Anyone buying the pref sell-off?

[Gan020]

I''m still waiting.

Another 10% fall for me and I think I may be tempted.

[simoan]

I''m still waiting.

Another 10% fall for me and I think I may be tempted.

Can you explain why? Hopefully more than anchoring to historic prices! The world has changed and what worked in the past will more than likely not work in the future. Too many people are still extrapolating the last 10-15 years into the future. I know it's difficult because I'm desperately fighting that line of thinking myself. I can see no fundamental reason based on my current knowledge of the world as to why equity and fixed income should do well from here for the foreseeable. The powers that be have run out of magic bullets and we're now left to the mercy of the markets.

All the best, Si

[Padders72]

I''m still waiting.

Another 10% fall for me and I think I may be tempted.

Which specifically are you following?

As I have posted elsewhere recently, I too think that much FI has further to fall, your 10% might be a reasonable guess. Now is a much better entry point than this time last week when prices of some issues were 5% higher, and better still than the week before when they were 5% higher still but a few weeks more might see further improvement. From a buying POV that is of course!

I've sold down half of my considerable FI holdings over the past year due to this expectation and recycled it into ITs and a few reliable dividend paying companies. The prices of some of those have wavered but nowhere near as much as my prefs/bonds/PIBS. I've kept a few though as I wasn't brave enough to dump it all. If yields do rocket I'll be buying back in, but I am waiting for now to see how high they actually go.

[scrumpyjack]

Interesting to see the current forced (effectively) redemption of the Tate & Lye 6% prefs at par. Pref shareholders do not get a separate vote so will obviously be outvoted by ordinary shareholders. It is a tiny issue (only 2.4 M). There does not seem to be any reaction in the city, unlike when Aviva tried this in 2018.

It does once again show the possible risks of Preference share, which whilst being seemingly 'irredeemable', can be redeemed by the capital reduction route unless there are specific provisions in the articles to ensure pref shareholders rights.

[Dod101]

I''m still waiting.

Another 10% fall for me and I think I may be tempted.

Can you explain why? Hopefully more than anchoring to historic prices! The world has changed and what worked in the past will more than likely not work in the future. Too many people are still extrapolating the last 10-15 years into the future. I know it's difficult because I'm desperately fighting that line of thinking myself. I can see no fundamental reason based on my current knowledge of the world as to why equity and fixed income should do well from here for the foreseeable. The powers that be have run out of magic bullets and we're now left to the mercy of the markets.

All the best, Si

It might just be that reliable (if there is such a share) dividend paying shares will see some recognition for what they are. During previous sell offs, such as the tech one on 2000 and the disaster that was the financial crisis in 2007/8, I was very glad of the dividends. If you go for growth and ignore income, then you are very exposed if share prices are more or less on a one way down escalator. That is why I have for a long while ensured that I have exposure to both growth and income shares. I would not buy fixed interest currently, and indeed only have three small holdings in corporate bond funds.

Modestly off topic. I hope I may be forgiven.

Dod

[Gan020]

I''m still waiting.

Another 10% fall for me and I think I may be tempted.

Can you explain why?
All the best, Si

Er - this is going to be the most flippant answer and I haven't really thought it through as one month ago I didn't think it very likely but very broadly if someone offered me an annuity at 8% for the rest of my life I'd be happy to dump my share portfolio and go and enjoy the world. Another 10% fall would give me about that.

Of course whether another 10% fall would be an optimal buying point is another thing altogether and whether if and when it gets there I would decide to wait for another 10% fall. Also I might be more inclined to buy some bonds with 10-15 years maturity if the prefs are that low.

[Alaric]

if someone offered me an annuity at 8% for the rest of my life I'd be happy to dump my share portfolio and go and enjoy the world.

That's 8% fixed. Would it look so clever if you anticiapted that your expenditure might increase at 10% a year with little room for economy without drastic lifestyle cuts?

[simoan]

I''m still waiting.

Another 10% fall for me and I think I may be tempted.

