Hybrids of interest

Clime Asset Management

Without doubt, general economic conditions globally have deteriorated over recent months. With the market now pricing in a negative year ahead, the spike in “perceived risk” has resulted in a sharp decline in the prices of various good quality listed income securities. Every significant market correction throws up opportunity in various market segments; and often the opportunity in the lower risk segments of the market is ignored, and this is what appears to be happening with certain income securities. Three securities we like are NABHA, MBLHB and MXUPA. Their running yields have significantly increased and are well above 90 day term deposit rates; they pay quarterly distributions; distributions are floating rate and reset each 90 days; the quality of each issuer is good and supported by solid business cash flows; and the securities have embedded in them various protective clauses for investors that include dividend stoppers on ordinary shares (ie. the dividend on the ordinary shares of the issuer cannot be paid unless the distribution on the hybrid security has been paid). (VIEW LINK)


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