Wednesday, April 7, 2021

Newbie Portfolio - End 2021 03

A new purchase has been added and more details will be provided below. It will be a detailed post.


Portfolio performance edged up a bit mainly due to Fixed Income interest accrual. Shell equity failed to maintain its momentum (I actually sold a chunk in my Main Portfolios above GBP15), otherwise my mini Portfolio could be even closer to Breakeven Value.

In March 2021, I added a new bond purchase. It is the Lloyds 12% USD Perpetual:


A summary of the bond would be: It is not as good as I originally thought it was.

TLDR: 

I first came across this bond which was briefly mentioned in one FI's bond recommendation reports. Though it was only one short paragraph, it got me intrigued and I went to find out more details. At FACE VALUE, it sounded really good. 12% coupon with a price of 112 which translated to 8% YTC using the First Call Date of 16th December 2024. Credit Rating is junk at BB+ but Lloyds Bank's financials, especially its CET1 (about 16% currently), has greatly improved over the year.

So my strategy was to buy some of it at the Current Price and if the price fell, I would add more. If the price went up, I would just continue to hold till the First Call Date and earn the calculated YTC.

Unfortunately, AFTER I MADE the initial purchases, my further research uncovered more details about this feature called REGULATORY CALL. To be fair, I am aware what a Regulatory Call meant, but the "Basel III Grandfathered Instrument" comment on the Bloomberg screen threw me off. I had interpreted that to mean this bond was Grandfathered as Bank Capital under Basel 3 till its First Call Date. I WAS WRONG. This bond is only Grandfathered under Basel 3 till 31st December 2021. Which means, Lloyds Bank has the right to call back this bond at 100 on 1st January 2022 onwards. A rough estimate should Lloyds Bank call back this bond at 100 when I bought the bond at 112 in March would result in a 3 point Net Loss (USD3k per USD100k notional).

There are a few possibilities that could happen, based on my further research:

1. Lloyds Bank calls back the bond at 100 on 1st January 2022 which is the earliest and harshest treatment they could do. (20% probability) I will lose 3 points.

2. Lloyds Bank calls back the bond at 100 on 16th June 2022, which is the next Coupon Date after Grandfathering ends. (20% probability) I will earn 3 points.

3. Lloyds Bank does a Tender Offer for the Bond around October 2021, a few months before Grandfathering ends. (40% probability) My P&L will depend on the Tender Price.

4. Lloyds Bank does nothing and continues to let loyal bond holder/supporters earn the yield until First Call Date of 16th December 2024. (20% probability) I will realise the 8% YTC.

So far, no reputable Bank has ever used the Regulatory Call clause and call back their bonds at par of 100. Reason being this would anger the bond holders, who often would be repeat buyers/supporters. Not forgetting the fact, these old style capital instruments were often issued just after the Financial Crisis of 2008 and Investors supported the Bank by Investing then. In fact, Lloyds themselves made generous Tender Offers in 2014 when Basel regulations immediately made certain Instruments ineligible as Bank Capital. Tender Price ranged from 116-140. Lloyds could have called back all those Instruments at 100, but they did not.

Other Banks who could have called Ineligible Bonds at 100, but didn't, include Credit Suisse and Credit Agricole, who made Tender Offers for their Ineligible Bonds at around 103-107.

That being said, the above analysis is to justify to myself why I should not immediately sell off my bought Lloyds bonds. I would also not be adding anymore. I will just hold what I have bought for my Mini Portfolio as well as my main portfolios, recognising the possibility that in the worst case scenario, I could lose 3 points on the bonds.

I think the most likely scenario to happen is Lloyds will do a Tender Offer before Grandfathering ends, at a Premium above Par. What price is anybody's guess. But from the current price of about 111.5, I would say the Market Maker is pricing in a chance of the Tender Offer happening above par. Otherwise, the bond price as of April 2021 should be 109 or lower (9 months remaining before Regulatory Call).

End of TLDR.






The significant amount of Cash in the portfolio is from Allianz 5.5% bond redemption (it was called on 26th March 2021). The Cash will be used to reduce the Loans in the portfolio.

