This topic contains 47 replies, has 18 voices, and was last updated by  88V8 1 year, 1 month ago.

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  • #720

    OldBoyReturns
    Keymaster

    A few weeks ago the Telegraph contacted me to discuss ideas for and risks of perpetual bonds and PIBS which could be used as a form of annuity with preservation of capital. The article (requires free registration to view) is at –

    http://www.telegraph.co.uk/investing/bonds/questors-income-portfolio-an-annuity-paying-6pc-forever–and-you/

    I know this is a popular approach for at least a portion of portfolios amongst many fixed income investors, including myself. So I thought it would be an interesting exercise to construct and run a ‘Community Fantasy Annuity Portfolio’ on this discussion board as a way of users sharing ideas and to see how it performs over time. So lets have your nominations for securities to include in the portfolio and why. A few unofficial ‘rules’ –

    1. Maximum of two nominations per user. If you are nominating two securities please rank them in order of preference.

    2. Securities should be either true perpetuals (ie  non maturity or issuer call option) or be very long dated (say no maturity or issuer call option within 20 years.) There could be exceptions so if you have one which you think should be allowed in please nominate it and argue your case.

    3. Try to come up with some not so obvious nominations as well as the obvious popular ones.

    4. Nominations can be from any issuer in any sector or country.

    5. Portfolio will be equally weighted with a maximum of 20 securities at any one time.

    #721

    Redsf
    Participant

    Can I throw in RUSP.   12pc bonds from Raven Russia.  I have been invested for about 4 years whilst the price has been volatile the payment hasn’t been missed to date.

    Ord shares however have had the tender offer reduced.

    #722

    TenBag
    Participant

    My greatest concern about preference shares has always been that as (mostly) perpetuals, they are overly sensitive to interest rate risk, and it seems very probable, looking several years ahead, that rates will rise. How sensitive? Mmm. Well, it’s been so long since we had a rise in UK rates that it’s hard to point to a comparable event. I also harbour a concern that despite being perpetual, issuers will find some way of redeeming them, with a consequent loss of capital, since it is presumably expensive for them to be paying the dividend in the current interest rate climate. Put simply, I’ve never been happy with the risk/reward ratio of prefs, especially non-cumulative shares where I worry about skipped payments if things get tough, in addition to the other concerns. I do have a holding of RECP in my SIPP, which has the security of (almost) guaranteed capital return at par, though this will be redeemed next September and there’s nothing obvious to replace it with. I will watch this thread with interest to see what others suggest.

    #723

    Voxvoci
    Participant

    REA Holdings have a cumulative pref  currently yielding around 9.5%

    http://markets.ft.com/data/equities/tearsheet/summary?s=RE.B:LSE

    Another cumulative I have held for several years is GACA

    Current yield 6% goes xd this Thursday

    http://markets.ft.com/data/equities/tearsheet/summary?s=GACA:LSE

    #724

    Aurelius
    Participant

    A couple of ones from my stable:

    SKIP: Skipton PIBS, non-callable, 12.875% coupon, last trade shown on LSE @ 194.65, yield to perpetuity 6.61%.

    SAN: Santander UK non-cumulative pref, irredeemable, 10.375% dividend, I bought some today @ 156.95, yield to perpetuity also 6.61%.

    I’m keen on the annuity approach and hold several other possible candidates: CVBP, LBS, NBSP, NBSR, NOTP, 1SBB. Also AK44 which still has 15 years to maturity in 2031.

    #727

    OldBoyReturns
    Keymaster

    My wildcard nomination, for diversification, is the unusual Sterling Mexican Government bond 5.625% 2114 (ISIN XS1046593908.) Not perpetual due to 2114 maturity, long enough for me, and issuer call option but it is a make whole call so unlikely to be unfavourable to holders if ever exercised.

    The last trade I can see was at 98 so the price is down about 15% since September, chart below, but well up on February lows. Towards the end of August S&P Global Ratings revised Mexico’s outlook to negative, citing “disappointing” economic growth and a rising debt load.

    Current yield of about 5.75% is a significant premium to the 1.84% you would get on the long dated UK Gilt Treasury 3.5% 2068.

    #729

    hiriskpaul
    Participant

    Tesco plc 5.2% 2057 (ISIN XS0289810318).

    Those who buy through CREST have to pay stamp duty on this one, allowing for that an all in price of 88.5 gives a yield to redemption of 5.95%.

    This is senior, non-callable (but bondholders have a put in certain circumstances), issue size £500m. Minimum slice is £50k nominal though which might put some off.

    (No hesitation in recommending LLPC/LLPD, NWBD, SAN/SANB, STAB/STAC at current prices either, so assume those would be included)

    #738

    OldBoyReturns
    Keymaster

    (No hesitation in recommending LLPC/LLPD, NWBD, SAN/SANB, STAB/STAC at current prices either, so assume those would be included)

    Hi Paul – they will only be included if nominated. Each poster gets 2 nominations.

    #741

    hiriskpaul
    Participant

    Hi Paul – they will only be included if nominated. Each poster gets 2 nominations.

    In that case my second nomination is NWBD. I like the way it is embedded in NatWest’s capital rather than RBS and I like the punitive cumulative feature should they choose not to pay. Right now it is also the highest yielder compared to its peers at 6.75% after adjusting for stamp duty and accrued, no doubt boosted by today’s stress test announcement.

    #751

    Bushman
    Participant

    My top picks would be ELLA and BWRA.
    They both supply services that we’ll need long after I’ve popped my clogs.

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