Co-Op 5.125% Sept 2017

I am fairly new to buying bonds and have recently been getting out of Equities and now seem to have mostly cash just sitting in my SIPP. Does anyone see a possible downside of purchasing 50K of the Co-Op 5.125% and sitting on them until they mature?

Comments

  • One possible downside would be a lack of diversification in owning just one bond. An alternative would be to buy 5 or 10 and spread risk and maybe have different maturity dates. Like most people I am aware of the financial issues the Co-op had recently although I haven't kept up to date and you would have to be happy that they are going to pay the coupons and maturity value in full. Any bid/offer spread and commission charges would have to be factored into the purchase price you get which will reduce slightly the headline yield which seems to be about 6.3% tax free in a SIPP

    What made you pick this bond out of all the thousands available? I know nothing of your situation, your assets, your objectives, how much risk you are willing to take etc. so ultimately only you can make this decision.
  • As with Frugal I would be tempted to spread the risk over a number of bonds when I first started I put all my money in Bradford and Bingley PIBS. I enjoyed the coupon payments for many years and then Gordon browns Labour government nationalised the bonds and I received no payment for years. I had a happy ending with this one recently, but I was still working and the income was a bonus not a necessity.
    Take a look at GACA or GACB, AVIVA preference and RSA preference shares, compare the coupon and you may find it worth spreading your risk. As always do your own research and be aware of your situation and risks involved.
  • I sold this bond shortly after the executives incompetence was uncovered. My main reason for taking the loss was a belief that the top of an organisation dictates the environment further down the foodchain. So my question is, 'do I believe what the co-op are saying?'. As I have no way of knowing, I'm steering clear. - once bitten twice shy.
  • Firstly thank you for taking the time to post your comments, after 300 views and no comments I was becoming a little disillusioned.
    Frugal, the point you make regarding putting a large sum in one bond is well taken, 25% of what I intend investing in the bond market, and in hindsight it should have been obvious to me, Thanks. My intention to invest in bonds stems mainly from the current volatility of equities. I am due to retire next year and don’t want to spend my retirement on the internet monitoring share prices every day. I have my living costs plus a bit more covered and my current strategy would be to try and build a bond portfolio maturing in about 8 years, yielding 6% and then deciding a new strategy at that time. Is that doable??
    Pabaker, I’ll take a look at GACA or GACB, AVIVA preference and RSA preference shares as you suggested. And as John made clear, not to judge a bond simply by its yield.
    I have just purchased The Sterling Bonds and Fixed Income Handbook by Mark Glowrey for Kindle so hope to become a little better informed. Thanks once again.
  • A bond portfolio maturing in 8 years yielding 6% is doable but that is a high yield these days. Looking at bond yields on Orb, which you can get on this website, shows very few yielding 6% to maturity. Aiming for 4 to 5% would give you more options and some better quality names.

    With an 8 year maturity if (when?) interest rates rise you are also likely to see capital values fall at some point which needs to be considered. If you intend to hold to maturity and factor this in that is one approach, but on a year on year basis you could see losses which is always painful.

    An alternative is to mix shorter term (lower yield) bonds with the longer term ones but that will reduce your overall yield. Sadly with interest rates at 300 year lows there are few easy options to get a decent yield.
  • Have to declare an interest as I do own this one - and that's definitely not a reason for anyone else to plunge in but I do feel comfortable that they will still be around in 2017 to pay on maturity. They're also senior. If you like the Co-Op but would rather invest a bit less (the one you mention has a minimum of £50,000 nominal) then there are the Co-Op Bank Sun Notes maturing December 2023 with YTM of around 8%. You'd have to feel comfortable that they will still be around in 8 years time and bear in mind that these rank below the 2017 seniors.

    Suggest you also look in on http://boards.fool.co.uk/banking-sector-50033.aspx?

