The Lemon Fool

As part of my year-end SIPP portfolio update I'm thinking of consolidating GACA and GACB.
After costs there's not much in it yieldwise, it's purely to continue my efforts to simplify the portfolio.

Does anyone have any opinion on the desirablity of one issue compared with the other?

As a general rule on fixed income I tend to favour issues that are not too far over par and so I will probably sell GACA and buy GACB.

Unless of course anyone can suggest a better quality fixed income choice to consolidate into?

Thanks

Y

yieldhog wrote:As part of my year-end SIPP portfolio update I'm thinking of consolidating GACA and GACB.
Does anyone have any opinion on the desirablity of one issue compared with the other?
As a general rule on fixed income I tend to favour issues that are not too far over par and so I will probably sell GACA and buy GACB.
Unless of course anyone can suggest a better quality fixed income choice to consolidate into?

I expect both of them to be tendered soon(ish) so it may not make much difference.

Regards consolidation, which other prefs do you already hold?

V8

88V8 wrote:

yieldhog wrote:As part of my year-end SIPP portfolio update I'm thinking of consolidating GACA and GACB.
Does anyone have any opinion on the desirablity of one issue compared with the other?
As a general rule on fixed income I tend to favour issues that are not too far over par and so I will probably sell GACA and buy GACB.
Unless of course anyone can suggest a better quality fixed income choice to consolidate into?

I expect both of them to be tendered soon(ish) so it may not make much difference.

Regards consolidation, which other prefs do you already hold?

V8

Not sure how these can be "tendered", any documentation please
If tendered, then it would be close current market price, otherwise nobody would want to accept the tender

shaunm wrote:

88V8 wrote:I expect both of them to be tendered soon(ish) so it may not make much difference.

Regards consolidation, which other prefs do you already hold?

V8

Not sure how these can be "tendered", any documentation please
If tendered, then it would be close current market price, otherwise nobody would want to accept the tender

They offer to buy them at a price above the present market value and hope people take up the offer. The better they make the offer the more take up they get.

They offer to buy them at a price above the present market value and hope people take up the offer. The better they make the offer the more take up they get.[/quote]

Thanks, so no tender ,but also NO OFFER, just in the market at Market price
Therefore nobody will know until perhaps at the next Annual Report
If you were to sell your shares tomorrow, the company could snap them up without you knowing
Question, would the company need to inform by a RNS that they had purchase "Preference shares"?

Voting at the AGM - The Wording
"To authorise the Company to purchase its own 8 3/8% preference shares"

shaunm wrote:If you were to sell your shares tomorrow, the company could snap them up without you knowing

There is a general prohibition in law on companies buying there own shares so no, they could not "snap them up without you knowing".

Question, would the company need to inform by a RNS that they had purchase "Preference shares"?

Of course they would have to inform their shareholders -- they not only have to inform them, they have to get their express consent.

GS

shaunm wrote:

daveh wrote:They offer to buy them at a price above the present market value and hope people take up the offer. The better they make the offer the more take up they get.

Thanks, so no tender ,but also NO OFFER, just in the market at Market price

daveh was right, of course there can be a tender for the shares, if the shareholders authorise it. Why couldn't there be?

Whether the company will choose to do that is another issue altogether. As shaunm alluded, they have already sought and obtained the necessary authorisation to purchase (openly, not on the sly).

GS

yieldhog wrote:As part of my year-end SIPP portfolio update I'm thinking of consolidating GACA and GACB.
After costs there's not much in it yieldwise, it's purely to continue my efforts to simplify the portfolio.

Does anyone have any opinion on the desirablity of one issue compared with the other?

As a general rule on fixed income I tend to favour issues that are not too far over par and so I will probably sell GACA and buy GACB.

Unless of course anyone can suggest a better quality fixed income choice to consolidate into?

Thanks

Y

Presumably you purchased each when one had a slightly better running yield than the other. By selling one and buying the other you will incur a cost. It may look messy to you to have both but it will surely be most cost efficient to let them ride as they are. Unless you can time it so that there is a big enough difference to cover the cost that is. I’m a A holder myself. I haven’t scoured the terms to see which if either is preferable but other than the proximity of price to par you mention, I’m not aware of any benefit in holding B vs A.

Shaunm I suggest you read up on the recent tender for BOI as an example of how an issue can be taken entirely out by a generous offer.

Padders72 wrote:Shaunm I suggest you read up on the recent tender for BOI as an example of how an issue can be taken entirely out by a generous offer.

Hmm, BOI was a bond whereas GACA/B are shares. A more relevant precedent is the tender offer for Bristol and West preference shares which was part of the same scheme.



