An active approach to income producing equities, ETFs and listed Income Securities: Click here to view
The portfolio had a solid week up 1.56% to yesterdays close. For the benefit of new subscribers, we view this portfolio as our consistent, sleep at night approach that incorporates high yield (currently projected to be above 4% pa), lower volatility and greater certainty that our return objective of 7% will be achieved. It’s sometimes boring but that’s not always a bad thing. The cash position in this portfolio sits at just 4%, however given the focus of this portfolio on income and the low prevailing cash rates, we are purposefully staying invested.
Are Hybrids still offering value?
Yield is increasingly hard to come by outside of equities with interest rates near record lows. In MM’s view, hybrid securities have traditionally provided a strong return for the risks involved, however as spreads drop below 3% over the bank bill rate, are they still compensating holders for the risk?
The MM Income Portfolio holds just 3 Hybrids with a 14% portfolio weighting, our lowest level since the portfolio began. Yesterday saw the listing of CBA’s latest issue, the CBAPJ which had a margin of 2.8% over the bank bill rate. It opened at $100.29 and closed just above issue price of $100.02. While we didn’t add this security to the portfolio, we thought it was fair value and that’s proved the case.
Macquarie issued a new security which began trading on the 18th March under ticker MQGPE. That security is also trading around the $100 issue price. We prefer the recently listed CBAPJ to the MQGPE despite the Macquarie note paying a slightly higher margin of 2.90%, however in MM’s view, the recent performance of new listings reinforces our long held view that spreads below 3% for major bank hybrids are expensive.
