Tuesday 21 February 2017 by FIIG Securities jellybeans Trade opportunities

Guess how many?

High yield bonds are available to retail investors? Last week the Impact bond maturing in February 2021 became available to retail investors, which adds to an already long list

If you said 15, you would be under and if you said 25, then you would over. But if you said 20 high yield bonds are available to retail clients, then you would be just right! 

The G8 Education floating rate bond matures first in just over a year – March 2018, with Mackay Sugar following in April 2018. Once the bonds get close to maturity they become less risky as the analysts are better able to predict that the bond will be repaid at maturity.

Quite a few of the bonds mature in the next five years, with the longest dated, a subordinated bond from Moneytech that has a first call in April 2020 but a final maturity in April 2022.

Current yields to worst (the worst possible yield on a bond, particularly for those that can be repaid early) vary from: 3.58% per annum for the G8 Education fixed rate bond maturing in August 2019, but with a first call on August 2017, which is the yield to worst, to 7.52% per annum for the new addition – Impact Group. 

Company Call date Maturity date Bond type Capital structure Yield to worst Income/ running yield
Adani Abbot Point Terminal   29/05/2020 Fixed Senior debt 6.75% 7.03%
Aviation Training Investments 13/11/2020 Fixed
Senior debt
4.95% 7.23%
Cash Converters International 19/09/2018 Fixed
Senior debt
5.17% 7.26%
CML Group 18/05/2020 18/05/2021 Floating Senior debt
5.95% 6.69%
Dicker Data
26/03/2020 Floating Senior debt
5.77% 6.07%
G8 Education
07/08/2019 Fixed
Senior debt
3.58% 7.37%
G8 Education
03/03/2018 Floating Senior debt
4.83% 5.62%
Impact Group Aus
12/02/2021 Fixed
Senior debt
7.52% 8.27%
Integrated Packaging Group
29/09/2019 Fixed
Senior debt
5.95% 7.11%
31/03/2021 Floating Senior debt
5.89% 6.80%
31/03/2019 Floating Senior debt
5.74% 6.05%
Moneytech Finance 17/04/2020 17/04/2022 Fixed
Subordinated debt 6.26% 6.32%
Mackay Sugar
05/04/2018 Fixed
Senior debt
4.91% 7.07%
16/06/2019 Fixed
Senior debt
3.77% 7.67%
Plenary Bond Finance Unit Trust
16/06/2021 Fixed
Senior debt
4.60% 7.04%
PMP Finance Pty
17/09/2019 Fixed
Senior debt
5.73% 6.33%
SCT Logistics
24/06/2021 Fixed
Senior debt
5.62% 7.15%
SCT Logistics
24/06/2019 Floating Senior debt 5.18% 6.04%
Sunland Capital
25/11/2020 Fixed
Senior debt
6.24% 7.24%
W A Stockwell
29/06/2021 Fixed
Senior debt
6.38% 7.49%

Source: FIIG Securities
Note: Prices accurate as at 21 February 2017 but subject to change.

The bonds offer attractive yields for specific reasons – they are available to compensate for the higher risk you are taking which includes:

  • Smaller companies that may be concentrated by product/ service or geographical location
  • Smaller overall bond issue amounts
  • The possibility of reduced liquidity
  • Possibly longer terms to maturity
  • Possibly greater volatility in bond prices

While there are always specific risk factors with any company – high yield or investment grade – at the moment, none of these are keeping us awake at night but that can change quickly, especially with smaller companies.

One good strategy to minimise risks is to invest the minimum $10,000 in many different bonds. This helps protect your overall portfolio from specific losses if any one of the companies got into financial difficulty.

We would still recommend that the majority of funds invested in corporate bonds are allocated to investment grade securities. While we are unable to tell retail clients the credit ratings of individual bonds, you can ask your dealer to make sure a certain percentage, say 70% are investment grade.

Some risk adverse clients that do not invest in shares may have greater allocations to high risk bonds, considering them part of an equity allocation.

In terms of current suggested weighting to fixed, floating and inflation linked bonds, our Portfolio Strategy Services team currently recommend equal weighting to fixed, floating and inflation linked, although they admit this is easier for wholesale investors to achieve.

Note: If you do not yet have an account, you can set one up online.External link - opens in a new window

Bonds can also be traded online and we have just established direct debit capability.
If you have any questions, please call your local dealer.