Axion European Financial Debt (AXI)

[Gan020]

This investment trusts invests in bank and insurance regulatory capital. Tier 1, Tier 2 and Additional Tier1. So, broadly Prefs, PIBS, Perpetuals, Subordinated debt and CCDS. All the stuff that’s getting harder and harder for us to by as retail investors as the minimum size on new issues is now usually 100k or 200k.

At the moment I like regulatory capital for two reasons.
Firstly when we had the meltdown in the financial markets the central banks stepped in to ensure an orderly market and to support the banking system. Although there might have been consequences for regulatory capital, actually the opposite happened as dividends were suspended, thus strengthening the banks balance sheets and making regulatory capital less risky. There is nothing to say the central banks may change their philosophy on this next time but I perceive these assets as less risky than I might otherwise have done.
Secondly most of the instruments have short maturities. 70% of the investments mature in the next 5 years so as interest rates rise, existing instruments will get replaced with new instruments at higher interest rates. I wouldn’t say it’s inflation protection, but it’s a good start.

I particularly like AXI because it’s a proper managed fund. If you read through the monthly factsheets you will see they are active in the market. Far more active than funds like NCYF or BIPS. The downside is the fee. 1% plus 15% performance for returns over 7%. Out of interest they recently bought PFG bonds on the fall to the low 90’s but have since sold them as Amigo lost their court case. I’m particularly pleased about this as I see Provi a bit too risky for me and if the fund manager seems it that way too that's great.

Their factsheet can be found here https://axiom-ai.com/web/en/axiom-europ ... imited-2/#

Edison have a research note which explains AXI far better than I ever could:
https://www.edisongroup.com/wp-content/ ... n=2021-7-5

Now, here’s the bit that I think is worthy of further consideration. It’s currently 92.6p to buy, with no stamp duty and has a NAV of 103.0p. That’s a 10.1% discount to NAV. Dividend is 6p giving a yield of 6.5% which puts it above the running yields on most of our popular Prefs and PIBS and subordinated bonds, mostly I suspect because retail investors are bidding up the prices of the few instruments left available to us, whereas AXI access the 100k and 200k instruments. For example,AXI’s third largest holding is the 9.75% IPF whereas we only have access to the 7.75%.

From my perspective holding an appropriate amount of regulatory capital in my portfolio is worthwhile and this is the only Investment Trust which is 100% regulatory capital. It’s getting harder and harder to buy direct at a decent yield and AXI provides me not only a better return but it seems I can buy it currently at a 10% discount and let someone else to do the work for the next 40 years, instead of scrabbling around desperately (and unsuccessfully) trying to find a PIB or a Pref share or some subordinated debt with a decent yield.

[RockRabbit]

Thank you for posting this.

Unfortunately, on top of the management fees there appear to be a host of other expenses which appear to push the costs of running this fund into the 2% a year region, which I feel is too high. (see 2020 annual report page 56). I'm not sure the dividend is actually covered by income either?

[Alaric]

This investment trusts invests in bank and insurance regulatory capital. Tier 1, Tier 2 and Additional Tier1. So, broadly Prefs, PIBS, Perpetuals, Subordinated debt and CCDS. All the stuff that’s getting harder and harder for us to by as retail investors as the minimum size on new issues is now usually 100k or 200k.

I wonder how it stands up in comparison to a Corporate Bond OEIC or ETF? Perhaps with an IT structure it has less need to ensure there's a regular market in the underlying assets.

[Gan020]

This investment trusts invests in bank and insurance regulatory capital. Tier 1, Tier 2 and Additional Tier1. So, broadly Prefs, PIBS, Perpetuals, Subordinated debt and CCDS. All the stuff that’s getting harder and harder for us to by as retail investors as the minimum size on new issues is now usually 100k or 200k.

I wonder how it stands up in comparison to a Corporate Bond OEIC or ETF? Perhaps with an IT structure it has less need to ensure there's a regular market in the underlying assets.

