The Lemon Fool

Can anyone remember the terms of these prefs? I seem to remember that is was something like base rate + 3%. Want to check if negative rates will affect them.

If these are the ones ...

Investec Non-Cum Floating Rate (£10) - INVR

Then it was 1% over Base Rate (in 2017 )

Woz

It's base rate +1% so currently paying 1.1%.

I'm assuming if base rates went to -0.5% it would therefore pay 0.5%.

I missed this thread earlier; surprised there has been so little chat about this preference share.

INVR is the ideal inflation fighter (far better than IL gilts): the coupon is linked to base rates and because the latter have been practically zero there is tremendous leverage. I was accumulating these around the 380-400 mark and they are up some 50% compared to price index rises of maybe 15%. Another positive is that as interest rates rise banks like the issuer become more profitable.

INVR has taken a bit of a breather since May 2022 but if UK base rates continue to rise the price ought to follow. Note however that the leverage is falling as it becomes progressively harder to double the coupon rate.


Who else thinks this is a good time to add more?


GS

GoSeigen wrote:I missed this thread earlier; surprised there has been so little chat about this preference share.
Who else thinks this is a good time to add more?

As with the Manchester, you snuffled out a good truffle there. I saw it but did not follow up.
They are now beyond a five year high, so hmmm.

The question may be, who thinks Struss will change the BoE mandate and suppress rate rises.

V8

GoSeigen wrote:I missed this thread earlier; surprised there has been so little chat about this preference share.

INVR is the ideal inflation fighter (far better than IL gilts): the coupon is linked to base rates and because the latter have been practically zero there is tremendous leverage. I was accumulating these around the 380-400 mark and they are up some 50% compared to price index rises of maybe 15%. Another positive is that as interest rates rise banks like the issuer become more profitable.

INVR has taken a bit of a breather since May 2022 but if UK base rates continue to rise the price ought to follow. Note however that the leverage is falling as it becomes progressively harder to double the coupon rate.


Who else thinks this is a good time to add more?


GS

I think they represent good value but I would say that having bought mine around 350p.

The dividend is 10*(1+base rate), so currently 10*(1+1.75) = 27.5p per year so an unexciting but safe 4.5%

However, markets are currently predicted base rate will hit 3.75% by May 2023
(see evidence here at end of article) https://www.cityam.com/ftse-100-dragged ... year-high/

If the base rate moves to 3.75% then the dividend will be 10*(1+3.75) =47.5p or 7.9% on today's buy price of 600p. Not bad at all and more than all the other mainstream prefs. I would expect the share price will not remain flat with a safe dividend from Investec of 7.9% and the share price to rise to squash the yield. Possibly a 10-15% capital appreciation available as well as the 7.9% dividend.

Thanks GS for bringing this to our attention

I held some a while back but eventually sold them at an overall gain, but nothing like the return I had made elsewhere, but a bit better than bank deposits

I have bought a few as a sort of insurance policy in case rates really ramp up, otherwise I am having a problem trying to work out an estimate of how much capital appreciation there could be with these.

Clearly nothing like the gain that has been made when rates went up from 0.1% to 1.75% i.e 17.5 times .

(Makes some of the BOE increases in the past look wimpish using that metric! )

As a very rough guess, I think there could be a 3.5% capital lift if BOE reaches 3% - and, importantly, looks like remaining there or increasing for the next 2-3 years


I am still contemplating a further purchase, but would be grateful for any further comments/observations



Woz

Wozzitworthit wrote:As a very rough guess, I think there could be a 3.5% capital lift if BOE reaches 3% - and, importantly, looks like remaining there or increasing for the next 2-3 years

I am still contemplating a further purchase, but would be grateful for any further comments/observations
Woz

I see your post is addressed to GS but if I may Wos.

The papers are now saying the BOE interest rate will be 4% by March 2023 and peaks at 4.1% in June.
Here's one from the Guardain but the others including the FT and Bloomberg are saying the same thing.

https://www.theguardian.com/business/20 ... g%20crisis.

The 4% isn't their forecast but the markets forecast based on some credit deriviates thing I don't really understand

This would then give us a dividend of 50p a year compared with the buy price of about 610p. 8.2%

I'm not sure 4% sounds realistic to me, it's seems too high, but it's clear inflation is becoming embedded. The dock works at Felixstowe have turned down 7% and with inflation now suggested to peak at 18%, what else is going to stop inflation?

