# Income Options - focus for SMSF



## sydboy007 (6 August 2013)

Call me old fashioned but I like the stability of fixed income over the pico second HFC trading of the Casino ASX 

At the moment I have investments providing > 7% yield (pretty good in the financially repressed world we have these days)

EPX (pipne line income trust), AKY (bonds), AYF (hybrids) are all providing nice qtrly dividends with some franking credits on top.

Does anyone know of other similar investments on the ASX?  I'd like a bit more diversification as I have teh funds going forward.


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## Julia (6 August 2013)

I'm likewise interested plus in shares that offer decent yield, minimal debt, reasonable stability.  Not especially interested in hybrids.
Some funds that are presently at call are pretty obviously going to be hit with more interest rate cuts so will be looking for a new home.

Thanks to ROE for earlier mention of CCP.


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## sydboy007 (6 August 2013)

Julia said:


> I'm likewise interested plus in shares that offer decent yield, minimal debt, reasonable stability.  Not especially interested in hybrids.
> Some funds that are presently at call are pretty obviously going to be hit with more interest rate cuts so will be looking for a new home.
> 
> Thanks to ROE for earlier mention of CCP.




I don't mind hybrids.  Well the old style.  The new Basel III compliant ones are a not so fair to lenders, but depending on the company they still provide a decent risk / return.

I like AYF for the fact they invest across a broad range of hybrids and seem to have been relatively successful in managing their investments.

With interest rates set to be lower for longer I'm not sure what other options there are out there.  Fixed interest is a scary proposition now in terms of capital losses pretty much guaranteed over the medium term.

If you're comfortable with higher yielding shares keep an eye on http://www.clime.com.au/news-research/dividend-detective/

They helped me pick a couple of decent yielding shares last FY - aggregate return was nearly 50% over 6 months.


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## ROE (6 August 2013)

have you look at install warrant? they are good for SMSF ...you get franking credits and less upfront cash...

you can also research some stable business that pay good dividend and unlikely to go belly up provided you
can handle price volatility without the need to sell....and you can time it so you can enter at reasonable yield 
price and hang on...

business such as   Amcor, Brambles
FMCG goods like Woolies, Wesfarmers
Fast food like Retail Food Group, Collins Food, Dominos
Gambling like Tatts and Tabcorp 

Finance company like Credit Corp, Cash Converter, Thorn Group

These all boast excellent balance sheet and will likely to delivered you yield for many years to come provided you
can handle price fluctuation...the weakest will be Collins Foods but I think as time pass it will get better....


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## Muschu (6 August 2013)

Julia said:


> I'm likewise interested plus in shares that offer decent yield, minimal debt, reasonable stability.  Not especially interested in hybrids.
> Some funds that are presently at call are pretty obviously going to be hit with more interest rate cuts so will be looking for a new home.
> 
> Thanks to ROE for earlier mention of CCP.




You might like to check the charts of AFI and ARG Julia.  Not conventional and rather like managed funds without all the  costs and an advisor.  Yield about 4% FF.  Bit of a haven for us..


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## Zedd (6 August 2013)

Muschu said:


> You might like to check the charts of AFI and ARG Julia.  Not conventional and rather like managed funds without all the  costs and an advisor.  Yield about 4% FF.  Bit of a haven for us..




+1 AFI have been a rock solid LT, with excellent management.


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## sydboy007 (7 August 2013)

Zedd said:


> +1 AFI have been a rock solid LT, with excellent management.




Yeah there's some decent yielding stocks, but I suppose I'm looking to "sacrifice" capital gain in favour of reasonably reliable and steady income.

I really hope we get a corporate bond market established int his country soon.  I've used FIIG securities to buy bonds, but it costs around 1% to buy / sell which aint that cheap.

I'll take a high yielding bond over a hybrid any day, especially the new Basel III ones that pretty much are perpetual instruments and interest payments are discretionary.  I prefer the legal obligation to pay a bonds interest or be in default.

I invested in AFI outside my SMSF and they've been a nice earner.  ARG also has a decades long impressive performance.

IHD is also a decent yield play - around 6% with franking


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## Muschu (7 August 2013)

Hi All

I posted to this thread on my iPad last evening but must have logged out before the post was completely sent.... 

I think this has the potential to be a really good thread, especially for retirees, in such volatile times.  There are some very interesting suggestions above and I will have a look at them all.  Any further thoughts would be most welcome.