One positive of the Lloyds Bond is that it is considered a listed Preferred Security by my Bank, and hence it qualified for similar Lending Values as the Lloyds equity itself (70%). This is somewhat similar to the listed HSBC 8% and HSBC 8.l25% as well as the Aviva 8% bonds that old timers in this blog will be very familiar with. Those were my top buy calls then (Investors in those bonds all ended up getting their Principal back and earned the high 8% coupons along the way).

The current Margin Ratio is 88% which to me is reasonable to maintain a healthy yield while not running too high a risk of Margin Call. (It is actually about 81% Margin Ratio after I use the Cash to reduce the Loans).

Regards, Newbie

This blogpost is provided to you for general information only and does not constitute a recommendation, an offer or solicitation to buy or sell the investment product mentioned. It does not have any regard to your specific investment objectives, financial situation or any of your particular needs. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of your acting based on this information.


Monday, March 8, 2021

Newbie Portfolio - End 2021 02

 Nothing much to say for this boring month. Just Shell having some upward momentum.


Net Asset Value is slightly higher compared to last month due to slight movements in Asset Prices, particularly Shell Equity.






As mentioned in last month's blog post, Allianz 5.5% Perpetual Bond has been called and it will disappear from my portfolio at the end of March 2021 (along with a reduction of Investment Loans). The Portfolio Margin Ratio will come down to a comfortable level.


Regards, Newbie

This blogpost is provided to you for general information only and does not constitute a recommendation, an offer or solicitation to buy or sell the investment product mentioned. It does not have any regard to your specific investment objectives, financial situation or any of your particular needs. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of your acting based on this information.





Friday, February 5, 2021

Newbie Portfolio - End 2021 01

 Another month has passed without much excitement. I was supposed to write a lengthy discussion on my newly purchased Allianz bond but it will be cut short (more on that below).


Net Asset Value is slightly lower compared to last month due to slight movements in asset prices, nothing interesting to highlight. As at date of writing (5th Feb), Shell had announced its full year 2020 results (so so results in my view) and raised its dividend slightly. I am still positive on Shell equity and will continue holding on to it. Crude oil also appears to be on an uptrend.






What was supposed to be a detailed analysis and discussion on why I added Allianz 5.5% Perpetual Bond into the portfolio is now going to be a short one. Reason being Allianz has announced this bond will be called on 26th March 2021.

I had decided to buy the Allianz 5.5% Perpetual bond because the price had come down from 101-102 to a price where I calculated I would make no loss even if Allianz called the bond. Sadly, Allianz indeed called the bond, and I ended up at breakeven after I include the bond interest I earned in the short 1-2 months of holding.

The current Margin Ratio of 92.67% is considered high and I typically won't recommend any Investors keep their Margin Ratio so high (ideal is always 80-85%). It is as such because the Allianz bond was so attractive I had to add it into this mini portfolio (as a matter of fact, I bought the Allianz bond for many of my other portfolios as well). The Margin Ratio will come down to a comfortable level after 26th March 2021 when the Allianz bond is redeemed by the Issuer.


Regards, Newbie

This blogpost is provided to you for general information only and does not constitute a recommendation, an offer or solicitation to buy or sell the investment product mentioned. It does not have any regard to your specific investment objectives, financial situation or any of your particular needs. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of your acting based on this information.

Friday, January 8, 2021

Newbie Portfolio - End 2020 12

First month of a new investment year cycle! Not much excitement in this mini portfolio for the month except it continues to creep towards breakeven!


The sharp climb in assets values (both equities and bonds) seem to have slowed down with the results of the USA elections (President and Senate) all finalised. I would expect market to remain stable with Biden and his gang facing no major political obstacles in the immediate future.

Outlook for crude oil appears bright with the Global launch of the Coronavirus vaccines. Although there are plenty of reports about major countries being slow to deploy the vaccines, I foresee it can only improve from now on.

This should bode well for the only equity I have left in this mini portfolio - Shell. I am still counting on it to run up and eventually allow this mini portfolio to start making money!





I am still waiting for suitable bonds to add to this mini portfolio as the Margin Ratio of 65% is way too low to be considered as an efficiently deployed leveraged investment portfolio. To reiterate I would target a Margin Ratio of about 80%. This should allow at least one more unit of Investment Grade bond, whether SGD250k or USD200k, depending on what good bonds come out.