During the great sell off of March 2021 most of the IT's in the bond arena increased their gearing to buy up assets being force sold at crazy low prices by the OEIC's and ETF's. Certainly I know CMHY, IPE, (now BIPS), SMIF, HDIV and AXI did. All of them (maybe apart from SMIF which I don't really follow that close) have now released their gearing back to historic levels and taken the significant capital gains

[Gan020]

Thank you for posting this.

Unfortunately, on top of the management fees there appear to be a host of other expenses which appear to push the costs of running this fund into the 2% a year region, which I feel is too high. (see 2020 annual report page 56). I'm not sure the dividend is actually covered by income either?

With regard to the fees, regrettably the fund struggles for economies of scale because it's net assets are about £95m. I would like to see this much closer to £150m but this is difficult/impossible to resolve with the fund running at a discount. It's also difficult to put a value around how actively managed the fund is. If you consider the factsheets the fund manager is actively buying an selling every month and very often holds positions for less than a year. By comparison to SMIF, BIPS or NCYF those fund managers don't appear to do much generally except buy stuff and sit on the position until maturity. I'm not saying after fees one strategy is better than the other, it's hard to work out.

Some more useful information. All these IT's are slightly different but sit in the IT bond space. Different fee structures, different objectives, different average maturity, different ability to pay dividend out of income.
AXI. Discount to NAV 10.1%, Dividend 6.5% at purchase price of 92.6p
HDIV. Discount to NAV 7.1%. Dividend 5.1% at purchase price of 86p
BIPS. Discount to NAV 3.1%. Dividend 5.7% at purchase price of 191.6p
SMIF Premium to NAV 2.5%. Dividend 6.4% at purchase price of 96.0p
NCYF Premium to NAV 5.1%. Dividend 8.0% at purchase price of 55.6p

I own all of these except SMIF. SMIF and AXI have many common underlying instruments so AXI looks very roughtly 13% cheaper to me for more or less the same stuff, noting of course the fee structure.

I consider the dividend covered on a long term basis (from revenue and capital) on AXI, HDIV and BIPS. I pretty sure the dividend is not covered on SMIF and on the basis NCYF must have IPO'ed at 100p and the NAV is now 53p the dividend has not been covered for very many years.

[88V8]

This investment trusts invests in bank and insurance regulatory capital.

Thankyou for this.
I do hold BIPS & NCYF but was not aware of AXI.

The divi has been static since launch in 2016, and the SP is pretty much where it was five years ago as well.
But then, we're talking FI, I'm OK with static.

They have no revenue reserves which normally would put me off... I like my ITs to be well reserved. But given that we've just come through a black swan with no FI cuts or passes of which I'm aware, I think I can overlook that.

As you say, decent and secure yields are hard to come by for us retail tiddlers, so I've just added AXI to my IT basket.
The spread is huge for an IT, not one for trading. So I won't.
Thankyou.

V8

[Gan020]

Updated comparison as of end of July. AXI, HDIV and BIPS discounts have all grown. SMIF and NCYF premia's have grown too!

AXI. Discount to NAV 10.6%, Dividend 6.5% at purchase price of 92.86p
HDIV. Discount to NAV 7.6%. Dividend 5.1% at purchase price of 86.12p
BIPS. Discount to NAV 4.2%. Dividend 5.9% at purchase price of 187.4p
SMIF Premium to NAV 3.8%. Dividend 6.3% at purchase price of 96.9p
NCYF Premium to NAV 7.7%. Dividend 8.1% at purchase price of 55.15p

I looked at 3 year performance figures as well. Those with the biggest discounts to NAV have the best 3 year performance! Past performace is not a guarantee of future performance!
AXI 8.1% p.a.
HDIV 8.1% p.a.
BIPS 7.4% p.a.
SMIF 7.3% p.a.
NCYF 5.7% p.a.

[Padders72]

I have a few of these held with ii which I tried to top up today but was told they have fallen foul of the nervousness that many outfits now have about instruments like these which are deemed too risky for retail customers. As such they are now marked as sell only both online and over the phone which is a little annoying considering I have held much riskier than these in the past.

