Pibs and Prefs

[Smallholding]

I have a collection of PIBS(Coventry 12 1/8 Nottingham 7.8 Newastle 12.6)
Also Prefs (AV.A AV.B SAN SANB LLPC BP 9% BBYB Northern Electric Nat West)

I suspect that my average holding size of 6k is small beer but it represents a sizable chunk of my retirement funds.
Most of these were acquired during the 2007 meltdown. I bought for income not growth but I seem to have achieved both.

Additionally I had the Skipton 12 plus percent issue but recently sold them as I am starting to worry about things trading at double par and more. Even some of the less elevated prices still have a 60-70% profit baked in.

I read with interest hiriskpauls notes on this subject recently and as the likely November interest rate hike led me to start selling, was particularly interested in the credit spread comments which suggest gradual rises are unlikely to have a materiel effect on undated issues.

Is anyone else out there concerned about the price levels? Or am I jumping at shadows? I've had a good 10 year run with these investments and if I've learned anything from stockmarkets it is that nothing lasts forever.

I managed to swap my Skipton funds for BP ordinary shares. I felt happier with something at a discount than at a premium I suppose.
I also managed to maintain the same amount of income (£500 ish per year). Whether this was a shrewd move remains to be seen.

I have ideas to sell SAN and SANB as well but I am reconsidering. I'd be grateful for any comments.

[moorfield]

Is anyone else out there concerned about the price levels? Or am I jumping at shadows? I've had a good 10 year run with these investments and if I've learned anything from stockmarkets it is that nothing lasts forever.

I managed to swap my Skipton funds for BP ordinary shares. I felt happier with something at a discount than at a premium I suppose.
I also managed to maintain the same amount of income (£500 ish per year). Whether this was a shrewd move remains to be seen.

I have ideas to sell SAN and SANB as well but I am reconsidering. I'd be grateful for any comments.

I bought most of my SAN at distressed prices (84p), and have felt for a while that at 5.7% yield they are quite richly priced now, as well as the otheer financials I hold STAC (5.7%), and AV.A (5.3%). I don't feel any immediate rush to dispose of them now but may well do if/when the base rate ticks up and I can find suitable (HYP) candidates from FTSE100 - in my portfolio the obvious replacement would be LGEN for AV.A currently.

M

[hiriskpaul]

I have trimmed back a little on the bank prefs I hold in my SIPP as I am about to crystallise so needed to raise cash. The bank prefs on yields of about 5.7% were lower than the PIBS and I hold a lot more prefs in my ISA and elsewhere. Prefs are not taxed as heavily outside tax shelters as PIBS either. GACA I have sold completely, but did not hold many anyway. Today I (very reluctantly) sold some BBYB in my SIPP for 115.468 (yield to maturity 5.8%), I sold Tesco 5.2% 2057 yesterday for 103 and had Co-op Bank senior, Provident Financial 2017 and RECP all mature recently, so I now have enough to crystallise. I would likely not have disposed of anything though if I did not need to raise cash. The returns are still good for the risks involved.

I cannot see much in the way of capital gains being made on these lower yielding prefs and PIBS from here, but on the other hand I cannot see many worthwhile opportunities elsewhere, at least not for the low risk these now represent. Co-op Group 11% 2025 I think are the next lowest risk, with a ytm of 6.3% at 129.5 and as maturity is in 2025, carries lower interest rate risk than the undated prefs/PIBS. Co-op Group seem to be doing well now despite losing most of their stake in Co-op Bank. They seem confident enough to be taking over Nisa, although I would prefer they concentrated on reducing debt!

Other than Co-op Group 11% 2025s, to get much over 6% now seems to require a significant jump in risk, e.g. to Provident Financial, Premier Oil and Enquest debt (all of which I do hold). Or Raven Russia. General equities don't seem attractive enough at current prices to go in more heavily.

[GoSeigen]

Other than Co-op Group 11% 2025s, to get much over 6% now seems to require a significant jump in risk, e.g. to Provident Financial, Premier Oil and Enquest debt (all of which I do hold). Or Raven Russia. General equities don't seem attractive enough at current prices to go in more heavily.

I think an obvious candidate here, though very illiquid, is WBS, West Bromwich PIBS. The business seems to be through the worst of its troubles. The PIBS will perhaps not pay interest for some years yet; however these PIBS are callable in four years time -- by then interest payments may be imminent and, interest becoming virtually compulsory due to WBS's peculiar history, unlike usual PIBS these notes may not be useful any more/too expensive as regulatory capital. Thus I would expect a par call to be viewed by the market as a distinct possibility, and for the price therefore to trend up towards par.

Even with the price having moved up strongly, bought at around 55% today and even without interest payments, the YTC is approx 16%. I think this is decent reward for the risk and am holding tightly to the ones I already have.


Possibly the most interesting UK banking security out there right now; others may see it differently...

GS

[hiriskpaul]

Thanks for the suggestion GS. I have not looked at WBS for a long time. Will take a look.

[GoSeigen]

Thanks for the suggestion GS. I have not looked at WBS for a long time. Will take a look.

Hmm the price seems to have nudged up a bit more the last couple of days. I tried to buy more some time ago but couldn't get any volume at a reasonable price. May be hard to pick up in size below 60p now.