Apart from my reference to ARG and AFI all I can offer otherwise is that we have found TLS to be worth holding.  These 3 stocks make up the majority of our portfolio at this time.

Rick


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## Judd (7 August 2013)

Yeah, every six months the dividends from AFI and ARG cover the annual overheads (rates, insurance, internet, car rego and insurance, and stuff like that) so they is pretty good from that aspect.

There are other LICs apart from these of course but I tend to stay away from those which charge a fee on funds under management plus a performance fee.


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## Julia (7 August 2013)

Muschu said:


> You might like to check the charts of AFI and ARG Julia.  Not conventional and rather like managed funds without all the  costs and an advisor.  Yield about 4% FF.  Bit of a haven for us..



Thanks, Rick, and others.  Will have a look.
I've become a bit out of touch.


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## sydboy007 (8 August 2013)

AYF just announced that with the cash rate drops over the last year they will be reducing the annual dividend payout to 40c a year with around 25% fully franked.

Still a decent yield in the current environment.  Will be interesting to see if this impacts the price much, but am assuming most people buying into it are more for the income so are not likely to be sellers since where else are you going to put the funds to earn a ~7% yield?


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## Muschu (8 August 2013)

One thing that would concern me about AKY, EPX, AYF and IHD is the very low liquidity.


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## sydboy007 (8 August 2013)

Muschu said:


> One thing that would concern me about AKY, EPX, AYF and IHD is the very low liquidity.




True.  I considered that when I bought them.  Certainly not for cash you might need quickly, but still OK options for money you want to provide a reasonable income on.

Still i think half the reason they don't have much activity is because most people are buying for the long term.

Only one I'm worried about is EPX.  Until Quenos re-signs it's a bit risky.  Fingers crossed they make an announcement soon.  Hard to ignore the near 10% yield from them.


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## Muschu (8 August 2013)

sydboy007 said:


> True.  I considered that when I bought them.  Certainly not for cash you might need quickly, but still OK options for money you want to provide a reasonable income on.
> 
> Still i think half the reason they don't have much activity is because most people are buying for the long term.
> 
> Only one I'm worried about is EPX.  Until Quenos re-signs it's a bit risky.  Fingers crossed they make an announcement soon.  Hard to ignore the near 10% yield from them.




So AFI and ARG may be much safer defensive "plays".. Good to see TLS do well today.... 

Hope the volatility ends before I do...


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## Judd (9 August 2013)

Julia, posters are, quite reasonably, banging on about this income share and that defensive share but I suspect you prefer to do your own research and decision making.

With that in mind, here is a link to the list of little buggers:

http://www.asx.com.au/products/managed-funds-product-list.htm

showing whether the manager is internal or external (Yuck!), the MER and if a performance fee (Yuck!) applies.


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## sydboy007 (9 August 2013)

Judd said:


> Julia, posters are, quite reasonably, banging on about this income share and that defensive share but I suspect you prefer to do your own research and decision making.
> 
> With that in mind, here is a link to the list of little buggers:
> 
> ...




The high yield ETFs seem to have pretty reasonable MERs - around 0.3% - which i think is a reasonable price to pay fro the diversity they offer

IHD (ishares), VHY (vanguard) RDV (Russel), SYI (State Street SPDR)

I picked IHD over the others as they limit investments to a particular sector to 20% and maxium in 1 share at 4% of fund assets.  They are not yielding quite as much as other ETFs, but they are not so loaded up on the bank stocks as others either.


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## Judd (9 August 2013)

Yeah, all good stuff to consider.

Management Expense Ratios are an interesting subject in themselves.  When is an MER not an MER?

Take, for example, AFI.  Internally managed.  So it has directors fees and the like, i.e. essentially fixed management costs (unless they give themselves a pay rise!)  So the MER can change depending on the fluctuations in the price of the share holdings.

For ETFs where there is a fixed MER, their income varies simply due to to the movement in the index.  If the MER for a particular EFT is 0.3% and the index is 3,000, their cut is $9.  Should the index move to 4,000, then their cut is now $12.  Conversely, if the index falls, so does their income.

There are a couple of other differences I have noticed.  Index funds are flow-through tax entities in that all the income received is distributed and so they do not have reserves unlike, say, AFI.  It seems that when things go pear-shaped, as it is wont to do on the odd occasion, Index funds cannot dip into reserves (they have none) to maintain distributions whereas AFI and its peers can.