Can anyone suggest an alternative broker without a hefty annual fee who is less squeamish?

[Laughton]

How much is "hefty"?

I hold SMIF with iDealing and HL
I am able to buy/sell/hold AXI with iDealing (haven't tried with HL).

[Newroad]

Which ones, Padders72?

As if so, it's just happened - and will affect me amongst others!

Regards, Newroad

PS Just checked - I appear to be able to place an order to buy or sell both HDIV and BIPS at least on II

PPS No problems - just saw your reply below

[Padders72]

How much is "hefty"?

I hold SMIF with iDealing and HL
I am able to buy/sell/hold AXI with iDealing (haven't tried with HL).

I wasn't thinking of moving everything over, just using someone to facilitate an increase my holding in the above and I certainly don't want to double up on the £120pa fee that ii charge me so I think HL who are notoriously expensive are probably a non starter. I'll take a look at iDealing. Thanks for the steer. ii are now bloody awkward for things like MBSR too so maybe I should look at moving.

Which ones, Padders72?

As if so, it's just happened - and will affect me amongst others!

Regards, Newroad

Sorry I should have made myself clearer. I was following on from the thread title rather than the preceding post which listed several investments.

I meant that I hold a few AXI ie Axion EFD, it is these that ii are saying their compliance people will not allow to be purchased any longer.

[stevensfo]

How much is "hefty"?

I hold SMIF with iDealing and HL
I am able to buy/sell/hold AXI with iDealing (haven't tried with HL).

I wasn't thinking of moving everything over, just using someone to facilitate an increase my holding in the above and I certainly don't want to double up on the £120pa fee that ii charge me so I think HL who are notoriously expensive are probably a non starter. I'll take a look at iDealing. Thanks for the steer. ii are now bloody awkward for things like MBSR too so maybe I should look at moving.

Which ones, Padders72?

As if so, it's just happened - and will affect me amongst others!

Regards, Newroad

Sorry I should have made myself clearer. I was following on from the thread title rather than the preceding post which listed several investments.

I meant that I hold a few AXI ie Axion EFD, it is these that ii are saying their compliance people will not allow to be purchased any longer.

It must be a very recent change. I'm with ii and bought some AXI on the 11th August. I do know that there are some holdings that can't be bought via the regular dealing option, but can be bought separately, so I wondered if that's what you meant.

But.... I just tried and yes, you're absolutely right. Bugger!

Where are these compliance people when it comes to savings accounts taking large amounts of money and paying 0.1% interest when RPI is nearly 4%?

Steve

[stevensfo]

Just checked with my AJBell (youinvest) account. AXI is still available, though not for the 'Regular Investments'.

Steve

[mc2fool]

And AXI is available with IWeb too!

[Gan020]

Not exactly sure when the change happenned but I had to do the test for the AXI shares I bought in my kids (who are 19 & 22) LISA's with AJ Bell about a month ago. If you already own any similar instruments you will pass the test with ease. Even if you don't own similar instruments it looks like there is just a longer test to do.

HL have also made me do the complex instrument investment test in the last month or so as well although I think that one related to buying one of the PIB's.


It's frustrating for sure but I'm happy to take these tests. It's clear from some of the posts we are read there are a few investors who do not appreciate the risks involved.

Although quite why AXI is not allowed but SMIF is, is beyond me. AXI is 90%+ bank/insurance regulatory capital but SMIF must be around 75%. NCYF is around 50% although much of the rest of the 50% appears even more risky than regulatory capital. HDIV and BIPS are lower.

[mc2fool]

The issue with AXI on ii isn't to do with the Appropriateness Assessment for complex instruments as I've already passed that and am enabled to trade those but it won't let me buy AXI.

It says, "Unfortunately we are unable to trade this stock on-line. For further information, click here*, whereas Padders said that they were "marked as sell only both online and over the phone", so not sure why the difference....