Can you explain why?
All the best, Si

Er - this is going to be the most flippant answer and I haven't really thought it through as one month ago I didn't think it very likely but very broadly if someone offered me an annuity at 8% for the rest of my life I'd be happy to dump my share portfolio and go and enjoy the world. Another 10% fall would give me about that.

Of course whether another 10% fall would be an optimal buying point is another thing altogether and whether if and when it gets there I would decide to wait for another 10% fall. Also I might be more inclined to buy some bonds with 10-15 years maturity if the prefs are that low.

Not bothered about flippancy, more concerned that your answer makes no sense to me in a world of future inflation and higher interest rates. I suspect you're just talking your own book rather than an approach that will work for all. If you can't see UK Prefs approaching double digit yields you're probably not considering hard enough how different the next few years may look compared to the last ten. There likely will be a time to buy but that seems a way off to me and certainly won't be based on something as simplistic as a percentage fall from some arbitrary price. At the very least interest rate rises will need to moderate so the risk premium over government bonds is stable.

All the best, Si

[simoan]

I''m still waiting.

Another 10% fall for me and I think I may be tempted.

Can you explain why? Hopefully more than anchoring to historic prices! The world has changed and what worked in the past will more than likely not work in the future. Too many people are still extrapolating the last 10-15 years into the future. I know it's difficult because I'm desperately fighting that line of thinking myself. I can see no fundamental reason based on my current knowledge of the world as to why equity and fixed income should do well from here for the foreseeable. The powers that be have run out of magic bullets and we're now left to the mercy of the markets.

All the best, Si

It might just be that reliable (if there is such a share) dividend paying shares will see some recognition for what they are. During previous sell offs, such as the tech one on 2000 and the disaster that was the financial crisis in 2007/8, I was very glad of the dividends. If you go for growth and ignore income, then you are very exposed if share prices are more or less on a one way down escalator. That is why I have for a long while ensured that I have exposure to both growth and income shares. I would not buy fixed interest currently, and indeed only have three small holdings in corporate bond funds.

Modestly off topic. I hope I may be forgiven.

Dod

Seems very off-topic to me. We're on the wrong board to discuss equity income. FWLIW I'm a Total Return investor and even though I do not invest for dividend income from equities, the income I do receive more than covers my annual outgoings without needing to invest in high yielding stuff. But that's just me...

[Padders72]

You seem a little terse Simoan. Maybe don't take your name so literally! The OP question seemed perfectly valid and posted in the right place and while Dod's reply is indeed off topic, it does add grist to the discussion mill.

You are clear in that you see stormy times ahead for several asset classes, as do many of us. Would you care to hazard a guess where FI yields might end up in the medium term?

[simoan]

You seem a little terse Simoan. Maybe don't take your name so literally! The OP question seemed perfectly valid and posted in the right place and while Dod's reply is indeed off topic, it does add grist to the discussion mill.

Terse?? I'm the only contributor on this thread who's tried to explain their current viewpoint of FI in any detail! That's why I asked the question of the extremely terse OP.

You are clear in that you see stormy times ahead for several asset classess do many of us. Would you care to hazard a guess where FI yields might end up in the medium term?

Sorry, I don't do guessing or pretend I know the future with any certainty. All I know is that FI yields are ultimately dependent on the risk-free rates and guessing where they may end up is a mugs game best left to the talking suits on Bloomberg etc. I find this idea of buying any investment just because it has decreased by X% as totally stupid. Normally there's a very good reason for the fall as with the case of FI this YTD. And something that falls X% can just as easily fall another X%. The point I am making is that you have to have a valuation model on which to make any decision and not foolishly get distracted by price anchoring.

[Wozzitworthit]

Gan020,

To answer your original question ... I am not buying any more prefs yet.

I had sold most of these and also a lot of longer dated bonds and hold cash

However, the fall in pref prices and the rise in BOE rate is taking longer than I anticipated, and the value of my cash is being effectivley eroded at a faster rate, so am looking for places to park this

So far have dabbled with things like LAD2 (ref your post elsewhere), and also bought some LIV1

Any more suggestions welcome !

Woz

[simoan]

Gan020,

To answer your original question ... I am not buying any more prefs yet.

