Spreading Risk, Improving Quality
Posted: August 22nd, 2020, 11:21 am
I'm retired and draw an income from my SIPP. Currently, about 25% of my SIPP is invested in various types of fixed income securities, most of which were bought soon after the 2008 financial crisis. Most are irredeemable, illiquid, or subordinated.
At my book cost, most of the bonds are yielding around 8 - 10%. A typical example is the Halifax 9.375% Perpetual Subordinated Bonds (HALP) which I bought over ten years ago at a sub-par price. Today, an indicative price for HALP is 158.50 - 163 (Hargreaves Lansdown). At the bid side of this range the current/running yield would be 5.91%.
The question I'm asking myself is, should I be selling my current bond portfolio and reinvesting the proceeds in something that will preserve or improve the current yield, spread or reduce my risk, improve liquidity, and improve quality?
Using the HALP example, let's say I invested £10,000 at par 10-years ago and today I could sell them for 160 (just to keep the maths simple), then I would have £16,000 to reinvest. If I could reinvest at, say, 6% then I would get a small uplift in my dividend yield (from £937-50 to £960) but in itself this is hardly worth the bother. What may be more important is whether I could improve the portfolio quality, liquidity, risk profile etc.
One idea might be to reinvest in a fixed-income type Investment Trust. This would certainly spread the risk from a single company to a portfolio of bonds and most likely improve liquidity. It might also improve the quality. It could also help to reduce the number of holdings in my portfolio and simplify the administration.
Has anyone else on this board gone through a similar process and/or does anyone have any ideas on suitable alternative investments?
At my book cost, most of the bonds are yielding around 8 - 10%. A typical example is the Halifax 9.375% Perpetual Subordinated Bonds (HALP) which I bought over ten years ago at a sub-par price. Today, an indicative price for HALP is 158.50 - 163 (Hargreaves Lansdown). At the bid side of this range the current/running yield would be 5.91%.
The question I'm asking myself is, should I be selling my current bond portfolio and reinvesting the proceeds in something that will preserve or improve the current yield, spread or reduce my risk, improve liquidity, and improve quality?
Using the HALP example, let's say I invested £10,000 at par 10-years ago and today I could sell them for 160 (just to keep the maths simple), then I would have £16,000 to reinvest. If I could reinvest at, say, 6% then I would get a small uplift in my dividend yield (from £937-50 to £960) but in itself this is hardly worth the bother. What may be more important is whether I could improve the portfolio quality, liquidity, risk profile etc.
One idea might be to reinvest in a fixed-income type Investment Trust. This would certainly spread the risk from a single company to a portfolio of bonds and most likely improve liquidity. It might also improve the quality. It could also help to reduce the number of holdings in my portfolio and simplify the administration.
Has anyone else on this board gone through a similar process and/or does anyone have any ideas on suitable alternative investments?