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Yield Options / RUL indicative proposal

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Question asked 05/09/2025

Yield Options / RUL indicative proposal

Hi MM,

Two questions please - the first submitted two weeks ago but didn't make it into the subsequent two weekend editions:

1) There are many ETFs, LICs and other instruments, including in the debt space, with high yields in comparison to the yield on offer from bank accounts (increasingly so), even at the higher end of the bank account yield spectrum. This disparity will likely grow as interest rates continue to fall.

If one were to spread a portion of their savings across three such high yield options (noting that MM does not provide personal advice), what are MM's top four to five high yield options which also have the: 1) lowest levels of volatility (highest levels of price stability); and 2) lowest correlation to the performance of equity markets and to any form of broader economic deterioration? This might mean that some of the highest yield options are sacrificed in favour of a more stable but still high yield option. The aim is to have a list of high-yielding options with as low volatility (and risk) as reasonably possible.

2) MM Morning Report, 03.09.25: you state: "...indicative non-binding bid from Caterpillar (CAT US), with price and details yet to be disclosed"; and "we think the price will be north of $5 if they are successful".

Can you please clarify these comments. The 1 September 2025 announcement states that RUL: "has entered into an Exclusivity Deed with Caterpillar Inc. (Caterpillar) following the receipt of a non-binding indicative proposal (Indicative Proposal) to acquire all of the ordinary RPM shares and options on issue for $5.00 cash per share, by way of a scheme of arrangement".

RUL also says that the "Board intends to recommend the Proposed Transaction to RPM shareholders".

On this basis, why do you say the price is yet to be disclosed and expect it to be north of $5.00? Obviously, should a bidding war ensue, then that is a different proposition.

Thanks,

Darren

Answer

Hi Darren

If investors are looking to put some funds into high-yield investments with low risk and less correlation to the share market, below are four ASX-listed options that forgo a little extra yield for more stability and diversification. Each of the ETF pays a solid yield, usually around 5%. The bond-focused ETFs FLOT, IYLD, and BANK are less affected by interest rate changes, while ZYUS focuses on low-risk shares. Bond ETFs help reduce exposure to share market drops, while the ZYUS provides a more stable way to invest in shares.

Global X S&P 500 High Yield Low Volatility ETF (ZYUS) this offers a 12-month yield around of 5.3–5.5% while investing in dividend-paying U.S. stocks selected for low volatility, providing a buffer against market swings.
VanEck Australian Floating Rate ETF (FLOT) is recognised as a top-performing fixed-income ETF in 2025, it invests in floating-rate debt, which maintains value better when interest rates rise—reducing duration risk and volatility.
iShares Yield Plus ETF ( IYLD) focuses on investment-grade corporate bonds (mostly A-rated) with low duration (~1.3 years) and an average yield around 5.3%, offering both higher income and low interest-rate sensitivity.
Global X Australian Bank Credit ETF (BANK) Invests in floating-rate notes issued by big Australian banks, blending stability with income, and offering some protection against rate changes—ideal for a lower-risk fixed-income allocation.

As you say RPMGlobal (RUL) have entered into a scheme of arrangement Caterpillar for $5 per share and have now been granted 6 weeks of exclusive due diligence. There is no certainty the offer will result in a binding transaction at this stage hence the stock is trading around $4.66. The more this evolves the more likely that the deal will go ahead at $5, or another bidder will emerge to make it a contested transaction.

As we discussed on Wednesday we intend to hold our RUL position, liking how the business is evolving outside of the takeover interest.

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