I had sold most of these and also a lot of longer dated bonds and hold cash

However, the fall in pref prices and the rise in BOE rate is taking longer than I anticipated, and the value of my cash is being effectivley eroded at a faster rate, so am looking for places to park this

So far have dabbled with things like LAD2 (ref your post elsewhere), and also bought some LIV1

Any more suggestions welcome !

Woz

I don't like thinking like this but realise others do with regard to cash and inflation. I think feeling cash burning a hole in your pocket and feeling the need to invest it because of inflation rather than any underlying investment fundamentals is dangerous.

For my own mental accounting purposes, I have to divide cash into two categories: cash for say 12 months living expenses in bank/savings accounts, and cash awaiting investment in brokerage accounts. For the latter, capital loss is a far greater concern than inflation. Indeed, inflation is actually reducing the price of the investments awaiting my "investment cash". And, as we have seen since the start of the year, most UK Prefs have lost around 17% in value so just sitting in cash throughout this time has paid off even allowing for inflation and any dividends paid. What you do with cash for living on is actually more difficult and will come down to individual risk tolerance.

All the best, Si

[Wozzitworthit]

Totally agree that sitting on cash has done better than holding not just UK prefs but other investments as well no doubt.

All I have done is to place some cash on bonds that mature in 2-3 months time.

Woz

[Padders72]

Totally agree that sitting on cash has done better than holding not just UK prefs but other investments as well no doubt.

All I have done is to place some cash on bonds that mature in 2-3 months time.

Woz

Sitting on cash was nearly painless when inflation was 2% (other than opportunity cost) but is rather less so that it is seemingly approaching 10%, as you say that is preferable to an even bigger capital loss though.

[Gan020]

Thank you for your reply Woz. I found it very helpful.

I don't own any prefs but I too am struggling with the slow pace at which the BOE are raising rates. I wish they would just get on with it. Indeed I think they should be going hard and going fast but it's now apparent that 6 members of the committee want to go slow and the other 3 want to go quicker.

It seems the market is calling UK interest rates to top out at around 2.5%, maybe 3.0%, still low by historical standards. Sometime by around the middle of next year. I'm very reluctant to commit anything long term until we get to the point that it's clear rate rises are likely to stop or at least go much slower.

Short term options might be the old favorite Prov 23's, currently around 96p to buy of which I have a few but really wouldn't want too many. Possibly 1SBB. Likely to be called in 2024 so that's gives a return of about 5.25% until then but if it's not called it could reset around 7.5% which is what I would prefer

My fundamental question is though whether I'm just better off being in a fund and letting them do the work and not bothering to look at the prefs until they go below par. All of these are at a discount to NAV. The NAV's have been falling on all these funds as the market has come off with rising yields but the underlying yield is now strong. Of course they are running risk to get these sorts of returns.
AXI factsheet shows a running yield of 8.62% and a yield to call of 11%
CVCG shows a running yield of 9.4% and a yield to maturity of 10.6% and it's 83% floating rate!
NBMI shows running yield of 7.3% and it's 67% floating rate

My inclination is to try not to tie up my spare cash too much. The debt markets still feel too high to me. When NCYF (which I do not own) loses it's 5% premium to NAV, then I'll know we are close to sensible pricing. I think NCYF will go below 50p NAV today but the buyers still keep piling in and the fund manager still keeps issuing new shares.

So hard as it seems as I stare as cash sitting in my pot earning almost nothing I think prices will be lower in a year than they are now and it's not easy trying to juggle the waiting vs the income I could earning now which may or may not get wiped out by capital losses.

It appears that based on the few answers I've got to my post, people are not buying into prefs now or maybe it's more to do with what happens when markets fall fast that people lose their enthusiam for shares.

[Padders72]

Thank you for your reply Woz. I found it very helpful.

I don't own any prefs but I too am struggling with the slow pace at which the BOE are raising rates. I wish they would just get on with it. Indeed I think they should be going hard and going fast but it's now apparent that 6 members of the committee want to go slow and the other 3 want to go quicker.

It seems the market is calling UK interest rates to top out at around 2.5%, maybe 3.0%, still low by historical standards. Sometime by around the middle of next year. I'm very reluctant to commit anything long term until we get to the point that it's clear rate rises are likely to stop or at least go much slower.

