Investment Strategy

The long-awaited Royal Commission final report was released without any new damning information. Despite weaker than expected earnings from both companies, their respective sub debt notes remained stable with minimal impact on credit quality. However, it was a different story for shareholders.

New issue alert - Liberty

New issue alert - Virgin Australia

As Sprint & T-Mobile take their case to Congress, it remains unknown if the merger will be approved. For existing bond holders, current pricing presents an attractive exit level, or an opportunity to await the outcome with further upside.

Virgin Australia’s strong 1H19 results make the three bonds issued by the company compelling investment options in high yield.

Labor’s proposed changes to imputation credit will impact total income derived from hybrids. Investing in a portfolio of bonds, with unfranked cash distributions will protect against this loss of income.

General Motors Financial Company has announced an inaugural 4 year AUD transaction.

A new USD HY bond has been added to the DirectBond list, issued by Mercer International and maturing in 2025, it yields north of 6.00%pa. The company is a leading global market position in Northern Bleached Softwood Kraft pulp, with a diversified product range and geographical locations. We think Mercer is a good high yield income supplement in a diversified portfolio.

US HY is inherently volatile and various factors (systemic and cyclical) influence credit spreads of the underlying bonds, meaning a month of sharp correction is often followed by outstanding excess return. This in turn means that investors need to be patient with their HY holdings, especially in times like now where price movement is market driven.

Extending duration in AUD investment grade (IG) bonds makes sense in the current economic environment where yield curves are expected to shift lower.

Last week we looked at events that shaped 2018. This week we will consider what these events imply for 2019 and how investors should position their portfolios.

Volatility increased in financial markets during 2018 with several geopolitical issues and tensions impacting asset classes and performance. Here we look at some of the key highlights from 2018.

With volatility set to continue into Q1 2019, it’s crucial for USD allocations to be diversified across sectors. Nevertheless, there is still a compelling argument for high yield with solid returns in the long run.

FMG’s 2022 and 2024 High Yield (HY) bonds have been added to FIIG’s USD DirectBond list. The bonds offer exposure to a well-known Australian company, and are an attractive inclusion in USD portfolios yielding over 5.20%pa and 5.80%pa, respectively.

With the global growth outlook for 2019 looking subdued, there is an increasing possibility the credit cycle is nearing an end. The cause and timing is uncertain, but investors should consider the ability of companies to refinance their outstanding debt as it comes closer to maturity.

Westpac’s USD denominated, investment grade Tier 2 bond is the newest addition to our USD DirectBond offering. This bond is fixed rate and available in USD10,000 minimums. It would appeal to clients wanting to improve credit quality of their USD investments.

Higher rated notes of RMBS transactions remain attractive investments. Here we look at the relative value of these securities and consider the factors influencing property prices.

Bendigo & Adelaide’s (BEN) new 2023 call Tier 2 floating rate note (FRN) was oversubscribed at issuance, and will have ongoing demand in the secondary market. The note is available at a margin above 3mBBSW+1.90%, offering a more attractive return compared to older issues.

Sprint has further upside with the T-Mobile merger looking more likely, and the downside limited by strong operations and other potential buyers of the company. Its recent price movement lower presents a more attractive entry point for investors.

Since DirectBonding Nufarm’s 2026 USD bond in August, we’ve continued to see attractive and relatively stable pricing, even during recent market volatility. We believe the company has future relevance with increasing global growth and presents an opportunistic buy.