Listed Debt Securities Indices Performance Review
Australia Ratings Indices Performance Review - July 2016
July was a strong month for the Australia Ratings’ family of indices for listed debt securities. The combined index increased by 1.07% over the month or by 13.7% on an annualised basis.
All indices continue to sit above the 100 point baseline, as they did in June for the first time since inception.
Chart 1 - Listed Debt Securities Indices Performance by Product Complexity
The performance of the combined index was driven by across the board price increases in the constituents of each of the other product complexity indicator based indices. Only one security, Australian Unity’s AYUHB notes, went ex-distribution during the month.
The on-going search for yield by investors made July the third strongest month since the inception of the index family. April this year saw a 1.8% increase in the combined index, as financial markets generally rallied coming out of the poor first quarter, and October last year saw a 1.46% increase in the index, as the then almost year long decline in bank hybrid security prices began to turn around.
The strongest index in July was the Yellow index with a monthly increase of 2.67%, or more than 37% on an annualised basis. While all members of the index saw price increases over the month the largest increases were again seen in the Crown Resorts’ CWNHA and CWNHB notes, as investors became more comfortable with the future prospects of the company.
The prices of the CWNHA and CWNHB notes increased by 4.4%and 4.8%, to $99.93 and $88.00, respectively.
The red index also performed strongly with a 1.67% increase over the month or 22% increase on an annualised basis. The performance of this index underlines the focus of investors on Additional Tier 1 capital as a source of yield.
The orange index returned 0.67% for the month, demonstrating that the constituents of this index are being overlooked to some degree. The Green index returned 0.65%, driven by strong price appreciation in the Tattersalls’ TTSHA bond.
The Blue index was the comparative laggard with a return of just 0.45% over the month.
Nevertheless, it is the Blue and the Green indices that continue to lead in terms of overall performance. The outperformance of the two indices demonstrates the value of the stable and predictable returns generated by relatively simple debt securities.
The Green index has generated a total return of 5.11% and the Blue index 4.91% since inception.
The out-performance of relatively simple debt securities over time is reiterated in the performance of the Unfranked and Franked indices.
Chart 2 - Listed Debt Securities Indices Performance - Franked vs Unfranked
It is the more complex securities that generate returns with franking credits and thus comprise the constituents of the Franked index. Yet, the Franked index has generated a total return of just 1.95% since inception, compared with 4.81% from the Unfranked index.Index data is sourced from ADCM Services.
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