There are some good reasons to hold cash. It is important to have as a rainy-day fund, or money you know you’ll need to spend in the next few years. But if you don’t know why you’re holding cash then what options do you have if you want to prepare for the future?
Every year, the majority of new ISA subscriptions are for cash ISAs, which typically accounts for around 75% of all new subscriptions. For most advisers this is one of the first opportunities that is examined by almost all clients and can be explained by the understandable concern of stock market volatility.
However, by choosing to open a standard cash ISA today, investors are exposing themselves to the risk of the purchasing power of their savings being eroded over time. Interest rates have been at historic low levels in the UK for the past seven years and the reasonable expectation around Brexit and slowing growth is that those interest rate returns are not going to increase. People still have cash to invest and are searching for alternatives, willing to exchange liquidity for potentially higher returns for a bond investment.
When the UK Government introduced the Innovative Finance ISA (“IFISA”) on 06 April 2016, Triple Point were one of the first to bring a simple and innovative solution to market with the Income Service.
Triple Point is a leader in the private debt market and to date manages over £425m of assets in direct lending strategies – providing funding to over 100,000 UK customers. This week, we spoke to Belinda Thomas, Head of Sales and Investor Relations at Triple Point, and explored the key characteristics of a product that enables investors to forecast for the future.
“Over the past 13 years, we have had a track record of consistently returning to investors what we set out to do. The Income Service builds on our track record in the direct lending space.”
The thinking behind the Income Service was to provide attractive fixed returns by giving investors access to similar deal flow to our Navigator strategy (part of our estate planning service) which has consistently delivered on-target returns since 2013.
“The goal was delivering a product with positive real yields and diversification opportunities, which combine to give solid absolute risk adjusted returns.”
Investments are used to provide loan, lease and other asset finance to a large and diverse range of carefully-vetted UK businesses. Investors benefit from an investment that aims to generate predictable, inflation beating returns as well as one that is uncorrelated to traditional equity markets.
This makes our proposition attractive as returns from savings accounts are still marginal; sometimes it's not appropriate for people to invest in equity markets which may give them a higher yield, but equally higher levels of volatility.
The target market is intentionally broad. For individual investors, the minimum investment amount is £1,000. For advised investors, the minimum amount is £10,000. It is also available for corporate investors too. Investors can hold the bonds within an IF ISA, which allows for tax free gains on the £20,000 annual limit, as well as the ability to do ISA transfers.
“We established the Income Service three years ago, offering investors fixed rate bonds for a fixed term. It was vital for us that we ensured our investors got instant diversification.”
The core advantage of the Income Service is the certainty over the rate of return. For example, when an investor chooses the Income Service, and asks for a one year bond, they know that the annual return is going to be 5.25% if they’re taking a monthly income (this is of course providing the bond issuer is able to make the payment.)
“Since it started, we’ve made every payment in full and on time. When you look at comparative products in the marketplace, they have a target return. With our Income Service, you know that this is the fixed rate available now.”
When we publish our rates, we know that we have a certain capacity level that we can offer these rates for. Typically, those capacity levels are somewhere between £5m and £10m because we know the opportunities the bond issuer has, and what level of return we can generate to then be certain about the level that we’re passing on to the bondholders. In turn, this gives advisers confidence that the rate they discuss with their clients will be available for a period of time.
Investors in the Triple Point Income Service can choose how long to invest for: a 1-5 year time horizon over which investors can elect to either receive interest monthly or have the interest reinvested and paid at maturity, benefiting from the effect of compounding. Investors can earn up to 5.9% AER for the three year bonds. There is also a 50 basis point incentive to invest in the service via a financial adviser.
Past performance is not an indication of future performance. Investor’s capital and interest are at risk.
The Income Service has three different areas that the bond issuers are approaching: leasing, short term finance and secured lending.
“With leasing, for instance, credit card terminals are a classic example of an asset we fund. We have over 54,000 contracts to date. A credit card terminal is a business-critical asset, and that’s the type of asset we like to be lending against.”
Within our three areas of focus, we can see what the resulting cash flows are going to be in the business. We can model them in the short-to-medium term, which means we can be confident in the level of interest we’re offering.
If the base rate does rise further, you’ll find that the new contracts that we’re writing will incorporate that increased interest rate into the rates we’re requesting from borrowers and therefore we will be in a position to evaluate a corresponding rise in the rates we offer new investors.
Risk Warning: Triple Point Income Service is an investment, not savings and investor’s capital and interest are at risk. Tax treatment depends on individual circumstances and is subject to change. Your capital will be tied up for a fixed term, and past performance is not a reliable guide to future returns.
Triple Point Investment Management LLP is authorised and regulated by the Financial Conduct Authority, firm reference number 456597. Triple Point Administration LLP is authorised and regulated by the Financial Conduct Authority, firm reference number 618187.
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