Sunday 26 August 2012

Portfolio Buy: Standard Chartered Perpetual Corporate Bond (LSE:ESC6)

With some cash to get working in my DIY Income Investor portfolio, I have opted for another fixed-income investment - maintaining the broad 50%/50% allocation between these and high-yield dividend shares.

Finding a new purchase proved to be more difficult than expected...

The difficulty was due to a combination of two factors:
  • the investment account (an iDealing ISA) has some limitations on what can be purchased electronically (although it is possible to phone through to their dealing desk for some more obscure securities)
  • I already hold the most attractive, accessible UK fixed-income holdings - but I need to keep diversified, if not by sector (I am over-invested in the financial sector) but at least by company/bank

The compromise was to top-up my holding in the Standard Chartered Perpetual Corporate Bond 8.103%.  Despite the bad newsflow currently about Standard Chartered in the US, there does not seem to be any reason to doubt its future progress - particularly in Asian markets.

The income yield is 7.7%, which is greater than the portfolio average (currently around 6%) so this purchase boosts the overall income return. This is a perpetual bond (although a rate change is possible in 2016), so it can form part of the 'anchor' income produced by the portfolio: however, the real capital value will fall with inflation as I have purchased this at a premium to the cover price (and therefore there would be no 'profit' with any eventual 'call' and return of the 'par' value).

[Purchase price at end-August 2012: £1.11, excluding accrued interest]

I am not a financial advisor and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.

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