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    Capital notes v cash

    Hello Market Matters, I’m hoping you can offer me some thoughts in couple of matters. We've just setting up a SMSF, I would like to try a different trading platform as I’m not really happy with ANZ. We need a platform that is happy to trade in the US etc. as well as Aust. (1) Do you have any thoughts or have use heard good reports on any platforms?(2) A friend has converted the cash component of his portfolio into Capital bank notes to get a better return, he says they are secure and he's getting around 5% return paid quarterly. He has them in the 4 major banks. Could I have your thoughts on this strategy, and what the risk is. Thank you Regards John (ANOTHER MARKET MATTERS HAPPY CAMPER)

    Answer

    Hi John, a reminder than we offer General Advice Only

    • Trading Platforms: There are many with different bells and whistles. The simplest I have used in the past to trade domestic and international stocks together is Interactive Brokers, they’re large and reputable however shares are not held on your individual HIN which in my mind is important. The same is true for many of the new platforms out their like Superhero. Commsec & CMC are solid and have access to international markets as does NAB – CMC would probably be more first port of call as a balance between features, safety and cost. I’m not 100% across the market as I trade through Shaw & Partners platforms. We use the same US broker as Commsec.
    • Capital Notes: We hold Hybrid securities (some call them bank notes / capital notes) in our Income Portfolio and we like them as an investment. Buying them now will (as a general rule) generate around a 4% yield inclusive of franking. That said, they are not cash, instead they are a stapled security that are part debt & part equity. If markets get the wobbles and global credit spreads increase (i.e. the cost investors demand to buy riskier corporate debt over and above safe government debt) then hybrid prices will decline. That happened during Covid as the chart below shows. So, we like bank notes/hybrids but they are higher risk than cash hence the higher return.
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    Commonwealth Bank Note (CBAPF)
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