* https://help.ii.co.uk/system/templates/selfservice/ii/help/customer/locale/en-GB/portal/402800000001013/content/Auth-5407/Investments-blocked-from-trading-online

[stevensfo]

Not exactly sure when the change happenned but I had to do the test for the AXI shares I bought in my kids (who are 19 & 22) LISA's with AJ Bell about a month ago. If you already own any similar instruments you will pass the test with ease. Even if you don't own similar instruments it looks like there is just a longer test to do.

HL have also made me do the complex instrument investment test in the last month or so as well although I think that one related to buying one of the PIB's.


It's frustrating for sure but I'm happy to take these tests. It's clear from some of the posts we are read there are a few investors who do not appreciate the risks involved.

Although quite why AXI is not allowed but SMIF is, is beyond me. AXI is 90%+ bank/insurance regulatory capital but SMIF must be around 75%. NCYF is around 50% although much of the rest of the 50% appears even more risky than regulatory capital. HDIV and BIPS are lower.

Thanks for jogging my memory. Yes, I did a test with AJBell but I think it was for another security. Quite easy to pass. Basically 'I know that I can lose everything, have two kidneys for sale and your lawyers are richer than mine.' Pretty self-explanatory.

Steve

[stevensfo]

The issue with AXI on ii isn't to do with the Appropriateness Assessment for complex instruments as I've already passed that and am enabled to trade those but it won't let me buy AXI.

It says, "Unfortunately we are unable to trade this stock on-line. For further information, click here*, whereas Padders said that they were "marked as sell only both online and over the phone", so not sure why the difference....

* https://help.ii.co.uk/system/templates/selfservice/ii/help/customer/locale/en-GB/portal/402800000001013/content/Auth-5407/Investments-blocked-from-trading-online

I just checked with ii this morning and it seems that AXI, NBMI and NCYF can all now be bought online, though not via 'Regular Trading.'


Steve

[Padders72]

The issue with AXI on ii isn't to do with the Appropriateness Assessment for complex instruments as I've already passed that and am enabled to trade those but it won't let me buy AXI.

It says, "Unfortunately we are unable to trade this stock on-line. For further information, click here*, whereas Padders said that they were "marked as sell only both online and over the phone", so not sure why the difference....

* https://help.ii.co.uk/system/templates/selfservice/ii/help/customer/locale/en-GB/portal/402800000001013/content/Auth-5407/Investments-blocked-from-trading-online

I just checked with ii this morning and it seems that AXI, NBMI and NCYF can all now be bought online, though not via 'Regular Trading.'


Steve

Well in the case of AXI this is certainly not the case for me (and I doubt it actually is for you). I tried this morning and again got the red banner declaring that they are unable to trade those online. As I mentioned earlier in the thread, the last time I experienced this I phoned and they stated that they were in fact unwilling to allow the purchase of them at all. I suggest you try a dummy purchase yourself, it wont stop you until you get right to the final preview stage.

[Padders72]

The issue with AXI on ii isn't to do with the Appropriateness Assessment for complex instruments as I've already passed that and am enabled to trade those but it won't let me buy AXI.

It says, "Unfortunately we are unable to trade this stock on-line. For further information, click here*, whereas Padders said that they were "marked as sell only both online and over the phone", so not sure why the difference....

* https://help.ii.co.uk/system/templates/selfservice/ii/help/customer/locale/en-GB/portal/402800000001013/content/Auth-5407/Investments-blocked-from-trading-online

I just checked with ii this morning and it seems that AXI, NBMI and NCYF can all now be bought online, though not via 'Regular Trading.'


Steve

Well in the case of AXI this is certainly not the case for me (and I doubt it actually is for you). I tried this morning and again got the red banner declaring that they are unable to trade those online. As I mentioned earlier in the thread, the last time I experienced this I phoned and they stated that they were in fact unwilling to allow the purchase of them at all. I suggest you try a dummy purchase yourself, it wont stop you until you get right to the final preview stage.

Hmm on reading that back it sounds a bit terse, sorry Steve!