The other thing is that index fund managers can only take their income from income received not capital gains or franking credits which is why the investor sometimes is left with a reduced or little income but lots of franking credits which must be passed to the investor.

The other odd thing, my view only, is that I was investigating placing funds with an EFT which invested overseas.  I read the PDS listed on the Australian web-site which referred me to Terms and Conditions of the principal overseas manager which is where I discovered that this index funds could allow up to one-third of it holdings to be subject to short-selling or securities lending.  I thought that was a very strange thing to be allowed for an index fund so I didn't go ahead with it.

The above is just stuff which I have found interesting in my journey.  Not making any judgement.  I have funds with both Index and LICs.  I'm simply interested is some matters.


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## sydboy007 (9 August 2013)

I use FIGG securities to purchase bonds.  They now allow the original 500K parcels to be split down to either 50K or 10K for those available to retail investors.

They have some pretty decent inflation linked bonds providing up to 4% + CPI

They also have inflation adjusted annuities which is like being on the band side of a mortgage where each payment you receive involves increasing repayments of capital so by the maturity payment they have repair all the interest and capital.  Provides a higher level of income stream.

Just received an email from FIIG highlighting an annuity they have reasonable volume access to.


JEM NSW Schools II Pty Ltd  28/11/2035   Senior Debt    yield 6.36%  
· Available in parcel sizes of just $10,000.
· Provides a return of CPI + 3.85%, which compares favourably to with what is available in the retail annuity market.
· Invest $95,771 and receive $191,065 back! (assumes CPI = 2.50%, the mid-point of the Reserve Bank target range).
· The bond is issued by a Public Private Partnership (PPP) to fund the construction and maintenance of 11 schools in NSW. Revenue streams come from the AAA rated NSW government.
· The bond is considered very low risk, as reflected by its investment grade credit rating.
· There is no refinance risk.
· NSW Schools represents the outstanding value in the Indexed Annuity space.


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## sinner (9 August 2013)

I wish these offerings were listed on the ASX like they are in the US!


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## Julia (9 August 2013)

Muschu said:


> One thing that would concern me about AKY, EPX, AYF and IHD is the very low liquidity.



Agree.  I won't touch anything with low liquidity.  


Judd said:


> Julia, posters are, quite reasonably, banging on about this income share and that defensive share but I suspect you prefer to do your own research and decision making.
> 
> With that in mind, here is a link to the list of little buggers:
> 
> ...



Thanks, Judd.  You're correct.  I'm not attracted to anything where effectively someone else is deciding where my money goes.  AFI and ARG look OK, I guess.
Back in early 1987 I put some funds from an IP sale into a managed fund.  Had never used one before.
The returns were mediocre, but I was unhappy about their sloppy administration, so pulled it out really just for that reason.  Just escaped the crash.  Not through any cleverness on my part, just sheer good luck.
It was a lesson I've never forgotten.  Too easy for these organisations to put a freeze on withdrawals.
I always want to be in control.


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## sydboy007 (9 August 2013)

sinner said:


> I wish these offerings were listed on the ASX like they are in the US!




+100

Sometimes I feel we're stone age in Australia in terms of bonds and fixed income in this country.  Access to it is rather difficult and on the expensive side.

Hopefully within the next couple of years there will be some development of ASX listed bonds - less hybrids and more bonds please


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## sydboy007 (15 August 2013)

The below is from the latest AYF Australian Enhanced Income Fund July 2013 Investment Update and NAV.

I'll say that over the last 3 months the volatility of the ASX has been fairly high - from nearly 5200 to 4633 then back up 5125.  Compare that to AYF which started at 6.43 dropped to 6.24 and is currently at 6.35.  I know hybrids carry more risk, and I don't see the NAV of AYF going anywhere fast, but by investing across a decent range of hybrids it at least lets you mitigate against getting it wrong if you can only afford to buy into a few hybrids.  The gross yield of around 7% is also pretty competitive in the current financially repressed environment.

The below chart is similar to one that FIIG securities produced a few months back.  Boring bonds quite often outperform shares on a risk adjusted basis.