GS

[AleisterCrowley]

'Apparently' available within my HSDL ISA
5300.00 - 5850.00 (GBX) at 09:52:34
on Market (LSE)
But rejected when I tried to get a live quote to 'buy' some (I wouldn't have completed, just an experiment)

[GoSeigen]

'Apparently' available within my HSDL ISA
5300.00 - 5850.00 (GBX) at 09:52:34
on Market (LSE)
But rejected when I tried to get a live quote to 'buy' some (I wouldn't have completed, just an experiment)

Yes, looks very strongly bid. With my broker I can sell as many as I like at around 55, but they're offered in max size of 150 @ 58p. Might be able to get more on the phone, but at a higher price I'd guess.

Weird thing is, the issuer would probably not have tendered for them at, say 50p a year ago when they were trading at 25p, but will probably happily call them at 100p in a few years time!

GS

[AleisterCrowley]

£58 ????

[GoSeigen]

£58 ????

58p each, £58 per 100.

GS

[AleisterCrowley]

Read the quote as £58.50
This doesn't help;
http://www.hl.co.uk/shares/shares-searc ... -6.15-pibs

sell:£53.00 Buy:£58.50

Issue price: 99.83p
Denomination size: £1000.00

[GoSeigen]

Read the quote as £58.50
This doesn't help;
http://www.hl.co.uk/shares/shares-searc ... -6.15-pibs

sell:£53.00 Buy:£58.50

Issue price: 99.83p
Denomination size: £1000.00

AC, this is an issue with HL's web site. If you go to the trade page for a bond, e.g. BOI (https://online.hl.co.uk/my-accounts/sec ... ol/0051031), you will see below the price the text: "* This price is for 100 units".

However, if you view the data page for the same bond e.g. http://www.hl.co.uk/shares/shares-searc ... rp-sub-bds
that text is NOT displayed for some reason, but I can assure you the £58 is for 100 bonds of WBS, not for each bond. I guess someone could alert HL to the issue -- it might be confusing other users too.

The denomination size is the minimum quantity that trades can be divided up into. e.g. for WBS you can only trade in round thousands. The reason this is done is to limit the expense of dealing with small holdings of the bonds. The minimum initial investment is the smallest holding allowed, which is often different to the denomination size. e.g. I have a bond with minimum holding size of 50,000 and denomination of 1000. That means I can trade or hold 52,000 of the bonds, but not 47,000 (below minimum holding) or 52,500 (500 is smaller than the denomination size).

HTH

GS

[AleisterCrowley]

On the HSDL site they are described thus;
WBS - WEST BROMWICH B.S. 6.15%-VAR PIBS GBP1000
So that's a £1000 block of 1000 x £1 bonds
Then the quote is £58.50, which is for 100 bonds, par value £100....?!

[GoSeigen]

On the HSDL site they are described thus;
WBS - WEST BROMWICH B.S. 6.15%-VAR PIBS GBP1000
So that's a £1000 block of 1000 x £1 bonds
Then the quote is £58.50, which is for 100 bonds, par value £100....?!

Unfortunately I don't use HSDL, so the following is my best shot...

In this description of the bonds the GBP1000 refers to the denomination again, or possibly the minimum size (which is the same £1000 for WBS).

£58.50 for 100 bonds looks correct, and the par value of £100 must be the aggregated par value for 100 of the bonds too i.e. each bond has a par value of £1.

Sorry it's so confusing. No doubt it's programmed by computer techies who know nothing about bonds, for customers who may be newbies to bonds, based on specifications drawn up by bond experts!!!


GS

[AleisterCrowley]

The only information on HSDL is GBP1000, and quote for £58.50
The rest is my guess!
Not that it matters as it doesn't look like I can buy them online anyway...

[Smallholding]

It looks like my plan to sell SAN &SANB has been vetoed by a higher(spousal) power.
I had intended to invest in Galliford Try. Current Dividend is 96p and they have dipped below 13.00 recently.
On the plus side they are a decently managed solid company. If Labour get in and start mucking about with PFI however the construction division may suffer.

I shall continue to negotiate with 'she' because the downside potential of Prefs&PIBS worries me.
I would not mind a bit more info on the credit spread business as to be honest it only vaguely made sense. (to me!)
To a large extent I've been driven into a modest HYP to offset the consequences of QE and -ve real interest rates.
Thanks for any and all comments

[moorfield]

In this description of the bonds the GBP1000 refers to the denomination again, or possibly the minimum size (which is the same £1000 for WBS).

£58.50 for 100 bonds looks correct, and the par value of £100 must be the aggregated par value for 100 of the bonds too i.e. each bond has a par value of £1.

The minimum investment is £1000 nominal with the price quoted per £100, ie a minimum quantity of 10 - which would now cost £585 paying a coupon of £61.50 (£1000*6.15%), but that has been cancelled recently which would explain why the price has collapsed below the £100 par.

[AleisterCrowley]

Hmm OK , so minimum £1000 nominal (1,000 shares, or do we call them bonds?) - price quoted per 100 shares(nominal £100)
Why not either quote per share, or for minimum investment block, not somewhere in between?

Dammit, I'm going back to my National Savings bonds

[moorfield]

Hmm OK , so minimum £1000 nominal (10 shares, or do we call them bonds?) - price quoted per 1 shares(nominal £100)
Why not either quote per share, or for minimum investment block, not somewhere in between?

Fixed that for you. It's a quirk/convention of the fixed income market. If you think that's mind bending you should try pricing in fractions (32nds, 256s etc) !

[AleisterCrowley]

But but but... It says up there ^^^^ issue price 99.83p
And GS refers to £58 per 100 bonds

I'm going to bed, my head hurts

Night all