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Model Portfolio: 2 June 2009
Model Portfolio takes a knock from B&B PIBS holding, but general tone for corporate bonds continues to be firm..............
    

The general tone for corporate bonds remains firm, with investor confidence returning both to the asset class, and financial markets in general, as evidenced by the robust performance seen in the equity markets.

This month has seen mixed results for the model portfolio, but the bottom line is up on balance. We have taken a knock on the news from Bradford & Bingley that payment of the PIBS coupon is suspended until further notice. Our chosen course of action is to hold on; the valuation of the position is very low and we note that the deferred coupon is cumulative. We will see what comes out of the winding up process in due course, bearing in mind that the company has stated its intention to pay creditors in the business plan released back in March. You can download this document by clicking here.

Other holdings are doing quite well - most notably the retail sector which is seeing a strong bid. Some of these holdings are poking their nose over par and profit taking is now a possibility in the Marks & Spencer, Kingfisher and Next bonds.

We also note that our BT bonds have had a coupon step-up; now boosting an 8.5% annual payment. The coupon here is linked to the credit rating and with BT now floundering down in the BBB area, the coupon has been ratcheted up half a percent.

Finally, we have added a 7,000 holding in the undated War Loan 3.5% Gilt. Long dated gilts have been selling off over the past few months, no doubt as a reflection of the large and growing PSBR that Mr Brown has saddled us all with. However, the yield on this bond is becoming tempting at 4.8% and there is a good possibility of a bounce from the bottom of the long term range. The position is more of a trade than a long-term investment. We will see how it goes over the summer.

Date of Purchase

Issue

Nominal

Purchase Price

Current Price

Value  

Accrued

30 Jan 2007

Kingfisher 5.625% 15 Dec 2014

10,000

  95.24

 98

9,800

 272

7 Mar 2007

Segro 5.5% 20 June 2018

5,000

  97.35

 70

3,500

 267

18 April 2007

Merrill Lynch 5.125% 24 Sept 2010

10,000

  97.66

 101

10,100

 363

19 Aug 2007

Portman (Nationwide) 6.25% PIBS

 5,000

  97.50

 80

4,000

 41

9th Jan 2008

Marks & Spencer 5.625% March 2014

10,000

  95.82

 99.25

9,925

 120

10th April 2008

Bradford and Bingley 11.625 PIBS

10,000

 112.00

 10

1,000

 -

23 July 2008

Experian (GUS) 6.375% July 2009

5,000

 98.95

 99

4,950

 286

20 Aug 2008

Next 5.25% Sept 2013

5,000

 86.5

 100

5,000

 181

20 Oct 2008

GE Capital 4.75% 15 Jun 2011

5,000

 88.46

 101

5,050

 234

27 Nov 2008

British Telecom 8.5% 2016

5,000

 97.5

 103

5,150

 202

18 Feb 2009

Tesco 5.5% Dec 2019

5,000

 103.64

 103

5,150

 134

26 Feb 2009

Roche 5.5% March 2015

10,000

 99.37

 106

10,600

 147

26 March 2009

John Lewis 6.375 Jan 2012

5,000

 101.76

 105

 5,250  115
22 May 2009 UK Gilt War Loan 3.5% undated 7,000  73.6

 73

 5,110  5
Bond sub total

 

Category Sum            Notes
Securities

84,585

Valuation of current holdings
Accrued

2,362

Interest accrual on above 
Cash

14,267

Including interest & coupons received. 
     
Total

101,214