_In concert with last month’s commentary where we compared the absolute and volatility adjusted returns of the All Ordinaries Accumulation Index and the Elstree Hybrid Index since 1999 this month we thought we would articulate the same information but express it in a slightly different way. The equity risk premium is the excess return investors expect to receive above the risk free government bond rate for investing in the riskier asset class. The long term equity risk premium is around 400 basis points over the risk free government bond rate. The chart overleaf depicts the ‘premium’ in Australia since 1979. Where the line intersects with the horizontal axis the return from that point to the present represents a zero excess return. Where the line is above the horizontal axis the equity excess return is 
negative (i.e the risk free government bond rate return from that point to the present exceeds the equity market return) and where the line transcends the horizontal axis the equity return exceeds the risk free government bond rate return. The chart serves to highlight 2 things:
(i) the timing of entry and exit into and out of the equity market is important and 
(ii) equities have struggled to out-perform the risk free government bond rate for any sustained period over the last 35 years.

To highlight the latent value in hybrids we have drawn a line on the chart at 3.5% above the horizontal axis. This line represents the excess return above the risk free government bond rate you currently receive for investing in a portfolio of hybrid securities. You will note that the equity excess return barely transcends this line (the latest 12 months notwithstanding). This demonstrates the superior absolute return you can expect to earn by investing in hybrids over equities if the history of the last 35 years is anything to go by. And if we consider the lower volatility of hybrids over equities the argument becomes even more compelling than it already is._


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## sydboy007 (15 August 2013)

Just saw this at yellow brick road

http://www.ybr.com.au/savings/index.cfm

Smarter Money is an independently rated and recommended savings solution that targets outperforming the Reserve Bank of Australia’s cash rate plus 1% per annum after all fees. Cash rate by 1% - 2% per annum after all fees, over rolling 12 month periods.

Smarter Money invests in a conservative portfolio of Australian bank deposits and investment-grade bonds issued mainly by banks. By aggregating individual investors' cash, Smarter Money offers access to 'institutional' returns usually unavailable to retail investors.

Since 1st July 2012, Smarter Money returned 6.7% per annum (at 30/6/13) after all fund fees and charges, depending on the investor type. Smarter Money has significantly outperformed its benchmark, the UBS Bank Bill Index, which is made up of cash securities and bank bills, and peer funds. Past performance does not, however, assure future returns.

Smarter Money has been independently reviewed and rated as investment grade by several research houses. Please contact us to obtain copies of the Ratings Reports. These Ratings are only one factor to be taken into account when deciding whether to invest. Smarter Money targets holding 30-50% of its investments in Australian bank deposits and RBA repurchase-eligible securities with the balance invested in Australian floating-rate bonds that generally move in line with the RBA cash rate. As a minimum, the bonds must have an S&P rating of Investment Grade. Smarter Money does not invest in any YBR-related securities.

Whilst Smarter Money is not a bank deposit it is a managed investment scheme registered and regulated by the Australian Securities and Investments Commission (ASIC).

All investments carry risks, including that the value of investments may vary, future returns may differ from past returns, and that your capital is not guaranteed. To understand Smarter Money’s risks better, please refer to the detailed "Risks" tab below and/or the PDS.

YBR Smarter Money Fund Product Disclosure Statement re-issued

The Product Disclosure Statement (PDS) for the YBR Smarter Money Fund has been re-issued and is effective from the 20th of May, 2013. The PDS contains updated information and reflects the new responsible entity of the Fund, Select Asset Management Limited. There have been no material changes to the Fund’s investment strategy and fees remain the same. Click here to view a copy of the PDS. Alternatively you can request a free paper copy by contacting YBR on 1800 927 927.


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## sydboy007 (22 August 2013)

Something I was looking at today in regards to ILBs (inflation linked bonds) is they seem to provide a much better after tax return than FRNs (floating rate notes).

Another benefit is that ILBs have seen little margin compression with the RBAs interest rate cuts as the CPI hasn't really changed a lot but BBSW has dropped quite a bit.

It's probably easiest to explain it as (within an SMSF):

ILB - CPI 2.5% per year with 4% margin = 6.5% rate of return

Over a 10 year period you will receive capital growth for CPI of ~ 27.5% ie if you paid $50K for the bond you would receive around $63.75K at maturity.  That $13.75K in "interest" appears to be tax free.

I estimate over the 10 year period you will receive around $18.7K in payments net of tax

In the end the 50K you invested is returned as nearly $82.5K or $32.5K of earnings after tax

FRN - 6.5% per year

You will receive the 50K at maturity and nearly $27K in interest payments after tax for a total return of $77K

So the ILB gives you ~ 32.5K of net return compared to the $27K of the FRN which is like an extra 1.8% compounding return for the ILB over the FRN.

