funds off a bank they collect funds from the general public in the form of this retail bond,’ she explained.

‘So, while it is a good return, consumers would be wise to research the business before making an investment. These types of investments do pose a higher level of risk as it is dependent on the security of the business’.

What’s more, you will not be able to access your money before the four year period is up – which could pose a problem if your circumstances change. And once bought, these bonds are not tradable.

This retail bond only adds to the confusion of what a bond is, Podd says. More needs to be done to distinguish between those that are regulated and those that aren't.

In a previous Citywire video 'What is a retail bond and how can I invest' Podd talks investors through the basics.

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8 comments so far. Why not have your say?

rich banker

May 02, 2012 at 12:28

Best to sleep on this and keep your gold under the bed!

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peter montgomery

May 02, 2012 at 12:41

460,000 members? Wow! How many rooms does it have? Caveat emptor methinks.

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Michael Peters Fenwicks

May 02, 2012 at 13:01

Growth for the sake of growth is the ideology of the cancer cell only way to describe that business.

They were hoping to build a small profitable company and of course what have they done - build a large, unprofitable company with high administration costs.

If I was management I would aim to look for another company to takeover the asserts classic example being last being sold to sabre holdings.

I guessing if they cannot raise the money - selling themselves will be the only way to go.

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May 02, 2012 at 13:23

and I suppose if it all goes wrong, as it will, it'll be for IFAs to compensate?

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Keith Snell

May 02, 2012 at 14:29

I would recomend this bond for anyone wishing to throw away their money.

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Dennis .

May 02, 2012 at 14:50

smells a bit like Groupon

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May 06, 2012 at 09:45

Are they regulated by the FSA?

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May 06, 2012 at 10:45

When a company states that "rather than seek financing in the professional market" what they really mean is that they can't get any funding from there and have found a creative way to attract gullible private investors.

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