Short term options might be the old favorite Prov 23's, currently around 96p to buy of which I have a few but really wouldn't want too many. Possibly 1SBB. Likely to be called in 2024 so that's gives a return of about 5.25% until then but if it's not called it could reset around 7.5% which is what I would prefer

My fundamental question is though whether I'm just better off being in a fund and letting them do the work and not bothering to look at the prefs until they go below par. All of these are at a discount to NAV. The NAV's have been falling on all these funds as the market has come off with rising yields but the underlying yield is now strong. Of course they are running risk to get these sorts of returns.
AXI factsheet shows a running yield of 8.62% and a yield to call of 11%
CVCG shows a running yield of 9.4% and a yield to maturity of 10.6% and it's 83% floating rate!
NBMI shows running yield of 7.3% and it's 67% floating rate

My inclination is to try not to tie up my spare cash too much. The debt markets still feel too high to me. When NCYF (which I do not own) loses it's 5% premium to NAV, then I'll know we are close to sensible pricing. I think NCYF will go below 50p NAV today but the buyers still keep piling in and the fund manager still keeps issuing new shares.

So hard as it seems as I stare as cash sitting in my pot earning almost nothing I think prices will be lower in a year than they are now and it's not easy trying to juggle the waiting vs the income I could earning now which may or may not get wiped out by capital losses.

It appears that based on the few answers I've got to my post, people are not buying into prefs now or maybe it's more to do with what happens when markets fall fast that people lose their enthusiam for shares.

To which AXI do you refer above? Presumably not Axiom European Financial Debt Ltd, ticker AXI? That is yielding more like 6.7% last I looked and doesn't have a call date AFAIK.

[Gan020]

To which AXI do you refer above? Presumably not Axiom European Financial Debt Ltd, ticker AXI? That is yielding more like 6.7% last I looked and doesn't have a call date AFAIK.

Indeed it is AXI. I refer to the yield the fund is making not the yield they are paying out to investors.

So, the dividend is well covered and over the long term all other things being equal investors should get some capital appreciation as well as the dividend.

[88V8]

I''m still waiting.
Another 10% fall for me and I think I may be tempted.

I'll be tempted when CBs stop raising rates.
At that point I would broadly expect FI prices to stabilise.

Interesting to see the current forced (effectively) redemption of the Tate & Lye 6% prefs at par.It is a tiny issue (only 2.4 M). There does not seem to be any reaction in the city...

This is one reason that I sold most of my Prefs.
Small issues may be particularly at risk as there are few holders to make a fuss.

if someone offered me an annuity at 8% for the rest of my life I'd be happy to dump my share portfolio and go and enjoy the world.

That's 8% fixed. Would it look so clever if you anticipated that your expenditure might increase at 10% a year with little room for economy without drastic lifestyle cuts?

Depends on one's age. If one is in one's 'senior' years one may take a gamble with inflation. Although just at the mo, it's not a very good gamble, even for me in what I think of as my junior senior years.

...the value of my cash is being effectively eroded at a faster rate, so am looking for places to park this...So far have dabbled with things like LAD2 (ref your post elsewhere), and also bought some LIV1
Any more suggestions welcome !

If not already overstuffed, ENQ1 and ENQ2 look safe while the oil price remains high, yielding better than 7% & 9%.

Then there's 66WS but yielding only 5% or so, and bound to fall further.

To which AXI do you refer above? Presumably not Axiom European Financial Debt Ltd, ticker AXI? That is yielding more like 6.7% last I looked and doesn't have a call date AFAIK.

Indeed it is AXI. I refer to the yield the fund is making not the yield they are paying out to investors.

I have some but the SP keeps ticking down, so I will be more interested when interest rates top out.

V8

[Wozzitworthit]

Just sold the last of our prefs - RE.B

Was going to wait for some of the outstanding dividends to be paid, but with the price almost certainly dropping after that happens, compounded by the direction of pref prices generally, we thought we would get out whilst we had a small gain (and June's normal dividend)

Woz