In the current financially repressed worl we live in a 1.8% difference is pretty big

See attached spreadsheet for how I've done my calculations


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## blue0810 (22 August 2013)

don't  know much about bonds but I can  see   ETFs ILB ,IAF are
going  south very quick.


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## sydboy007 (22 August 2013)

blue0810 said:


> don't  know much about bonds but I can  see   ETFs ILB ,IAF are
> going  south very quick.




What's your reasoning behind that?

ETFs cover basically every asset class their is


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## Ves (22 August 2013)

sydboy007 said:


> What's your reasoning behind that?
> 
> ETFs cover basically every asset class their is




Syd, I think he means the stock prices on IAF and ILB.


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## blue0810 (22 August 2013)

Ves said:


> Syd, I think he means the stock prices on IAF and ILB.




+1
Thanks for  decrypting  my post.


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## sydboy007 (22 August 2013)

blue0810 said:


> +1
> Thanks for  decrypting  my post.




Ah

mosst Govt bonds are too low yielding.  I'd prefer a good corporate bond.  Most seem to be far more solvent than a lot of Govts these days


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## sydboy007 (27 August 2013)

just received this from FIGG securities if anyone is looking for a decent yielding bond

FIIG has just direct bonded a June 2030 Inflation Indexed Annuity for Plenary Justice (SA) Pty Ltd.

They were established in 2005 to design construct and maintain nine police and court facilities across 6 locations in SA and are rated A3 (stable) by Moody’s. It is available in parcel sizes of down to 10k at inflation +4.20% (currently 6.7%).

A parcel of 10k will cost $9,370.01. Detailed Research and cashflows are available - please get in touch and I will provide individually, but in summary:

$9,370.01 invested today returns $16,202.84 in quarterly payments at an inflation assumption of 2.5%

A more detailed summary will come later today but we wanted to alert our clients to this immediately as it is a very attractive level at inflation +4.20%, and it almost exactly matches the maturity of the 2030 Sydney Airport inflation linked bond, which works very well in combination.

Supply is limited as it was with the previous Praeco annuity, which went very quickly. We are taking orders now.


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## sydboy007 (14 September 2013)

This ishares composite bond fund is paying a pretty decent yield in the current interest climate at 5.5%

http://au.ishares.com/fund/fund-overview-IAF-ASX.do


Russel offers an even higher yielding corporate bond fund at 6.14% running yield

http://www.russell.com/AU/exchange-traded-funds/products/RCB/

Very tempting as the next 10K purchase in my SMSF.  3.5%+ over inflation for minimal risk.  Seems like a good deal to me.


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## sydboy007 (25 September 2013)

https://www.fiig.com.au/news-and-re...2013/09/24/the-outlook-for-term-deposit-rates

Looks like TDs ain't going to improve for lenders anytime soon.

Last week the Commonwealth Bank issued US$3 billion of bonds in the US corporate bond market. The majority, US$2bn, were floating rate notes for a three year term with an interest rate of 3 month US LIBOR plus 50 basis points (bps). The 3 month US LIBOR rate is the benchmark rate which will fluctuate over the life of the bond, and the 50 bps (equals 0.5%) is the fixed margin. With 3 month US LIBOR at 25 bps, the total cost of the bonds for the first quarter will be approximately 75 bps or 0.75%, a very low cost for CBA.

The other US$1bn was fixed rate at 2.5% for a five year term. You might wonder how the bond issue impacts term deposit interest rates. Well, the CBA, like other major Australian banks must raise funds for operations and it has many markets it can access to do this: international and domestic over the counter wholesale bond markets, the ASX listed fixed income market, share markets and of course deposits. It makes sense to seek the lowest cost of funds (although there are many considerations in funding) to maximise profit and issuing bonds in international markets at the moment is cheap.

It’s interesting to note CBA issued the “floaters” for three years, perhaps that’s about the time span that they think interest rates will stay low. However, CBA was prepared to fix for longer, possibly expecting interest rates to rise in the medium term. Whatever happens to interest rates, the CBA, like most other bond issuers, hedges the different outcomes by issuing both fixed and floating rate bonds.

CBA have given us some clues about their US interest rate expectations. Having an opinion about the direction of interest rates is important in fixed income. That way you can best decide how to weight the defensive portion of your portfolio; that is the split between fixed and floating rate investments.

