Prefs on the rise

[88V8]

I've been of the view that the SP of Prefs will fall until the CBs stop raising rates. I'd expected that to continue into next year, as I've said a few times on here.

It seems the market has other ideas. All the popular Prefs are on the up, more than just a day's blip, albeit on low volumes.

So in the unlikely event that anyone has been waiting for me to fire the starting gun, this is a heads-up in case you hadn't noticed that I may have got it wrong.

V8

[Padders72]

Are you sure it isn't a rising tide lifting all boats through? Many things that have wallowed in the doldrums have risen a few % in the past couple of weeks. Look at SMT for instance. I'm not convinced and wont be buying back into FI just yet. That said a long term rise starts off as a short term one so who knows!

Apologies for the over-nautical theme on display in this post to all that you suffer from sea-sickness

[88V8]

Are you sure it isn't a rising tide lifting all boats through? ...a long term rise starts off as a short term one so who knows!

Apologies for the over-nautical theme on display in this post to all that you suffer from sea-sickness

Yes, one never really knows until afterwards.

I once got sick in the ferry before it had even left Dover. On the plus side, I have never been tempted to pour money into yachts.

V8

[Wozzitworthit]

First of all a quote from one of today's newspapers

Inflation will soar to “astronomical” levels over the next year forcing the Bank of England to raise interest rates higher and for longer than previously expected, according to a leading thinktank.

The National Institute of Economic and Social Research also forecast a long recession that would last into next year and hit millions of the most vulnerable households, especially in the worst-off parts of the country.

NIESR said gas price rises and the escalating cost of food would send inflation to 11% before the end of the year while the retail prices index (RPI), which is used to set rail fares and student loans repayments, is expected to hit 17.7%.

Stephen Millard, the institute’s deputy director, said the economy would contract for three consecutive quarters, shrinking the 1% by the spring of next year.

He added there will be “no respite” for British households and businesses from “astronomical inflation” in the short term and “we will need interest rates up at the 3% mark if we are to bring it down”.


What struck me is the bottom sentence where the deputy director states that we will need a bank rate of 3% to cope with RPI reaching 17%

To the likes of me, and I know there are a few more like me out there, this is quite a staggering remark, when we recall RPI in double figures and bank deposit rates not very far behind

I do realise things are different now due to a whole host of factors like Covid, Quantitative Easing, Ukraine, Oil & Gas prices, Basl 3 etc etc, but to have BOE rate at about a sixth of RPI that is quite astonishing


I have been tracking quite a few Prefs, Bonds, PIBs pries etc over the past weeks and until a few days ago the SP trend was definitely in decline, albeit fairly slow

I am still not buying any perpetuals like Prefs, but I did pick up a few NOTP PIBs at 110p (they had been down to 107.862 - they were 116 earlier today but now are 114)

I have been buying and or topping up more bonds that mature in 2022 and 2023 rather than earn next to nothing in a bank or broker account

I had sold out a lot of the longer dated bonds - possibly being a bit too brutal, as a lot of the proceeds went into the likes of AXI and NBMI as I thought (or perhaps assumed , or to be more honest - hoped) that they could do better than I would have done and maintained capital better than I could have done)
I admit that was a mistake, and should have waited longer

Finally, seeing 88V8s comment about the setting off of a starting pistol, I am reminded of that old chestnut - Most people have heard of Karl Marx, but not many know of his sister Onya, inventor of the starting pistol

Woz

Woz

[stockton]

NOTP ???

[GoSeigen]

NOTP ???

https://www.google.com/search?q=NOTP+PIBS

GS

[88V8]

.... a lot of the proceeds went into the likes of AXI and NBMI as I thought (or perhaps assumed , or to be more honest - hoped) that they could do better than I would have done and maintained capital better than I could have done)
I admit that was a mistake, and should have waited longer.

Yeah, I though that. Since I bought AXI the SP has done nothing but fall.
However, today, seeing an uptick, I had an attack of fomo and bought a few more at 81p.

Also some NCYF. No uptick there as yet although there was a bit of a dead cat thing a few weeks ago, but yield better than 8% sooooo....