GS

A reminder of what the last utterance of a contrite Aviva was on the matter following their 2018 pref shambles (which relates to AV.A AV.B GACA and GACB)

aviva.com/newsroom/news-releases/2018/03/aviva-statement-on-preference-shares/

" Since the full year results announcement on 8 March 2018, Aviva plc (“Aviva”) has heard a wide range of views on its preference shares*, has spoken to a large number of investors and has received strong feedback and criticism......
Under current regulation the preference shares will no longer count as regulatory capital in 2026. Aviva will work towards obtaining regulatory approval for the preference shares, or a suitable substitute, to qualify as capital from 2026 onwards. If as we approach 2026 Aviva needs to reconsider this position, it will do so after taking into account the fair market value of the preference shares at that time."

So

Something will happen before 2026 but it might not be soon.
It might not be a straightforward tender offer but a tender plus another option.
Switching to the pref closest to par might not be necessary since they have pledged to take account of the market price.

Other things that came out at the time. Preference shareholders will very probably not be able to stop it happening as they could have with BOI and could with NWBD because any decision is in the gift of all shareholders and there are lots more ordinaries than prefs.

The big stick - cancelling at PAR could be wielded at anyone not taking their offer because the subsequent FCA (Bailey) post-mortem said their ability to cancel at par was a fact....

"
4.3. The Preference Shares were issued in 1992 and 1993. The Preference Shares have
cumulative fixed dividend rates of between 7.875% and 8.875%, and these
coupon payments are not tax deductible. In the relevant listing particulars, the
Preference Shares were stated to be “irredeemable”. Nevertheless (due to the
terms under which the shares were issued and section 641 of the Companies Act
2006) Aviva has the ability to cancel the shares at par, subject to a shareholder
vote and court approval. Alternatively, any issuer wishing to cancel shares has
the option of doing so on a voluntary basis by offering (tendering) to buy back
such securities from the holders.

fca.org.uk/publication/final-notices/aviva-plc-2020.pdf

Bern

88V8 wrote:

yieldhog wrote:As part of my year-end SIPP portfolio update I'm thinking of consolidating GACA and GACB.
Does anyone have any opinion on the desirablity of one issue compared with the other?
As a general rule on fixed income I tend to favour issues that are not too far over par and so I will probably sell GACA and buy GACB.
Unless of course anyone can suggest a better quality fixed income choice to consolidate into?

I expect both of them to be tendered soon(ish) so it may not make much difference.

Regards consolidation, which other prefs do you already hold?

V8

V8
I've already sold all of my other prefs. The last one to go was SANB.
Apart from MBSP, the only fixed income I now own is in ITs, namely SMIF and NCYF.
I'll probably wait until the New Year and then sell GACA AorB and MBSP, depending on what's out there as an alternative at that time.
Y

yieldhog wrote:

88V8 wrote:I expect both of them to be tendered soon(ish) so it may not make much difference.
Regards consolidation, which other prefs do you already hold?

I've already sold all of my other prefs. The last one to go was SANB.
Apart from MBSP, the only fixed income I now own is in ITs, namely SMIF and NCYF.
I'll probably wait until the New Year and then sell GACA or B and MBSP, depending on what's out there as an alternative at that time.

I reckon you'd be selling near the bottom, but two months might make a difference, who knows.

V8

88V8 wrote:

yieldhog wrote:I've already sold all of my other prefs. The last one to go was SANB.
Apart from MBSP, the only fixed income I now own is in ITs, namely SMIF and NCYF.
I'll probably wait until the New Year and then sell GACA or B and MBSP, depending on what's out there as an alternative at that time.

I reckon you'd be selling near the bottom, but two months might make a difference, who knows.

V8

It seems to be an odd time to sell, but if you were switching into a fixed interest based IT like SMIF or NYCF then they will be at similarly depressed prices plus they may be unusually low premia/high discounts so probably wouldn't be a bad time to do the switch

Thanks for your comments V8 and daveh

I agree with you both that we may be approaching, or have reached, a peak in interest rates. Selling in the next couple of months without replacement would probably be a bad idea. But I have other priorities.

I'm simplifying my SIPP so that my wife can inherit it without much maintenance needed. GACA and GACB are odd ones out (prefs) in what is otherwise an equity and IT portfolio. Secondly, I will most likely replace the prefs with higher yielding shares that hopefully will have more growth potential. The growth element is important since I have one eye on the fact that my two sons will eventually inherit the SIPP and they should have a more equity focussed fund.

Thanks again for your comments.

Y

Your portfolio holding would be reduced from 'n' to 'n-1'. Is this going to really simplify things? If you are concerned about a third party understanding what GACA versus GACB is...I'd write crib notes to explain..... to be 'opened in the event of..' (*).




(*) I've prepared a 40+ page PowerPoint file and gone over it with Mrs M. ( covers details like logging on, where the funds are, consolidation of my holdings into one account, a description of each holding and what it is for, withdrawal of dividends, how long to access dividends etc etc).

monabri wrote:(*) I've prepared a 40+ page PowerPoint file and gone over it with Mrs M. ( covers details like logging on, where the funds are, consolidation of my holdings into one account, a description of each holding and what it is for, withdrawal of dividends, how long to access dividends etc etc).