There are many interest rate indicators and the most common is the bank bill swap rate (BBSW) which becomes known as Swap after six months. The chart shows BBSW/ Swap (the banks’ expectations of interest rates) and this is known as a yield curve. Over the next three years banks expect rates to remain low and climb gradually. BBSW is virtually unchanged in a years’ time and after three years the expectations are that it has risen by just 0.75%.

The chart also shows major bank term deposit rates for $25,000 out to three years. The margin over and above BBSW is approximately 1.0% or 100 bps for the next year (3.60% return), but then narrows and is just 65 bps (3.90% return) for a three year term.

The implication is that investors should not expect term deposit rates to improve for at least a year and then expect a slow rise, assuming the yield curve holds true. If you are reliant on term deposits for income, then there has never been a better time to consider alternatives. A low risk corporate bond portfolio, including fixed and floating rate bonds would be an excellent way to increase return.


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## craft (25 September 2013)

sydboy007 said:


> This ishares composite bond fund is paying a pretty decent yield in the current interest climate at 5.5%
> 
> *Yeild to maturity is 3.56% and modified duration is 4.09 years.*
> 
> ...




It’s the yield to maturity that you will receive as the holder of these instrument not the running yield. And if interest rates move within the modified duration time frame you stand to make a capital loss/gain.   Given interest rates are low and tapering looms out there somewhere, negative changes to capital are a real possibility.

Be fully informed and aware with these products.

Chasing yield without fully understanding the implications of the product has a long tradition of bitting people on the bum.


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## McLovin (25 September 2013)

Isn't modified duration measured in % and Macauley measured in years?


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## craft (25 September 2013)

McLovin said:


> Isn't modified duration measured in % and Macauley measured in years?




Modified duration shows the duration including a 100 basis point increase in yield - it is expressed in years.
The product suppliers only provided Modified not Macaulay’s. Modified will always be a bit lower.


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## McLovin (25 September 2013)

craft said:


> Modified duration shows the duration including a 100 basis point increase in yield - it is expressed in years.
> The product suppliers only provided Modified not Macaulay’s. Modified will always be a bit lower.




Thanks for clarifying. I can't say I've ever tried to put together a bond portfolio.

ETA: craft, I'm a little confused here...



> Macaulay duration and modified duration are both termed "duration" and have the same (or close to the same) numerical value, but it is important to keep in mind the conceptual distinctions between them. *Macaulay duration is a time measure with units in years*, and really makes sense only for an instrument with fixed cash flows. For a standard bond the Macaulay duration will be between 0 and the maturity of the bond. It is equal to the maturity if and only if the bond is a zero-coupon bond.
> 
> *Modified duration, on the other hand, is a derivative (rate of change) or price sensitivity and measures the percentage rate of change of price with respect to yield*. (Price sensitivity with respect to yields can also be measured in absolute (dollar) terms, and the absolute sensitivity is often referred to as dollar duration, DV01, PV01, or delta (δ or Δ) risk). The concept of modified duration can be applied to interest-rate sensitive instruments with non-fixed cash flows, and can thus be applied to a wider range of instruments than can Macaulay duration.




http://en.wikipedia.org/wiki/Bond_duration#Modified_duration


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## craft (25 September 2013)

McLovin said:


> Thanks for clarifying. I can't say I've ever tried to put together a bond portfolio.




and now's not the time to change that either.


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## craft (25 September 2013)

McLovin said:


> ETA: craft, I'm a little confused here...





For your sick pleasure here is the formula.




Yes it can be used as a sensitivity measure if compared back against Macaulay.

My intention was not to get into the complexity of price sensitivity here. – modified duration which is provided by the product suppliers is an adequate duration measure for trying to get across the message that these products have an effective fixed duration which can lead to capital losses if interest rates move within that period.

Trying to start with 101 before going to advanced. (actually just trying to prompt some who might be investing in these products to dig a little deeper before the market delivers any unexpected lesson)


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## McLovin (25 September 2013)

craft said:


> For your sick pleasure here is the formula.
> 
> View attachment 54517
> 
> ...




Got it!

Thanks mate.


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## sydboy007 (25 September 2013)

craft said:


> It’s the yield to maturity that you will receive as the holder of these instrument not the running yield. And if interest rates move within the modified duration time frame you stand to make a capital loss/gain.   Given interest rates are low and tapering looms out there somewhere, negative changes to capital are a real possibility.
> 
> Be fully informed and aware with these products.
> 
> Chasing yield without fully understanding the implications of the product has a long tradition of bitting people on the bum.