    It's really helped my education in bond investing particularly in the Banking sector. They are perpetuals but LLPC, LLPD, NWBD all currently yielding in excess of 6%

    Again, not a recommendation, but I've just bought a small lot of EROS 6.50% (ERO1) maturing 15th October 2021 at a shade under 84p for what I make a YTM of over 10%.
  • Frugal's comment re yields is very good. It's good that that you have Mark Glowrey's book, very good reading. On page 226, he indicates that for high yielding bonds, a 5% exposure per bond within a portfolio is a comfortable holding. A good mixture of Orb bonds & PIBS I think is very important. The lack of new bonds does not help your situation. Higher yields may provide a reasonable income in the short term, but your exposure to possible losses in market value will increase, should inflation take off. Also be careful regarding being too heavy in a single sector, eg banking or oil. A few of us are nursing losses with Enquest & Premier Oil.
    If you have 20 holdings each with a yield of 5%, and you suffer a complete loss on a single 5% holding, in essence for that year you net income / loss is zero. Should such looses incur once every five years, one's average income would around 4% per annum. Bond prices will of course be more stable, closure it is to the maturity date. Preference shares are ok, but remember 0.5% stamp duty may indicate that such holding should perhaps be held for a longer period.
  • Thank you for the posts and the combined wisdom.

    Frugal, my reasoning for buying bonds maturing in 8 years was to hold them until Maturity, 8 years seemed about the right time frame and holding them until maturity should remove possible Capital Value falls and taken out to the equation. I want to keep things as simple as possible if I can. Having chased the tail of the Tiger in Equities I’m a little bit over it!

    Laughton – Thanks for introducing me to Co-Op Bank Sub Notes maturing December 2023 with YTM of around 8%. They certainly fit my criteria and I too think they will still be around in the future. I have decided to invest 5% of my funds in them. I did look at some of the Lloyds bonds and in fact read the article on this site where it seems investors bought one Lloyds product only to end up with another (ECN). As a novice investor I find this worrying.

    Shaunm I think the advice of Mark Glowrey regarding 5% in any one bond is extremely sensible and I plan on using it as my guide from now on. I presume a complete loss is not a common occurrence but in the unlikely event not catastrophic if it represents just 5% of the portfolio. I did take a look at Premier Oil, the yield looks very attractive, but I guess it represents the risk at the moment. But I am a little tempted!

    Out of interest does anyone consider it worthwhile taking ‘professional’ advice? I see Canaccord who are associated with this website offer an advisory service. Or do the costs that come with professional advice make it uneconomical?

    Once again thanks for all of your input, I appreciate it.
  • Graysilk, thank you for your comment, it's good to have some discussion on this board, in particular due to the lack of new bonds appearing. Complete losses I understand are rare, and there can be good opportunities when yields are high, but plenty of research is required. Regarding the oil sector, prices seem to be destined around the 50 dollar mark for sometime to come, although US production has come down, but it's not by much. How quickly will Iran start exporting oil in larger quantities?
    US product statistics (weekly) http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WCRFPUS2&f=W
    Should oil prices fail to reach 75 dollars (unlikely) by end of November, I probably ditch my Enquest holding & re-purchase once Enquest have declared their 2015 results. Bad news can sometimes provide opportunities to buy, (Page 175 of Mark Glowrey book).
    Re Professional advice, difficult question (I've taken none, but work as an accountant inside industry), much depends on your "personal interest" in reading investment related news, eg business sections of newspapers, Investors Chronicle & the Economist and you own financial complexity. Investing in "Fixed Interest" securities means you need to take "judgement calls" on future levels of inflation, if you think the possibility is low, then longer dated or undated (eg PIBS) securities may appear in larger % of a well diversified portfolio. My own feeling is that "deflation" is likely to dominate, in particular Europe due to the rigidity of the Euro (internally), however my portfolio has an average maturity of 5 years (excluding a few PIBS), which is keeping my risk profile lower.
    Remember, ISA's with Fixed Interest Securities can become an important part of your retirement plan, dropping say the 25% of a £200K SIPP draw-down, say 25K in February 2016, and the remaining in April 2016 (next tax-year) into ISA, means later in life you have a non taxable source of ISA (pension) income.
    Comments are of an amateur investor, who has been investing Fixed Term securities since May 2012 (Tesco 5% bond)
  • Shaunm, I had thought about the ISA and fixed interest Securities, when you say drop 25K in Feb 2016 and again April 2016. I understood the current limit was 15K per year rather than the 25K you are suggesting!
  • shaunm, As an accountant I would suggest that your profession is far more familiar with interpreting P&L etc than some one such as me, a Merchant Navy Officer, presently sailing around Tahiti, so its not all bad. But as you will appreciate not really equipment for the financial markets, so a lot of self learning ahead and hence considering the merits of professional advice. Or does that defeat the object of this forum?
  • Graysilk.
    It's a rough life (sailing round Tahiti) but I guess someone's got to do it. Even if you do decide to go the "professional advice" route there's nothing wrong with also keeping abreast of this and other similar forums. At least that way you might have a better idea of what questions to ask your finacial advisor.
  • Graysilk,
    No doubt a few readers are envious of your location.
    Being a seafarer, you may appreciate some of the comments (seafaring expressions) Oliver Butt makes to this forum (bond of the week)
    Mark Glowrey & Oliver are both Sea-Kayakers.
    http://www.fixedincomeinvestor.co.uk/x/analysis.html?type=bond-of-the-week&cat=analysis-comment&y=2013&aid=1051
    Strange enough reading the "P&L" and "balance sheet" are historical events, what is more important is knowing what is over the "horizon" which may effect a company bond.
    Most new issues are fairly safe, "at the start", otherwise Institutions would not invest.
    Its having the experience & knowledge of how one event can change the economic circumstances of another service/product.
    Your profession therefore should be ideal, looking for trouble (tropical cyclones etc)
    Also one other advantage is that you may have "the time" to do research.
    Hope this helps.

