Income Report / Income Report: Answering subscriber questions on Listed Investment Companies (LICs) + a new hybrid from CBA

An overnight sell-off is working its way through the ASX this morning with all sectors trading lower at time of writing. The IT stocks feeling most of the heat while the typically defensive utilities and real estate stocks are outperforming. As we typed this morning, we are comfortable taking a more defensive stance, at least for the next few weeks.    

Sectors today

Overall, the ASX 200 is currently trading down -60pts or -0.91% to 6533.

ASX 200 Chart

The Income Portfolio was down -1.41% in the week against the backdrop of the ASX200 Accumulation index that fell -2.2%. The portfolio was dragged by 6% falls in CSR and Perpetual (PPT). NAB (-5%) and Rio Tinto (-4%) also contributed to the weakness however the 40% weighting towards income securities softened the blow vs the index pullback. The portfolio is still tracking well, currently up +2.25% financial year to date, versus its absolute return benchmark of +1.35%. Since inception the portfolio is up +19.08% vs the benchmark of +12.27%

For those interested in investing for income in a low rate environment, Market Matters manages the investments for the Market Matters Active Income portfolio offered under Praemium SMA. The portfolio is based on the MM Income Portfolio. The SMA has now passed its first anniversary and performance has remained sound, the September update can be viewed - HERE

**New CBA Hybrid**

CBA this morning have a launched a new hybrid security, looking to raise ~$750m, however they’ll likely do more. This is a tier 1 security structured in a similar way to existing CBA PERLS Capital notes on issue. The margin is likely to be 3% over the 90 day bank bill rate which equates to a grossed yield of ~3.84%.

Key Points

  • Commonwealth Bank of Australia (ABN 48 123 123 124), (“CBA” or “Issuer”), launched a $750 million subordinated, unsecured notes issue which will be listed on the ASX (“CommBank PERLS XII Capital Notes” or “PERLS XII
  • Bookbuild close date:   The Broker Firm Offer Bookbuild will close on 14 October 2019 and may close early and quickly.
  • The Margin is expected to be between 3.00% to 3.20% per annum and will be determined through the Bookbuild.
  • First call date is 20th April 2027, hence this should be viewed as a long dated security

Here’s a quick look at the current market for financial hybrids with greater than 4 years to first call. The 3% margin being offered by CBA looks adequate when compared to existing issues, the most relevant of which is the NABPF which has 6.7 years to first call and is currently trading on a margin of 2.89%. Also relevant is the MQGPD which is trading on a margin of ~3% for a similar time frame. Getting CBA on the same yield as MQG looks compelling in a relative sense.

The Offer is being made pursuant to the Prospectus, which contains full details about the Offer and should be read in its entirety (particularly the investment risks set out in Section 4) before deciding whether to apply for an allocation. Investments in securities such as these PERLS XII are subject to risks which could affect their performance, including the loss of investment and income. CBA (nor any other entity) guarantees the market price of PERLS XII or any particular rate of return. Investors can access the Prospectus here.

If subscribers would like to bid into the broker book build, we can facilitate, simply email [email protected] or call (02) 9238 1651 for details. Please note, this would be offered through Shaw and Partners and an account would need to be opened in the bidding entity.

Answering subscriber questions on Listed Investment Companies (LICs)

Today’s income note is slightly different, answering specific subscriber questions on Listed Investment Companies / LICs or Listed Investment Trusts / LITs. The video covers questions on BKI Investment Company (BKI), Milton (MLT), Cadence (CDM), Australian Leaders Fund (ALF), Wilson Asset Management (WAM), Wilson Leaders (WLE) & Metrics (MXT). It’s a 40m video which is not normally our style, recorded early this morning, clearly I had not yet had a coffee!  

Listed Investment Companies (LICs)  - Answering subscriber questions – VIDEO LINK

Have a great day 

James & the Market Matters Team


Market Matters may hold stocks mentioned in this report. Subscribers can view a full list of holdings on the website by clicking here. Positions are updated each Friday, or after the session when positions are traded.


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