Preference share etf, fund or IT?

[seekingbalance]

I have just had the dubious pleasure of seeing a 3 year fixed cash ISA, paying 2.8% (remember those?) come to the end of its term and revert to a 0.5% variable. It is worth just under £60k and has been going for more than 15 years in various fixed guises.

It seems ridiculous to keep it going as a cash ISA for around 0.8% which is what I am being offered to refix.

It forms part of the cash part of my portfolio but I am thinking I am best transferring it into one of my existing S&S ISAs where I will be able to get much better returns, and would be happy with capital preservation and 4-5% p.a. I do want to keep it low risk as I have more than plenty of regular shares, funds, ITs, ETFs across many categories, including the usual suspects in the Prefs area, such as Aviva, Lloyds, Santander, Bank of Ireland.

I could just buy more of those but what I’d prefer is to earmark the whole amount, when transferred in, to one or two fund type investments, and I was hoping to find a fund dedicated to U.K. preference shares. But with no success so far.

One fund I have come up with is Invesco Preferred ETF (PRFD) or its GBP equivalent (PRFP) which pays 4.6% dividend at the moment and has been pretty stable in capital, but It is very US focused, which I guess is not a bad thing, but there will also be currency risk here, and I have a lot of that through direct share holdings in the FAANG stocks and EQQQ.

Can I ask, any views on alternatives, and whether I am missing some obvious fund or IT that will give me either straight Preference shares or high proportion thereof?

[88V8]

.... whether I am missing some obvious fund or IT that will give me either straight Preference shares or high proportion thereof?

I doubt that any such funds exist.
The issue sizes were too small to sustain a fund, and many prefs are probably held directly by instos, so there is no liquidity in any size.

After all, if you add AV.A/B, BP.A/B, BWRA, ELLA, GACA/B, LLPC/D/E, NWBD, NTEA, RE.B, RSAB, RUSP, SAN/B, STAB/C the original issue size was little more than £2bn and not all are still extant.

Now if one wishes to delve into the esoterica of Prefs, there are or were more issued than you could shake a stick at, but good luck finding many of the tiddlers to buy.
https://www.investorschronicle.co.uk/20 ... ticle.html

I hold a lot of prefs. Although prices have largely recovered from the panpanic now, yields in the 5/6% range are not hard to find.
Only on a DIY basis, however.

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[Wizard]

...I could just buy more of those but what I’d prefer is to earmark the whole amount, when transferred in, to one or two fund type investments, and I was hoping to find a fund dedicated to U.K. preference shares. But with no success so far...

No help on a UK focussed fund, but belief there was mention of a Canadian pref fund within the last couple of months, so may be worth searching for.

[seekingbalance]

Thanks both. I figured this was the case - if they were there I should have found them.

Don’t really want more DIY, already have over £100k in directly held prefs.

Might have to be the Invesco etf then!

[flyer61]

Aberdeen Standard SICAV I Indian Bond

In my SIPP I have decided not to keep any cash. However what I do have is the above fund. If I need cash I sell some and either withdraw or invest elsewhere. Yield is somewhere around 6%.....what pleased me most was through this recent crisis it did not move much.

Just a thought.

[everhopeful]

Shires Income IT has about 30% in prefs. Probably not enough for your needs but I like its overall portfolio.

[Gan020]

I'm a bit puzzled. You are currently invested in 100% FSCS protected scheme. You want to do a bit better than that and suggest 4-5% and keep it low risk.

By defintion with base rates at 0.1%, 4-5% is not low risk any longer and carries significant risks to your capital. For example prefs by their very nature are Tier1/Tier2 capital and subordinated to everything else except the ordinaries. It does happen that the dividend doesn't get paid for years sometimes. West Brom and Manchester for example but even with the bigger banks Lloyds ECN's for a couple of years. And the issue is that once they stop paying for any length of time about 70% of your capital disappears.

You could look at some of the high yield debt funds such as NCYF which hold alot of prefs and bank debt to generate their large dividend. In some respects this is a bit easier as there are large number of prefs with a minimum size of 100k not readily available to PI's which funds of this type invest in. However, if you take a look at a 10 year chart you will that along with the great dividend of around 7%, there's been a significant capital loss, which gives something closer to perhaps 5%, for investing in high yield stuff at the opposite end of the scale to your current ISA. Consider that 5% has been generated in a benign credit market over the last 10 years with a base rate higher than it is now. Falling interest rates in this period should have led to capital growth but the opposite has happenned showing the returns on this type of fund is not indeed great.

MGCI gives a more moderate proposed yield of 2.75% but again if you look at the capital erosion it's more like zero.

Both these funds trade at a premium to NAV for reasons not undestood to me, other than investors chasing yield with little regard to overall performance.

Next consider what happens when the interest cycle turns and rates start rising. Pref prices and bond fund prices are going to fall giving more capital erosion.

Sad to say the 0.8% on your ISA doesn't look great but I'm not sure the risk/reward opportunity from other sources looks great to me. I think it's a real issue with investors everywhere searching for returns and bidding prices up to areas they shouldn't be.

[88V8]

Shires Income IT has about 30% in prefs.

Ticker SHRS.
Posted yield 5.9% which is right on the money.
Big price spread, as one might expect.
Currently at a small discount to NAV.
Tiddler - cap £69mio.

Just bought some at 220p on a posted spread of 216/225p.
Partially duplicates my direct portfolio no doubt, but I increasingly like the idea of someone else doing the work.

V8

[88V8]

...t I'm not sure the risk/reward opportunity from other sources looks great to me. I think it's a real issue with investors everywhere searching for returns and bidding prices up to areas they shouldn't be.

Yes, the perfume of the premium overpowers the pong of the risk.
Just as well that for me, the capital doesn't really matter.

V8