I would suggest is our risk is not the BOE not hitting 4% but more than the BOE start whipsawing it around. On the other hand Truss just wants to provide helicopter style money so that may push rates even higher.

I think there's another risk too. People will have to get used to high energy prices for a while, but this will become part of their routine expenditure eventually. What happens then when energy prices do start falling? Inflation may return to a low figure, but people will also have money in their pockets and the economy may be at risk at overheating too quickly, leading to more wage price and wage inflation.

I cannot calculate the capital appreciation either. I'm not so bothered. 8.2% would do me and if I get some capital appreciation that's a bonus.

Gan020,

Many thanks for your comments, interesting and useful as always

I was really thanking GS for reminding me about INVR, and was asking for comments from anyone....my ability to write ambiguous statements has increased over the years since I retired

Yes, 4% does sound high (in the next 6 to 9 months) -, which is a 180 degree turn round for me since my first reaction was why aren't the interest rate increases higher and being made quicker


To me it seems to be that the rate of the rise is a also key, factor - the 17.5 times increase from 0.1 to 1.75 underlined that.

I agree with your comments re further risk - especially what happens when energy prices start to fall. Then we will be back in familiar territory ) of wage and price inflation and possibly more industrial action

My reason for capital appreciation was really to make the overall return a bit more tempting, should we be left with dividend returns of 4.5 to 5.5%


Woz

Wozzitworthit wrote:Gan020,

Many thanks for your comments, interesting and useful as always

I was really thanking GS for reminding me about INVR, and was asking for comments from anyone....my ability to write ambiguous statements has increased over the years since I retired

Yes, 4% does sound high (in the next 6 to 9 months) -, which is a 180 degree turn round for me since my first reaction was why aren't the interest rate increases higher and being made quicker


To me it seems to be that the rate of the rise is a also key, factor - the 17.5 times increase from 0.1 to 1.75 underlined that.

I agree with your comments re further risk - especially what happens when energy prices start to fall. Then we will be back in familiar territory ) of wage and price inflation and possibly more industrial action

My reason for capital appreciation was really to make the overall return a bit more tempting, should we be left with dividend returns of 4.5 to 5.5%


Woz

I don't think I can add anything to Gan020's excellent post. I have a crystal ball which I try to use but so do all soothsayers: even if I shared what I thought about the future you'd be well advised to ignore it completely!

On a technical note, I don't agree with dividing interest rates; in most cases looking at absolute values and subtracting (i.e. using spreads) is the sounder policy and will give better results.


GS

Thanks to all for useful observations. I bought some INVR today in my ISA, which is quite cash heavy at present.

I cannot help thinking of this, from 1997
Brown sets Bank of England free
The Chancellor, Gordon Brown, has given the Bank of England independence from political control.

His surprise announcement - coming only four days after Labour's landslide election win - is being described as the most radical shake-up in the bank's 300-year history.

Mr Brown has also announced a loan rate rise of a quarter-point to 6.25%. The increase was decided after Mr Brown's first and last meeting with the Governor of the Bank of England, Eddie George.

The things that stand out are independence from political control, haha that's a laugh
and loan rate rise of a quarter-point to 6.25%

It seems to me that we are like a bunch of quantitatively eased junkies, pressuring our govt. to give us a new fix of free cash. Now we are in the hands of a few (mostly superannuated) Tory party members. Will it be Richi, who has shown sporadic signs of fiscal awareness in the past, or Liz, whose macro economic credentials are shall we say more nuanced? Liz is odds on favourite, if betting websites are any indication. Whilst she may claim that reducing taxes, holding down interest rates (by interfering with the BOE one way or another), etc etc will stimulate economic growth, brits have shown remarkable recalcitrance when told to improve their economic output, preferring to sit and whinge about energy prices, Brexit, covid and hosepipe bans.

With the UK's debt to GDP ratio already the worst it has ever been, remember Gordon's golden rule, circa 2008? the government should balance the books over the length of an economic cycle? I dunno about "cycle", but the economy these days seems to be on a grimly monotonic downward trajectory.