    ps, should you see some kayakers taking on water off the Isle of wight upon your return journey, picking them out of the water, you may get some free advice!
  • I'll certainly keep an eye out for Mark & Oliver, I could do with some sound advice! I do have a bit of time to do research which is great. Talking about Mark I have just been reading about PIB's in his book and checking them out on the website. Perhaps I am trying to run before I can walk looking at these! I purchased the Co-Op Bank Sub Notes and comfortable doing so and now looking for other buying opportunities. I say goodbye to Tahiti on Wednesday as I leave to join another ship sailing the Western Caribbean.......... sorry guys, just had to rub it in a little!!!
  • I've been looking at BBYB 10.75 2020 and also Old Mutual 8% 2021 as possible buys. Can someone kindly point me in the right direction to check out the prospectus please. Is there a site that gives you the basic Nuts & Bolts of a bond or is it a case of reading through the entire thing and working out for oneself?
  • Ah - another one that I own (BBYB). As you have nothing better to do (I understand many of those big ships sail themselves), you might like to check

    http://news.fool.co.uk/news/investing/2011/10/11/earn-a-high-income-from-preference-shares.aspx

    and

    http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/12223241.html

    But don't forget to keep a note of the conversion price and dates as no-one reminds you when they come around.

    This site has very good "nuts and bolts" reviews of many bonds but do read the prospectus (although in the case of Lloyds Bank ECN this won't have done you much good as the bank now claims that holders should have realised that the prospectus was faulty and bought on the basis of what the bank meant to say rather than what they actually did say)
  • Old Mutual 8% 2021
    80DR OLD MUTUAL PLC 8.00% SUBORD NTS 03/06/21

    Unless you have found "Treasure Island" on your travels, this one is unlikely be of interest
    Looking at the London Stock Exchange transactions, the minimum trading could be 50K or more (last few £500k).
    Perhaps a professional adviser can tell us more!

    BBYB BALFOUR BEATTY PLC 10.75P CUM CNV RED PRF 1P
    Not one of Canaccord Genuity leading preference shares, looks interesting, however it is a more risky investment. Perhaps again others could make comment.
    Presently I don't any Preference shares, but my understanding is that stamp duty of .50% is payable on purchases.

    Always very useful to look at recent transactions on the LSE for a particular stock, tells you the the typical quantities being sold/purchased, and at what price. You even see your own transactions (not 100% always), after a few minutes delay.

    Canaccord Genuity has a very useful PDF showing prices etc for leading PIBS & Preference shares at http://www.canaccordgenuity.com/en/cm/Our-Company/Fixed-Income/Fixed-Interest/

    You may wish to review some more duller securities offering 3 to 4% yield as part of diversified portfolio!
  • Once again thanks for the feed back. I'll take a closer look when I get settled into my next berth. I need to pay attention to detail, 50K of Old Mutual is a little more than I anticipated.
    I did quickly check out the Fools link on BBYB which was good background, having done a calculation on the back of a fag packet it doesn't appear worthwhile taking a conversion at the present prices. 25 BBYB @ 255 = 63.75 whereas 100 Prefs @ 117 =117.00. Have I got that right?

    I'll take a close look at the Canaccord Genuity pdf too.

    Many thanks
  • Never worth taking conversion far in advance - otherwise there would be no time value.