Regards, Newbie

This blogpost is provided to you for general information only and does not constitute a recommendation, an offer or solicitation to buy or sell the investment product mentioned. It does not have any regard to your specific investment objectives, financial situation or any of your particular needs. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of your acting based on this information.

Saturday, December 5, 2020

Newbie Portfolio - End 2020 11 (1 year since Inception)

What a year it has been, having started this mini portfolio just before the Coronavirus. The month of November 2020 had seen a strong market rally, especially after Biden won the US Presidency. I took the chance to take profit on BNP. Performance for the portfolio year (End Nov to End Nov) is at -6.71% p.a. It was disappointing that my new mini portfolio lost money in its first year, but it is already a big relief it fought back from the terrible lows during the dark Coronavirus periods of February to May 2020.


Strategy for the portfolio will continue using Fixed Income to earn stable returns behind the scenes, and I will selectively trade Equities where suitable.

Current portfolio only has Shell remaining as Equity and I will probably wait until Shell turns a decent profit (like BNP) before I trade another Equity for this mini portfolio.

Lesson learnt from the Keppel Corp saga is: Don't take too big a proportion of an Equity position even if you think you know the stock very well and it seems 'very safe'. Who would have expected the Coronavirus to hit, and for Temasek to trigger the Material Adverse Clause and cancel the $7.35 Partial Offer. Albeit I cut loss on Keppel Corp before Temasek announced the cancellation.





After taking profit on BNP and reducing some loans, this mini portfolio is at a very comfortable Margin Ratio of 66.53%. I would ideally target a Margin Ratio of 80-85% to optimally use Leverage on Stable Investments (which means I should be buying more for this mini portfolio). But I am having some second thoughts now on whether the current Market Environment is suitable or stable enough to ramp up to a Margin Ratio of 80-85% again, especially after experiencing the wild volatility caused by the Coronavirus.

Regards, Newbie

This blogpost is provided to you for general information only and does not constitute a recommendation, an offer or solicitation to buy or sell the investment product mentioned. It does not have any regard to your specific investment objectives, financial situation or any of your particular needs. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of your acting based on this information.

Friday, November 6, 2020

Newbie Portfolio - End 2020 10

Continue waiting for the equities to perform while my bonds portion will quietly earn returns behind the scenes. It is still painful and slow to recover the big loss from Keppel Corp. The only comfort I have is Keppel Corp share price has dropped below my Sale Price.

Portfolio Performance (Start Date: End November 2019 with SGD400k Cash)

Nothing much to comment for the month other than my opinion that non US stocks will do well if Biden wins the USA Presidential Elections.

It is unlikely for my new portfolio to breakeven this year. Hopefully within 6-9 months time from today.







Current Portfolio Margin Value:

a) Cash of SGD1,148.20

b) SGD281,716.82 x 0.6 = SGD169,030.09

c) SGD250,607.88 x 0.5 = SGD125,303.94

d) SGD85,602.74 x 0.8 = SGD68,482.19

e) SGD49,282.03 x 0.8 = SGD39,425.62

Total Portfolio Margin Value = SGD403,390.04

Total Liabilities = SGD349,606.08

Margin Ratio = 86.7%


Regards, Newbie

This blogpost is provided to you for general information only and does not constitute a recommendation, an offer or solicitation to buy or sell the investment product mentioned. It does not have any regard to your specific investment objectives, financial situation or any of your particular needs. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of your acting based on this information.

Wednesday, October 7, 2020

Mike vs Newbie Energy Challenge!

Mike and Newbie were discussing on whether Energy ETF or individual energy stock pick would work better in the current virus ravaged market.

Mike picked XLE.

Newbie picked Shell.

Let's start tracking!

https://finance.yahoo.com/quote/XLE/

https://sg.finance.yahoo.com/quote/RDSB.L/


Close of 6th October 2020 (Start Date)

XLE = USD 29.74

Shell = GBp 953.60


Close of 16th November 2020

XLE = USD 36.13 (+21.5%)

Shell = GBp 1185.00 (+24.3%)


Close of 6th January 2021

XLE = USD 40.87 (+37.4%)

Shell = GBp 1430.6 (+50.0%)


Close of 8th March 2021

XLE = USD 53.05 (+78.4%)

Shell = GBp 1487.8 (+56.0%)