If Liz can reverse this, then hurrah, all my stocks and shares will do fine. If not, she will lose the next election and then what? Remember poor Nigel Lawson who lost his job after Black Wednesday 1997, when Sterling dropped out of the European exchange rate mechanism, giving the economy an exchange rate stimulus that made it take off like a rocket. Earlier, Wkipedia observes "Lawson's tax cuts, beginning in 1986, resulted in the "Lawson Boom" of the British economy, which halved unemployment from more than 3,000,000 by the end of 1989. However, this might have led to a rise in inflation from 3% to more than 8% during 1988, which resulted in interest rates doubling to 15% in the space of 18 months"

So it could go either way and as always DYOR and then PYMWYMI.

S
(Put Your Money Where Your Mouth Is)

Norman Lamont, I think, not Nigel Lawson on Black Wednesday.

Hi

The coupon on these pref shares is paid in June and December. When is the base rate taken that decides the coupon? Ex div date? Week/Month before? Not that it matters too much and it won't change my decision to keep holding these but I'm just interested to know. I tried to have a search for the original prospectus but couldn't find anything...

heathmount

heathmount wrote:Hi

The coupon on these pref shares is paid in June and December. When is the base rate taken that decides the coupon? Ex div date? Week/Month before? Not that it matters too much and it won't change my decision to keep holding these but I'm just interested to know. I tried to have a search for the original prospectus but couldn't find anything...

heathmount

I can't give you a 100% clear answer for sure. I did look this up in the past but my notes aren't clear.

I'm happy to be corrected but based on my payments and previous payments it looks like a daily weighted average for the period being paid. It's paid twice a year. That's what I working off anyway

Dividend accrual dates 31 March and 30 September

The perpetual preference shares are non-redeemable, non-cumulative and non-participating and dividends are payable
semi-annually on a date at least seven business days prior to the date on which Investec plc pays final and interim
ordinary dividends to its ordinary shareholders, if any, but, if declared, shall be payable, not later than 120 business days
after 31 March and 30 September of each year, respectively. It is expected that dividends on the perpetual preference
shares will be paid in the first week of July and the second week of December respectively


Preference shareholders will receive an annual dividend based on the coupon rate (being equivalent to the base
rate plus 1%) multiplied by the deemed value, on a daily basis and payable in two semi-annual instalments. An
ordinary dividend will not be declared by Investec plc unless the preference share dividend is declared. Any
preference share dividend will be paid at least seven business days prior to the date on which Investec plc pays
is ordinary dividend.The deemed value for the purpose of calculating a preference dividend shall be an amount
of £10.00, notwithstanding the actual issue price of a perpetual preference share.


I found what appears to be a copy of the prospectus on an Invetec web site after what must be an hour of cumulative searching - I didn't book mark it but downloaded the document.(selected bits copied and pasted above)

I have just spent ages trying to re-locate it, so far, without success

Woz

Wozzitworthit wrote:I found what appears to be a copy of the prospectus on an Invetec web site after what must be an hour of cumulative searching - I didn't book mark it but downloaded the document.(selected bits copied and pasted above)

I have just spent ages trying to re-locate it, so far, without success

https://www.investec.com/content/dam/investor-relations/presentations-and-announcements/circulars/2007/INVESTEC%20Prospectus-FINAL.pdf

GS

I am rather disappointed to see this hasn't gone up. Maybe I should be grateful it hasn't fallen.

Interest rates going to 6% would mean a dividend of 70p/share. That's a nice healthy yield of 11.5%.

We will see. I still don't think interest rates are gonig to 6%, but I said that at 5% and 5.5% so what do I know?

Yes, another disappointee here

However, years ago I had a few of these (and some CEBB), neither of which seemed to follow anything in particular

Eventually after reaching a point where I would have received the same overall appreciation as having put the money on bank deposit, I made my excuses and left.

Am I right in thinking that at 3.5% base these now yield 7.75% and if base were to drop to 2% then the yield would be 5.1%?

Thanks for any comments

N

Noslien wrote:Am I right in thinking that at 3.5% base these now yield 7.75% and if base were to drop to 2% then the yield would be 5.1%?

Thanks for any comments

N

Yes, your numbers are correct.

I've sold mine. IIRC I sold out a few days before Truss went. I can't remember what I switched into but there were some crazy prices out there around then.