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% |
| McPherson's |
| 31/03/2021 | Floating | Senior debt
| 5.89% | 6.80% |
| McPherson's |
| 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% |
| NextDC |
| 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.
Bonds can also be traded online and we have just established direct debit capability.
If you have any questions, please call your local dealer.