One of the most interesting news in the Estonian investing world last month was the fact that one of the more investor focused banks (LHV) released subordinated bonds. (More here). What made the bonds really stand out from all other financial news is the fact that they were accessible to retail investors such as myself – the minimum was 1 bond, meaning with just 1000€ you could become an investor. There is more significance to this than you might think at first glance.
General access to bonds
When it comes to bonds then Estonia is a somewhat strange country. Unlike most of our nearby neighbours we do not have state bonds. It probably has something to do with our government’s aversion towards having any debt at all, but the result being that investors do not have many long term low risk investing instruments to use. The bond market does exist (there has been about 20 companies that issued bonds in Estonia this year) and the total value of bonds is 60+ million euros, but for most retail investors this is inaccessible since the minimum bid for most bond releases is 50 000€. This means that if you want to have some reasonable lever of diversification then most retail investors can’t even start looking at bonds until their investment portfolios are at least 500K+. I know some investors pool money with friends to invest into bonds, but it’s still a very inaccessible market. For that reason the fact that the minimum ask for LHV’s bonds was 1K is a truly significant moment.
Social role of bond investments
One of the things we do not really have in Estonia is the idea of purchasing investments as gifts, for example for children in your family. By any metric a steady 10-year bond would be an amazing way of gifting money for any grandparent who cares about the financial future or learning opportunities of their grandchild. Currently if you want to gift money to someone then it’s an awkward process and looking at the liquidity of our stock market then most growth account versions are rather useless (other than LHV’s kasvukonto probably). Overall, I’d say for those people who are keeping large amounts of money in their accounts due to not wanting to risk too much (which is totally reasonable) having access to bonds would be a godsend. I don’t see anyone other than LHV repeating this any time soon, but it’s definitely a good step.
My reasons for investing
Even though my portfolio is reasonably small still, then my current stock account is in LHV and I do value their service. Having the mission of being an investment bank in a country as small as Estonia is impressive to start with, and looking at the levels of competition here then I do believe that LHV will do rather well in the future. For me, since a large part of my investments is in social lending and single stocks then the LHV bond was probably lower risk than most of my portfolio, I wish I had just had more free money during the marking period. Definitely a step in the right direction and I would be very happy to see more lower priced bond releases in Estonia, to make this market accessible to retail investors such as myself who make plans for the long run.