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Income Options - focus for SMSF

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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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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.
 
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
 
sydboy007 said:
AYF (hybrids) are all providing nice qtrly dividends with some franking credits on top.
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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.
 
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.
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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 :cool:
 
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. :D
 
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. :D
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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.
 
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
 
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.
 
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.
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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.
 
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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