It's annoying that the market doesn't see the logic as set out in my OP, but it's not the first time I've been right and everyone else wrong.

V8

[88V8]

A month on, and Prefs are drifting down again.
So perhaps I was right in the first place, and prices will continue to fall while base rates rise.

My targets are BWRA, ELLA, NWBD, but not yet.

V8

[Gan020]

A month on, and Prefs are drifting down again.
So perhaps I was right in the first place, and prices will continue to fall while base rates rise.

My targets are BWRA, ELLA, NWBD, but not yet.

V8

I think they will fall some more yet. I'm hoping the timing on AXI will work out. The last RNS suggests we will have an opportunity to exit AXI at NAV less costs or stay in sometime around late Q1 or early Q2 next year.

That will be peak interest rate time when the base rate is "apparently" going to hit 4.25%

Having said that as every day goes by I'm becoming keener on staying in AXI. The prices new CoCo's are getting placed at are very attractive. Not in retail denominations regrettably.

[Tara]

A month on, and Prefs are drifting down again.
So perhaps I was right in the first place, and prices will continue to fall while base rates rise.

My targets are BWRA, ELLA, NWBD, but not yet.

V8

I think they will fall some more yet. I'm hoping the timing on AXI will work out. The last RNS suggests we will have an opportunity to exit AXI at NAV less costs or stay in sometime around late Q1 or early Q2 next year.

That will be peak interest rate time when the base rate is "apparently" going to hit 4.25%

Having said that as every day goes by I'm becoming keener on staying in AXI. The prices new CoCo's are getting placed at are very attractive. Not in retail denominations regrettably.

What CoCo’s have been issued recently at attractive prices? Do you mean retail investors are not allowed to buy them? Can they not be bought on HL for example?

Thanks

[Gan020]

What CoCo’s have been issued recently at attractive prices? Do you mean retail investors are not allowed to buy them? Can they not be bought on HL for example?

Thanks

The FCA banned sale of CoCo's to retail in 2014 and the ban is still in place
https://www.fca.org.uk/news/press-relea ... -investors


Legally to overcome the ban, you will have to qualify as a HNW (High Net worth) or Professional Elective, but even then you will face challenges as most CoCo's come in minimum denominations of either 100,000 or now increasingly 200,000.

There are very few available on HL, partly because the demand from retail is very low, partly because HL have to assure themselves you are HMW or professional elective, partly because they don't all settle through CREST.

Also, I think regardless of HNW or Professional elective the main retail brokers are concerned investors do not understand what they are buying.

The main retail brokers will broadly let you buy funds which contain CoCo's, although you will have to pass a test and they are becoming less accomodating about these too (probably becuase it is not too challenging to pass the test but that doesn't mean people have fully read and understood about the instruments they are buying)

Sainsbury's issued one recently at 10.5%. Note the FCA warning that CoCo's can become worthless under certain conditions. Also, note and I haven't read the prospectus but it's probable imho the bond is from Sainsbury's Bank and will not have a parent company guarantee.

I am in disagreement with the ban, but I do see the FCA have their reasons.

It has been easiest for me to buy CoCo's through a fund such as AXI as I can scale in and out as I like. There are other funds which do similar.

[88V8]

A month on, and Prefs are drifting down again.
So perhaps I was right in the first place, and prices will continue to fall while base rates rise.
My targets are BWRA, ELLA, NWBD, but not yet.

I think they will fall some more yet.

Not that it's a target of mine, but SANB has now fallen above 7%.

I'm hoping the timing on AXI will work out. The last RNS suggests we will have an opportunity to exit AXI at NAV less costs or stay in sometime around late Q1 or early Q2 next year.
That will be peak interest rate time when the base rate is "apparently" going to hit 4.25%
Having said that as every day goes by I'm becoming keener on staying in AXI. The prices new CoCo's are getting placed at are very attractive. Not in retail denominations regrettably.