I relayed your message to my wife and her response was "What's Powerpoint." She really is a complete novice about using a computer and a mobile phone.

We have made a start by making a file of all the important things she needs to know about where the money comes from and all the people she needs to inform. In terms of her computer skills, she is getting the hang of how to login to Ocado, Waitrose and Sainsburys to arrange home deliveries, but that's about all. It's hard work.

At the moment, my SIPP has about 25 holdings and I'd like to reduce that to around 20 next year. At the same time I want to have a plan to cut that number to no more than 15.

On reflection, I might sell both GACA and GACB and concentrate on a complete restructuring of the portfolio.

Y

yieldhog wrote:

monabri wrote:(*) I've prepared a 40+ page PowerPoint file and gone over it with Mrs M. ( covers details like logging on, where the funds are, consolidation of my holdings into one account, a description of each holding and what it is for, withdrawal of dividends, how long to access dividends etc etc).

I relayed your message to my wife and her response was "What's Powerpoint." She really is a complete novice about using a computer and a mobile phone.

We have made a start by making a file of all the important things she needs to know about where the money comes from and all the people she needs to inform. In terms of her computer skills, she is getting the hang of how to login to Ocado, Waitrose and Sainsburys to arrange home deliveries, but that's about all. It's hard work.

At the moment, my SIPP has about 25 holdings and I'd like to reduce that to around 20 next year. At the same time I want to have a plan to cut that number to no more than 15.

On reflection, I might sell both GACA and GACB and concentrate on a complete restructuring of the portfolio.

Y

It's just an idea to get things down in a crib sheet / document..Even a PowerPoint file which could be printed out.

monabri wrote:It's just an idea to get things down in a crib sheet / document..Even a PowerPoint file which could be printed out.

It's a good idea and I think my wife will get to that stage at some time, but at the moment she finds it easier to have a physical file and make manual changes by hand.

Y

Bern wrote:A reminder of what the last utterance of a contrite Aviva was on the matter following their 2018 pref shambles (which relates to AV.A AV.B GACA and GACB)

aviva.com/newsroom/news-releases/2018/03/aviva-statement-on-preference-shares/

" Since the full year results announcement on 8 March 2018, Aviva plc (“Aviva”) has heard a wide range of views on its preference shares*, has spoken to a large number of investors and has received strong feedback and criticism......
Under current regulation the preference shares will no longer count as regulatory capital in 2026. Aviva will work towards obtaining regulatory approval for the preference shares, or a suitable substitute, to qualify as capital from 2026 onwards. If as we approach 2026 Aviva needs to reconsider this position, it will do so after taking into account the fair market value of the preference shares at that time."

So

Something will happen before 2026 but it might not be soon.
It might not be a straightforward tender offer but a tender plus another option.
Switching to the pref closest to par might not be necessary since they have pledged to take account of the market price.

fwiw I feel GACA and GACB are more than fully valued relative to many other prefs and PIBS. If this is due to the market awarding a premium based on likelihood of a tender offer being made 'soon' then perhaps the market is slightly over optimistic. Aviva's last utterance refers to 2026, the date when its prefs will cease to count as capital, for remediation and that is still 3 years away. During that time I would say it is fairly likely other issuers of prefs and PIBS will tender. I have had attractive tenders for 5 different PIBS and prefs I owned in the past year and none were insurers.

OldBoyReturns wrote:

Bern wrote:A reminder of what the last utterance of a contrite Aviva was on the matter following their 2018 pref shambles (which relates to AV.A AV.B GACA and GACB)

aviva.com/newsroom/news-releases/2018/03/aviva-statement-on-preference-shares/

" Since the full year results announcement on 8 March 2018, Aviva plc (“Aviva”) has heard a wide range of views on its preference shares*, has spoken to a large number of investors and has received strong feedback and criticism......
Under current regulation the preference shares will no longer count as regulatory capital in 2026. Aviva will work towards obtaining regulatory approval for the preference shares, or a suitable substitute, to qualify as capital from 2026 onwards. If as we approach 2026 Aviva needs to reconsider this position, it will do so after taking into account the fair market value of the preference shares at that time."

So

Something will happen before 2026 but it might not be soon.
It might not be a straightforward tender offer but a tender plus another option.
Switching to the pref closest to par might not be necessary since they have pledged to take account of the market price.

fwiw I feel GACA and GACB are more than fully valued relative to many other prefs and PIBS. If this is due to the market awarding a premium based on likelihood of a tender offer being made 'soon' then perhaps the market is slightly over optimistic. Aviva's last utterance refers to 2026, the date when its prefs will cease to count as capital, for remediation and that is still 3 years away. During that time I would say it is fairly likely other issuers of prefs and PIBS will tender. I have had attractive tenders for 5 different PIBS and prefs I owned in the past year and none were insurers.

What do you think represents the best value of the remaining PIBS and Prefs?