Interest rate securities portfolio study - Background and Rules


The scenario

On the 1st of January 2009 we set up a mock portfolio whereby we used an allocation of $100,000 in cash to invest in a range of interest rate securities. We invested $12,500 in each interest rate security, we selected four interest rate securities across four alternate sectors with varying characteristics.

Interest Rate Securities allocated to portfolio - Initial

ASX Code Underlying Description Security Type Sector Interest Rate Coupon Distribution Maturity Date
LEPHB ALE Property Group Corporate Bond Real Estate 7.27% Semi-Annually 30/09/2011
WOWHB Woolworths Limited Floating Rate Note Consumer Staples 5.35% Quarterly Perpetual
IANG IAG Finance (NZ) Limited Convertible Note Insurance 5.78% Quarterly 31/12/2036
WBCPA Westpac Banking Corp. Hybrid Banks BBSW + 2.40% Quarterly Perpetual

* BBSW - Bank Bill Swap Rate

What type of investor will this strategy suit?

This strategy will suit investors seeking to diversify risk and achieve a steady income stream. Interest rate securities suit investors looking to diversify their portfolio and obtain exposure to an asset class where the returns are not closely correlated to that of equity markets.

Expected results of this study

Our expectation is that the interest rate security portfolio will provide a relatively steady income stream and yield over its term.

How we run the portfolio

The portfolio will have an initial $100,000 available from the 1st of January 2009. On the 2nd of January we will take the following steps:

  • Purchase securities in the 4 Interest rate securities across the 4 market sectors.
  • We will invest $12,500 in each security.
  • The units will be purchased at the closing price on the 2nd of January 2009.
  • We will also place $12,500 in each new issue in 2009 as long as the new issues meet the following criteria:
  • The underlying security is an S&P ASX 200 company
  • We currently do not hold an Interest rate security over the same listed entity.
  • We will purchase the securities at the issue priceTax implications

Interest Rate Securities allocated to portfolio - 1st January 2010

ASX Code Underlying Description Security Type Sector Interest Rate Coupon Distribution Maturity Date
LEPHB ALE Property Group Corporate Bond Real Estate 7.27% Semi-Annually 30/09/2011
WOWHB Woolworths Limited Floating Rate Note Consumer Staples 5.35% Quarterly Perpetual
IANG IAG Finance (NZ) Limited Convertible Note Insurance 5.78% Quarterly 31/12/2036
WBCPA Westpac Banking Corp. Hybrid Security Banks BBSW+2.40% Quarterly Perpetual
AQNHA AMP Group Floating Rate Note Insurance BBSW+4.50% Quarterly 01/04/2019
TAHHA Tabcorp Limited Floating Rate Note Consumer Disc. BBSW+4.25% Quarterly 01/05/2014
CBAPA Commonwealth Bank Hybrid Security Banks BBSW+3.40% Quarterly Perpetual
ANZPA ANZ Banking Corp. Hybrid Security Banks BBSW+3.10% Quarterly Perpetual

* BBSW - Bank Bill Swap Rate

Tax implications

The portfolio will be eligible for the 12-month capital gains tax concession. Since we will hold the interest rate securities until maturity.