Shaw and Partners Income Strategies desk just published a simple but illuminating review of interest rate securities’ returns for the financial year to 29 June 2017. Here it is:
source: Shaw and Partners
The best returning securities were typically hybrids which have passed their step-up dates, such as Seven TELYS 4 (ASX code: SVWPD) and some income securities such as those issued by Macquarie (ASX code: MBHLB) and NAB (ASX code: NABHA). These securities have undefined maturity dates and they will only mature when the issuers make a decision to redeem or convert them; holders do not have any say in the matter. The issuers have not done so far and there is little reason to expect a change any time soon. At various times in past years, these securities have been at the other (negative) end of the diagram.
Securities which produced negative returns have done so as their prices fell to the extent the unrealised capital loss outweighed any income paid to investors over the year. There does not seem to be any pattern to securities which went backwards but they include some income securities such as Suncorp-Metway Notes (ASX code: SBKHA) and some step-ups such as Ramsay Health’s CARES (ASX code: RHCPA).
The message from this is while 2016/2017 has produced double–digit returns for some holders, it would be a courageous holder of these securities to expect 2017/2018 to be as profitable. However, note the high ratio of the total number of positive returns to total number of negative returns and how the negative returns are all less than 5%. One could expect this behaviour in most years due to the nature of the large number of securities which have defined maturity dates, unlike the best and worst performers which tend to have no maturity dates.