What, staying in if it becomes open-ended?
Or do you prefer that it continue as is....
the Board intends to offer Shareholders the option of receiving cash at NAV (less costs, including any portfolio realisation expenses) for some or all of their shareholding and/or to continue their investment in an open-ended vehicle managed by Axiom (the "Proposals"). That vehicle will have a similar investment strategy to that which the Company would have proposed if it were to continue to operate as a closed-ended listed investment company. In order to effect the Proposals it is expected that the existing Company will be liquidated.
... in which case one would presumably vote against the proposals.

Base rate... I believe the market is pricing in >4%. Going to be very political. Truss trying to inflate the balloon as the Bank is trying to shrink it... independence is in the gift of the govt... but could be useful for Truss to have someone to blame if it doesn't work out.... shame that politics and FI are so intertwined.

V8

[Gan020]

I'm hoping the timing on AXI will work out. The last RNS suggests we will have an opportunity to exit AXI at NAV less costs or stay in sometime around late Q1 or early Q2 next year.
That will be peak interest rate time when the base rate is "apparently" going to hit 4.25%
Having said that as every day goes by I'm becoming keener on staying in AXI. The prices new CoCo's are getting placed at are very attractive. Not in retail denominations regrettably.

What, staying in if it becomes open-ended?
Or do you prefer that it continue as is....
the Board intends to offer Shareholders the option of receiving cash at NAV (less costs, including any portfolio realisation expenses) for some or all of their shareholding and/or to continue their investment in an open-ended vehicle managed by Axiom (the "Proposals"). That vehicle will have a similar investment strategy to that which the Company would have proposed if it were to continue to operate as a closed-ended listed investment company. In order to effect the Proposals it is expected that the existing Company will be liquidated.
... in which case one would presumably vote against the proposals.

Base rate... I believe the market is pricing in >4%. Going to be very political. Truss trying to inflate the balloon as the Bank is trying to shrink it... independence is in the gift of the govt... but could be useful for Truss to have someone to blame if it doesn't work out.... shame that politics and FI are so intertwined.

V8

When the news came out my mindset was something along the lines of "yes, lovely, I'll take 96p, that will be great". A nice quick profit on the ones I'd just bought and the rest I'd collected a nice dividend along the way. Most of my trades were in the low 80's, and I'd only recently bought a decent volume under 80p. MY average is about 84p, having bought most of them recently or when the share price was depressed due to Covid.
I have quite a large quantity and was going to have to sell some at some future point to deal with risk management.

The more I have considered it though, the more inclined I am to stay invested once the fund becomes open-ended, albeit I'll probably have to let a third go as I've got too many.

My reasoning is very much based around what is my alternative investment and I can't find one that matches this. According to the August factsheet the running yield is 9.57%, the yield to perpetuity is 12.1% and the yield to call is 13.75%. The headline dividend might be 6p but the fund should be churning capital gain as well.

In the last month there has been a Sainsbury CoCo at 10.5% and IIRC a Barclays one at 8.75%. Both are either 100k or 200k denominations and that's too rich for me. I cannot access this market direct myself, nor am I really in the know about what issues are coming up and further the little information I get is after the fact and in addition none of it is on Euro denominated issues.

Now I could just sell out and go and find another CoCo fund. There are a few I guess but most of them are just low cost tracker type things holding about 40 stocks which are the biggest banks. None of them hold the smaller issues AXI contains paying a much higher coupon because well they are smaller and more specialised.

I would prefer it stays as it is as a IT, but I've got no option on that. The decision is made to go to open-ended or money back at NAV (or proportion of money?)

[Laughton]

Isn't one of the problems that, once changed to open ended status, the charge for holding on some platforms (HL for example) becomes much higher?

And it may not be possible to hold some open ended funds (no idea about this propsed one) whereas it is possible to hold ITs, bonds, PIBs and prefs.

[Gan020]

Isn't one of the problems that, once changed to open ended status, the charge for holding on some platforms (HL for example) becomes much higher?

And it may not be possible to hold some open ended funds (no idea about this propsed one) whereas it is possible to hold ITs, bonds, PIBs and prefs.

