Convertible Preference Shares for SMSF - Aussie Stock Forums

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  1. #1

    Default Convertible Preference Shares for SMSF

    With term deposit yields so low im looking at rolling my allocation when it matures in a few weeks into converting preference shares like ANZPC or WBCPC, they pay a percentage above the 90 day bank bill rate and are floating so as rates rise or fall so does there yield so considerably higher than a term deposit, the underlying value with them seems very stable around the $100 issue price depending on how close to the distribution.

    Any opinions as I have never really looked at them or is anyone using these products that are listed on the ASX in there SMSF ?, also easy to both acquire and dispose, realise they have a higher risk than term deposit, or are there alternatives to look at for yield from lower risk holdings ?.



  2. #2
    Pocket Calculator Operator tinhat's Avatar
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    May 2009

    Default Re: Convertible Preference Shares for SMSF

    With all the volatility in stocks over the past few years I too looked at convertible preference share offerings of which there have been quite a few new ones by the banks but also by the likes of Woolworths of late.

    The question I ask myself is am I better to have money on loan to the bank versus owning shares in the bank? A couple of factors to consider for my SMSF are the franking credits (especially when you have accounts in pension phase). What are the returns for convertible notes versus shares grossed up with franking credits?

    What is the certainty of the income stream for dividends through the shares and interest payments for the convertible notes? Personally, I'm quite comfortable with the dividend stream I get from the CBA shares in the SMSF - they make up about 30% of the income stream of the account in pension phase.

    What is the price risk to each instrument over the short, medium, long term (depending on your time frame)?. Is there any less price risk (capital risk) in owning a convertible note over a share and is that reflected in the difference in yield between the two? Personally, I don't see much difference in the risk to capital between a share and a convertible note when it comes to "blue chips" such as the major banks and Woolworths, etc. I consider the SMSF's CBA shares purely as an income stream and the market price of CBA shares is only of passing interest to me when I look at my portfolio.

    I looked long and hard at the Woolworths hybrid offer last financial year but, for my circumstances, decided I was better of owning WOW shares.

  3. #3

    Default Re: Convertible Preference Shares for SMSF

    Not in an SMSF because I don't have one but I applied for (and got) a few hundred WHF Convertible Preference Shares. Rate is 7% (effective 10% with franking credits) which resets in six years time.

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