    Suggest you give up the fags - these are fairly long term investments you're looking at (especially if you pick up some PIBS) so you want to be around to keep on collecting the coupons.
  • Laughton, I agree with your view on PIBS, in particular as the spread (buying & selling) prices tend to be large! Probably take my PIBS holdings to my grave unless I think "inflation" may start to take off in a big way (currently 60 years old, with retirement planned next year)
    Hopefully I have many years of PIBS income (around 15% of portfolio)
    Note, with PIBS being undated (but with calls & coupon rate changes) their market prices could fluctuate with anticipated future rate of inflation / interest rates
    Graysilk - ps upon your retirement you may wish to take up kayaking, as it is difficult to paddle & smoke at the same time!
  • Graysilk - well not just for you but for any one else who has recently started looking towards Fixed Income investments

    I first went into Fixed Income (FI) investments upon taking retirement. I had a lump sum available for my twilight years so I decided against what I thought might be a "brown trouser" option of investing in shares; and then against the Harvey's Bristol Cream option of keeping it in a bank or building society deposit account.

    So the next step was to consider two other choices - (i) a Purchased Life Annuity or (ii) undated/permanent/perpetual FI investments (PIBs/PSBs and Preference Shares).

    At the time there was little difference between a level purchased life annuity and FI rates, so I thought at least with the FIs , there might be something left for the Cat's Home, with even a bit left over for the dependants - so I plumped for FI.

    I donned my new trunks and went in with solid reliable brand names like Bristol& West, Bradford & Bingley, The good old Co-op ... etc. Non of thsse fly-by-night outfits for me.

    Then .....

    Had to buy a pair of brown trousers, as for those who have recently joined the FI world may not be aware, all hell broke loose ... B&W became Bank of Ireland which had huge problems and tried to force a totally unacceptable offer onto the PIB/PSB holders. BOI got me through my first pair. B&B went t**s up and I had to buy another , then came the Co-op ....(

    Luckily there is a man called Mark Taber (who those of us who follow the banking sector on The Motley Fool will know), who led the troops into battle with the shenanigans that went on with those household names, as they tried , basically, to shaft we small private FI holders, ( including a lot of pensioners ).

    He was hugely successful in obtaining solutions and/or settlements for all of the above attemped shaftings

    The war is still ongoing as those current holders of Lloyds ECNs (which had started life as Halifax Preference Shares) await the outcome of the legal battle going on with them ("For the Journey" as their advertsing slogan cries out )

    With hindsight, I have no regrets - but I have to say the story might well be different had Mr and Mrs Taber not nurtured and nourished Mark. Unbelievable but true. Occasionally someone or some organisation comes along that makes the difference. Mark Taber did.

    So - what point or points am I trying to make ?

    1) Perpetual/Permanent/Undated FI investments can provide a useful part of retirement income

    2) Dated FI like Corporate Bonds offer a way of trying to follow, to a certain extent, any underlying moves in interest rates. You will read or have read about the "Ladder" as a way of doing this

    2) Although doing your own research cannot be ignored, you are even then at the mercy of the issuing company not trying to do something underhand - so you have to spread your investments as ShaunM and others have said

    3) Follow the Motley Fool Banking Sector forum and this forum continuously - even though some posts may not affect you, the quality of the posts are excellent; after 5 years you will get to know who are the stars of each , and from their ongoing experience they will teach you a lot that an advisor is unable to do.

    As an aside, the TMF Banking Sector is supposed to cover only banking related issues (including building societies, overseas institutions etc)' Of recent years this has been almost exclusively fixed interest orientated investments. It is allowed to deviate very slightly from time to time (eg an occasional brief mention of REA Holdings or BBYB prefs or Raven Russia Prefs)

    As a further aside, Mark goes under the name OldBoyReturns on that board - don't hear quite so much fom him these days as he is often drawn in to discussions with the institutions involved and/or lawyers and has to be very careful what he divulges , even after a solution is found

    ******

    Warren Buffet has said that in retirement one should hold government securities(eg UK Govt Gilts) and a plain vanilla tracker (eg S&P or FTSE) - good advice for those with a litle more money than most of us have, but spicing this up a bit by holding other FIs instead of or as well as gilts up's the income (bit the risk as well of course)

    Good luck

    James B

    PS Moneypenny still keeps a couple of pairs of brown trousers in the filing cabinet - just in case



  • Just like to say ‘thank you’ to 007 for the Post. Your experiences have been a lesson learned and certainly given me pause to think.
    PS. For those concerned about my health, thank you, but I was using the words figuratively and not literally.
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