Thanxs.  I should have realised as I focus on the YTM as that's what I'll get.  Running Yield is only of interest to se the historical performance.

back to thinking about getting some SYd Airport 2030 ILBs since they're back to offering aroudn the 4% + CPI mark.


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## sydboy007 (9 October 2013)

Anyone looking to park some cash but feels ripped off with the lousy at call and TD rates

from FIIGs the WIRE newsletter - www.fiig.com.au/news-and-research/n...ampaign=The Wire - 9 October 2013 - Issue 273

_It would seem that few are aware that you can buy a fixed income investment that matures in 12 months or less, and earn a return on that investment that is significantly higher than that of a term deposit. As I write, the best 12 month term deposit rate is 3.90% for a deposit of $25,000 from a range of banks and the best two year rate is 4.08% for $125,000 from a regional bank. The following is a list of some of the bonds maturing in two years or less that offer higher yields than 4.08%. Note that over a third of these mature in less than one year._

Not the bonds in red are for wholesale investors only


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## sydboy007 (16 November 2013)

Received some info regarding 2 notice saver accounts from FIIG.

Might be of interest to anyone wanting better than cash rate butnot willing to lock their money up for too long

Two regional banks, AMP and RaboDirect are now offering “Notice Saver Accounts”. The Notice Saver account is a bit of a hybrid in that it has term deposit and at-call account characteristics. The interest rates on offer are generally higher than at call accounts but lower than term deposits. If you have a large portion of your portfolio in term deposits and think you may need to access some of your money, then this new product may be a suitable addition to your portfolio.

The AMP Notice Saver Account has a simple structure where the bank will accept amounts up to $10 million and has guaranteed to pay at least 100 basis points (bps) (100bps = 1 per cent) above the cash rate, making the current rate 3.5%. The required notice period is 31 days, short enough for most thinking about taking advantage of cheap holidays or if you’re a business, paying a large bill. The very high maximum amount also means this account is good for larger corporations.

The RaboDirect structures are more complex but in return offer potentially higher rates. For example notice periods can be 31, 60 or 90 days paying 3.85%, 3.95% and 4% respectively for a maximum $250,000. The rates on offer then decline for larger sums. RaboDirect make no promises in regards to paying over the cash rate but the flexibility they offer is better if you can afford to wait for longer if you need the funds.

There is no minimum investment amount for either bank and both offer emergency access to funds as long as investors show proof.


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## sydboy007 (18 December 2013)

Recently made an investment in AZF - AUS SOCIAL INFR FUND UNITS

Like a REIT but focuses mainly on day care and medical centres.

Current share prices is $2.27 with forecast 19c distributions of around 4.75c / qtr which gives around an 8.3% yield.

Yes not as safe as a TD, but is yielding over twice most TD rates with a relatively stable set of assets.

Only worry is they have over half their assets leased to 1 customer - Goodstart Early learning


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## Bill M (17 January 2014)

sydboy007 said:


> AYF (hybrids) are all providing nice qtrly dividends with some franking credits on top.




Hi sydboy, thanks for an interesting thread, I keep a close eye on it.

I own AYF as you do and today I got paid my distribution. As you have had them for a while you might be able to answer this question. Where are the franking credits for today's payment? On my brokers site it is showing that the distribution is 26% franked but I do not have any franking credits attached to my statement. Is this normal?

Or do they just do an annual consolidated statement at year end and the franking credits are shown then? It just seems odd that no franking credits are showing up today, thanks.


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## sydboy007 (17 January 2014)

Bill M said:


> Hi sydboy, thanks for an interesting thread, I keep a close eye on it.
> 
> I own AYF as you do and today I got paid my distribution. As you have had them for a while you might be able to answer this question. Where are the franking credits for today's payment? On my brokers site it is showing that the distribution is 26% franked but I do not have any franking credits attached to my statement. Is this normal?
> 
> Or do they just do an annual consolidated statement at year end and the franking credits are shown then? It just seems odd that no franking credits are showing up today, thanks.




They sem to get an estimate of the franking credits each qtr but when they send you the annual tax statement that's the definitive amount of franking credits.

I think the issue they have is because they're invested in around 40 hybrids some provide franked distributions and some don't so it gets a bit messy for them to give a hard franking level % each qtr.

