Could you explain the ANZ hybrids on the Hybrid Report Sheet

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Question asked 17/06/2023

Could you explain the ANZ hybrids on the Hybrid Report Sheet

Hi James and Co., Thanks as ever for your excellent service and commentary which I find invaluable. I have taken up the MM offer to receive the Shaws hybrid report sheet which (a number of times per week) list each hybrid with years to expiry, yield to call and margin over swap rate info. I am struggling to understand if I am interpreting the sheet correctly and would appreciate further information on how to interpret this sheet - perhaps a separate webinar ? Also the sheet when it first came out used to have a best buy note which has disappeared which would be handy to reinstall if that were possible?. To illustrate the interpretation issue, you have recently (Thursday this week) made a Trade alert buy recommendation for ANZPI for the income portfolio, however when I look at the Shaws sheet which also came out on Thursday it shows for instance that ANZPK seems to have superior metrics ie ANZPK 7.27 years to expiry vs PI 4.77 years, PK 7.28% yield to call vs PI 7.06%, PK 2.97% margin over swap rate vs PI 2.83% You have a Buy price recommendation for PI at $100.40 whereas ANZPK is currently trading at $98.60 Any assistance to help interpret this area of income investing and also with utilising the Shaws hybrid sheet to interpret the best buys would be much appreciated.

Answer

Hi Don,

Thanks for the positive feedback. I think best if I do a video explaining the rate sheet and what the key numbers are on it, and how to interpret it. There is lots of interest in the space and it’s important to have clarity on the key points.

With regard to the ANZPI versus the ANZPK, the main difference as you pointed out is time to first call. The ANZPI is a shorter dated security. The key number to look at in the chart below is yield to first call date. The ANZPI has yield to first call of 7.06% which includes the small capital loss, while the ANZPK has yield to first call of 7.28% which takes into consideration the small capital gain. i.e. ANZPK will pay slightly more, for a slightly longer dated security. The risk of a security increases incrementally with duration – a bigger window for things to change.

Regarding our buy, we like the ~5 year window for these, but our primary motivation was adding to an existing security.

chart

ANZ Hybrids

LAST UPDATED 17/06/2023 08:34

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