Friday 25 October 2013

HALP! (Portfolio Buy)

Having got over my reluctance to pay for yield, I've done it again.

I can't say that I'm particularly excited by my latest purchase for the DIY Income Investor portfolio - it's more of an income-oriented filler-inner. But when you have made a plan, you should stick to it - or come up with a better one.

My latest purchase gives me a yield on purchase of around 7.6% - hopefully for life.

HALP is the ticker for the Halifax 9.375% (9 3/8%) Perpetual Subordinated Bond, now part of Lloyds Bank. Citiwire Money (for whom I write an occasional column as Income Investor) had a good article on this bond, highlighting the key features of its troubled history:

"This bond  [...] is what is known as a ‘conversion’ as it was converted from a permanent income-bearing share (Pibs) to a perpetual bond when the Halifax building society demutualised and listed on the Stock Exchange in 1997.  [...] After its demutualisation the Halifax merged with the Bank of Scotland to form HBOS, a mortgage bank that went on a reckless lending spree that left it on the verge of insolvency. The government had to ask Lloyds TSB to rescue the bank but ended up bailing out Lloyds in 2009 as bad debts mounted and public confidence in its position faded."

The subordinated nature of the bonds means that if Lloyds hits another problem the coupon could well be cut off - and in the worst case the value of the bonds could evaporate. However, I'm fairly confident about Lloyds now.

This purchase increases my overall exposure to Lloyds, as I hold quite a few 'distressed' shares (bought when Lloyds was a big dividend payer) whose value is now only creeping up to half what I paid for them. Having said that, LLOY is a star performer over the last year, effectively doubling in value over the past 12 months.

The big downside about any fixed-income investment of this type is that the market price will probably drop in the near future (when interest rates rise) and inflation will eat away at the fixed income and the capital. So it's a bit like putting your savings into a fixed-rate savings account for a long time: you don't want to be forced to withdraw the money because you will lose the interest. Don't do it if you are likely to need the cash any time soon.

But the current plan is to rebalance the DIY Income Investor portfolio towards fixed-income with an international flavour, if possible. After this purchase the portfolio is now:
  • 50% fixed-income (directly held plus ETFs)
  • 45% dividend shares (directly held plus ETFs)
  • 5% cash
Overall portfolio yield is 5.7% and the total return for 2013 is 18.5%; the overall income has hit another all-time high.

But is that an on-coming freight train I see?

[Purchase price: £1.2274]

I am not a financial adviser 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.


  1. Price of HALP is £120 per unit!!!

    1. Yes - but per 'unit' of 100! I tried to simplify...

  2. 40% fixed income + 45% div shares + 5% cash = 90%....that's a bit worrying! Seems like you've lost 10% along the way....

    1. Thanks - slight typo there, now corrected!