You might be unwilling to pay a fund manager to pick shares when you could do it yourself. But in the past you've probably drawn the line at bonds. Researching them is a completely different ball game to researching shares. And trading them has historically been difficult, with huge minimum investment sizes, wider spreads and higher transaction charges. However, that's all changing – and if you've only invested in bonds via collective vehicles in the past, you might want to reconsider.
The key development has been the launch of the 'Order book for retail bonds' (Orb) by the London Stock Exchange (LSE), which aims to make trading bonds online as easy as trading shares, with online execution at reasonable rates and on small investment parcels. At launch in February, it featured only 10 corporate issues. But it's been growing steadily and now has 24 corporate issues and more than 50 types of gilt and Eurobond.
Growth in the number of market makers has been more elusive; although Jefferies Securities recently became a gilt-edged market maker (GEMM), there is still a notable reluctance among the big execution-only brokers such as Hargreaves Lansdown (HL) and TD Waterhouse to sign up to the trading platform. TD Waterhouse already has a reasonably comprehensive bond trading option within its range of accounts, while HL said that it has no fixed date for which to offer bonds for its clients.
Matt Rickard, of the HL stockbroking team, said the problem for execution-only brokers at the moment was completing the settlement on corporate bonds. This involves working out the accrued interest for the client between the execution of the trade and the settlement of the contract; the so-called clean price is what matters for bond investors. "It's moving in the right direction, but slowly," he said. Hargreaves Lansdown is involved in the LSE's Orb platform and recently helped to bring Provident Financial's retail bond direct to market. Other brokers such as Killik & Co, which is heavily involved, have reacted to the dearth of fixed-income research by bringing out bond updates for clients.
Orb isn't the only bond-trading marketplace. Bondscape, which has heavyweight backers such as Barclays and HSBC, has been around for 10 years. But it's not generally available direct to private investors, only intermediaries. Most brokers are set up to use the system and are happy with the settlement service.