Annoyed the price has jumped up to $6.49 as i was looking to top up another 10K in my SMSF


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## Bill M (20 January 2014)

Thanks sydboy, I figured it would be something like that. By the way I got in at $6.40. I put in some bids at $6.32 and $6.35 but they were never met. 

Closed today at $6.45 with distribution in the bank.


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## sydboy007 (21 January 2014)

Bill M said:


> Thanks sydboy, I figured it would be something like that. By the way I got in at $6.40. I put in some bids at $6.32 and $6.35 but they were never met.
> 
> Closed today at $6.45 with distribution in the bank.




From the looks of things I average it to be about 25% franked dividends so assume around 5c a year in franking credits.  On top of the 40c in distributions it's a tasty yield.  Just about pays for my council rates these days on the ones I have in my personal account.

AKY is another option for you in terms of decent income, though it rarely comes up for sale.  Lots of SMSF holding it.  It's got a couple more years to run as the bonds mature.  Very much hoping they will start ACMBF6 in the next year or so.  I've tried to get FIIG interested in doing something similar at I like the diversity of corporate bonds with the ease of buying in the ASX (if you can find someone willing to sell)

MXUPA is looking pretty good at the moment.  Been regularly down to around $82 which provides around 7.8% yield.  AYF has a decent holding in it.


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## sydboy007 (22 January 2014)

In the last couple of FIIG news letters they've been highlighting the major changes that are occurring with Hybrids for the banks and financial institutions.

They are certainly riskier that older style hybrids - especially the step up ones - but with the current low interest rates on offer they still offer a reasonable reward for the risk.

If you want to get a better understanding of the impact of the changes:

https://www.fiig.com.au/news-and-re...tails/2014/01/14/2014-year-of-the-coco-part-1

https://www.fiig.com.au/news-and-re...tails/2014/01/21/2014-year-of-the-coco-part-2

To summarise:

_Contingent convertible capital securities (or CoCos as they are more affectionately known) are the new form of hybrid regulatory capital security under Basel III, replacing the old-style step-up subordinated debt and Tier 1 securities.

However, there is no doubting that CoCos are higher risk than the old style step ups predominantly for two reasons:


CoCos automatically convert to equity or are written off completely if the trigger level is hit. There is no discretion. This mechanism is designed to result in an immediate gain and hence add to retained earnings/capital. In theory, the orderly conversion or write-off of CoCos may produce sufficient capital to return the bank to an appropriately capitalised position and not impact any of the pre-Basel III capital securities such as step-up subordinated debt and Tier 1 securities (although such an orderly improvement in the capital position of a bank once it gets to such levels is unlikely in our opinion)


CoCos also include a “non-viability” clause which essentially allows the relevant regulator (such as APRA for Australian banks) to force the above conversion into equity or write-off if, at their sole discretion, that bank is at the “point of non-viability”, which is unfortunately not defined. However, an event such as a government injection of capital or bail-out would likely be deemed to be the point of non-viability
_


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## sydboy007 (29 January 2014)

For those who'd like a better understanding of the types of inflation linked bonds available and how they work, this article is a good primer

https://www.fiig.com.au/news-and-re...u-understand-how-to-use-them-more-effectively

Enjoy ya CIBs and IABs


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## Clifton (3 February 2014)

With bank share prices falling back slightly, surely they have to be viewed favourable with NAB and Westpac paying over 8% with the imputation credit returned.


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## sydboy007 (16 February 2014)

Clifton said:


> With bank share prices falling back slightly, surely they have to be viewed favourable with NAB and Westpac paying over 8% with the imputation credit returned.




Only thing that worries me is the historically ultra low bad debts.  Once unemployment ticks up a bit more then the banks profits might come under a bit of pressure, though I'd say their current dividends are reasonably safe, but there may not be the above CPI growth we've become used to.


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## sydboy007 (18 February 2014)

AZF - Australian Social Infrastructure Fund just released their results today.  5% increase to forecast dividend of 20C for 2014.

I noticed they also invest in the Australian Education Trust (AET) (ASX: AEU) which is forecasting a 12c dividend and currently $1.535 which is a 7.8% yield.  gearing within the trust is 30.8%.

Folkstone manage both funds


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## sydboy007 (19 February 2014)

https://www.fiig.com.au/news-and-re...paign=The Wire - 19 February 2014 - Issue 289

A good rundown on the risks and rewards for anyone considering investing in the currently offered ANZ CPS2


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