COLUMN-Do bond buyers really need a Groupon of their own?

Thu Mar 21, 2013 11:45am EDT

By Conrad de Aenlle

LONG BEACH, Calif., March 21 (Reuters) - Necessity may be the mother of invention, but Internet businesses often seem to get the idea backwards.

Instead of identifying a need and devising the means to fill it, entrepreneurs will invent something and then keep their fingers crossed that its presence will create demand for it.

Consider Munigo.com, a fledgling website that features limited-time sales of corporate and municipal bonds at what it says are below-market prices. The firm is positioning itself as a Groupon for bonds.

Munigo members, who can sign up at no charge, receive an email alerting them that a particular bond is offered. They can then buy the bond through their own financial adviser or discount broker; no trades are executed on the site.

Anyone who visits the site can see existing offers, even without a membership. The firm also posts bond "deals" on Facebook and Twitter.

Munigo LLC founder Bhu Srinivasan estimates that a member can typically buy a corporate bond for 0.25 to 0.50 of a percentage point below the market price generally available to retail investors.

The dealers that Munigo negotiates with are willing to take the modest haircut because it gives them access to the 16,000 members Srinivasan says the site has.

A private bond investor and serial Web entrepreneur, Srinivasan bought Municipalbonds.com in 2008. He sold it in 2012 when he launched Munigo with the idea of making bonds more accessible to retail investors.

He says he was inspired by the "great value proposition" of Japanese clothier Uniqlo, where he once outfitted himself quickly and cheaply for a last-minute trip, to name the company Munigo. As for the business model, he was inspired by such daily deal sites as Groupon Inc, Gilt.com and Jetsetter.com.

"We borrowed from the flash-sales concept that has worked well in travel, fashion and consumer goods," he said. "It also works well for fixed income. In fact, it's probably the only asset class it works well for."

The reason, he says, is that the markets in individual corporate and municipal bonds are notoriously illiquid and opaque, as he discovered when managing his own portfolio. Most of the tens of thousands of bond issues have no more than a few trades a day, and research about them is hard to come by.

Skeptics might point to the thin markets as evidence of little demand for a site like Munigo, but Srinivasan says his approach can help investors wade through a surfeit of choices and make bond ownership less confusing.

"Munigo is there to help transition you to your first bond purchase," he said, "and for seasoned bond owners to make more informed decisions."

It is too early to tell if the approach works. Still in its beta phase, the site features very few bonds; there were just four between March 1 and 12, for example. Groupon, by contrast, offered 862 deals one recent morning, and that is just for the Southern California region where I live.

Anyone interested in buying bonds can find plenty of options through conventional channels.

The Fidelity.com brokerage, for instance, had 548 corporate issues listed recently on its website. Their maturities ranged from five to 20 years, and Moody's credit ratings were between BBB-plus and BBB-minus. The bonds offered annual yields from 3 percent to 6 percent, with significant differences even among those with the same maturity and rating. Some were higher than similar issues on Munigo; others were lower.

But Srinivasan says that by limiting the offerings, he is actually performing a service to consumers. Whether it is hotel rooms or gift items or bonds, "I don't need to see hundreds of choices; I just need to see three or four good curated choices," he said.

The way Munigo chooses the bonds may give investors pause. Dealers pay Srinivasan to place their bonds on the site, so there could be a conflict of interest. But Srinivasan says his business model is based on volume, so he will make more money selling good bonds to many customers than he could by selling something tainted to fewer of them.

He says he chooses bonds he personally thinks are worthy, although he concedes that he is not a professional investor.

"I don't think you have to be an absolute expert to pick fixed-income investments," he said. "It's not rocket science."

No, but it can still blow up in your face, said Louis Stanasolovich, president of Legend Financial Advisors in Pittsburgh.

Stanasolovich, the only one of seven financial advisers contacted for this column who was willing to offer comment on Munigo, says he finds selecting the right issues tricky enough - weighing credit quality, yields and call features - that he does not fool with it.

He invests through mutual funds, an invention that meets the need for low-cost diversification, transparent pricing and easy buying and selling, and he encourages investors to do the same.

"I don't think individual investors know how to run analysis on bonds," he said. "Bonds are a very complicated product, much more than stocks.

"Most people who buy stocks can make mistakes and still survive. With bonds you can shoot yourself in the foot, especially at such low yields."

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