The charging structure can be a problem especially with HL and AJ Bell. We will have to wait and see. Not all open-ended structures are chargeable by HL. ETF's for example are open-ended and HL don't charge for those. I note in relation to my holding in AXI, they do run an ETF, so I'm hoping for that.

This will just get ported over by HL into the new fund. They won't be bothered. Either they get a lovely fee for doing nothing or commissions on buys and sells on an ETF.

[Tara]

I'm hoping the timing on AXI will work out. The last RNS suggests we will have an opportunity to exit AXI at NAV less costs or stay in sometime around late Q1 or early Q2 next year.
That will be peak interest rate time when the base rate is "apparently" going to hit 4.25%
Having said that as every day goes by I'm becoming keener on staying in AXI. The prices new CoCo's are getting placed at are very attractive. Not in retail denominations regrettably.

What, staying in if it becomes open-ended?
Or do you prefer that it continue as is....
the Board intends to offer Shareholders the option of receiving cash at NAV (less costs, including any portfolio realisation expenses) for some or all of their shareholding and/or to continue their investment in an open-ended vehicle managed by Axiom (the "Proposals"). That vehicle will have a similar investment strategy to that which the Company would have proposed if it were to continue to operate as a closed-ended listed investment company. In order to effect the Proposals it is expected that the existing Company will be liquidated.
... in which case one would presumably vote against the proposals.

Base rate... I believe the market is pricing in >4%. Going to be very political. Truss trying to inflate the balloon as the Bank is trying to shrink it... independence is in the gift of the govt... but could be useful for Truss to have someone to blame if it doesn't work out.... shame that politics and FI are so intertwined.

V8

When the news came out my mindset was something along the lines of "yes, lovely, I'll take 96p, that will be great". A nice quick profit on the ones I'd just bought and the rest I'd collected a nice dividend along the way. Most of my trades were in the low 80's, and I'd only recently bought a decent volume under 80p. MY average is about 84p, having bought most of them recently or when the share price was depressed due to Covid.
I have quite a large quantity and was going to have to sell some at some future point to deal with risk management.

The more I have considered it though, the more inclined I am to stay invested once the fund becomes open-ended, albeit I'll probably have to let a third go as I've got too many.

My reasoning is very much based around what is my alternative investment and I can't find one that matches this. According to the August factsheet the running yield is 9.57%, the yield to perpetuity is 12.1% and the yield to call is 13.75%. The headline dividend might be 6p but the fund should be churning capital gain as well.

In the last month there has been a Sainsbury CoCo at 10.5% and IIRC a Barclays one at 8.75%. Both are either 100k or 200k denominations and that's too rich for me. I cannot access this market direct myself, nor am I really in the know about what issues are coming up and further the little information I get is after the fact and in addition none of it is on Euro denominated issues.

Now I could just sell out and go and find another CoCo fund. There are a few I guess but most of them are just low cost tracker type things holding about 40 stocks which are the biggest banks. None of them hold the smaller issues AXI contains paying a much higher coupon because well they are smaller and more specialised.

I would prefer it stays as it is as a IT, but I've got no option on that. The decision is made to go to open-ended or money back at NAV (or proportion of money?)

I had a look for some more information on the Barclays CoCo that was mentioned. Is it the 8.875% issue of £1,250m that was issued earlier this year?

If so, how would you say it compares to something like NWBD on a risk level? Would you say it was a similar risk level, or is it more risky or less risky?

Is it a “must pay” like NWBD? And is Barclays likely to call it at some date in the future? And would any future call be at £1 par, so that any capital gain would be lost?

If it is yielding almost 9% and NWBD is yielding less than 7% now, it would seem that the market thinks it is a little bit riskier than NWBD?

Thanks

[Gan020]

I had a look for some more information on the Barclays CoCo that was mentioned. Is it the 8.875% issue of £1,250m that was issued earlier this year?

If so, how would you say it compares to something like NWBD on a risk level? Would you say it was a similar risk level, or is it more risky or less risky?

Is it a “must pay” like NWBD? And is Barclays likely to call it at some date in the future? And would any future call be at £1 par, so that any capital gain would be lost?

If it is yielding almost 9% and NWBD is yielding less than 7% now, it would seem that the market thinks it is a little bit riskier than NWBD?

Thanks

My memory has let me down again which seems to be an increasing common occurrence. It was a Lloyds 8.5% that was placed in the last month. I do see there was a Barclay 8.875% earlier in the year.

I am not well versed in either NWBD or the Barclays CoCo. I haven’t read either prospectus so can only speak generally. I note NWBD is a preference share and the CoCo is an AT1.

The Barclays AT1 is not a must pay. It is the exact opposite of a must pay. CoCo’s only pays under certain circumstances as that’s what CoCo’s are designed to do. All capital is at risk with CoCo’s.

I always find it helpful to remind myself that the clue is in the name when I find myself wanting to buy too many of these because the yield looks great. CoCo stands for Contingent Convertible Capital Instrument. These are hybrid securities which absorb losses when the capital of the issuing bank falls below a certain level. In the case of the Barclays AT1 when the CET ratio falls below a certain trigger level (probably broadly around 8% but note I haven’t read the prospectus) the CoCo will convert to Barclays shares (The conversion price is set out in the prospectus and is highly likely to be much higher than the share price Barclays will be trading at when the conversion takes place as Barclays will have already made significant losses to cause the trigger and likewise the share price will have collapsed. Noting again I haven’t read the prospectus and this is how it works generally for AT1’s, different types of CoCo’s do different things)
The call options will be set out in the prospectus. Broadly with CoCo’s the redemption price on a call be will very likely be at par or close to par. But there may be no call option in the prospectus, just a fixed redemption date or no redemption date.

With regard to risk there are a whole number of things feeding into this and the market sees NWBD as less risky. I do however observe that any capital instrument/bond available in retail denominations of £1000 appears to trade with a lower yield that the equivalent £100k denomination. I would suggest retail investors are not so good at assessing risk and also there are so few instruments to choose from that this drives up prices.

[Alaric]

I do however observe that any capital instrument/bond available in retail denominations of £1000 appears to trade with a lower yield that the equivalent £100k denomination. I would suggest retail investors are not so good at assessing risk and also there are so few instruments to choose from that this drives up prices.

Marketability is a known risk factor for determining yields, so something that can only be bought and sold in large quantities may struggle to find buyers and sellers.

It's a little bizarre that retail investors are banned from going near CoCo s. Whilst true that they can become worthless, the same applies to any Ordinary share. Perhaps it's the nature of the now you see a fixed income bond, now you don't, bad news provisions that's the problem.

[bruncher]

With regard to risk there are a whole number of things feeding into this and the market sees NWBD as less risky. I do however observe that any capital instrument/bond available in retail denominations of £1000 appears to trade with a lower yield that the equivalent £100k denomination. I would suggest retail investors are not so good at assessing risk and also there are so few instruments to choose from that this drives up prices.

I think the problem is not that retail investors are not so good at assessing risk, it is that 'professional' bond holders are treated better and the only way of identifying this category of holder is by the larger holdings. Prime example is the way Lloyds screwed the retail holders of their CoCo bonds - offering a less good exchange than for 'professional' holders i.e. holders of large amounts of bonds.

[NealMorris]

With regard to risk there are a whole number of things feeding into this and the market sees NWBD as less risky. I do however observe that any capital instrument/bond available in retail denominations of £1000 appears to trade with a lower yield that the equivalent £100k denomination. I would suggest retail investors are not so good at assessing risk and also there are so few instruments to choose from that this drives up prices.

I think the problem is not that retail investors are not so good at assessing risk, it is that 'professional' bond holders are treated better and the only way of identifying this category of holder is by the larger holdings. Prime example is the way Lloyds screwed the retail holders of their CoCo bonds - offering a less good exchange than for 'professional' holders i.e. holders of large amounts of bonds.

My understanding of the matter was that Lloyds were unable to offer the same deal the professional bond holders got, because by then, they regulator headed up by Mr Bailey had already excluded retail investors from Coco's