Listed Debt Securities Indices Performance Review
Australia Ratings Indices Performance Review - June 2016
As at the end of June, the Australia Ratings family of indices for listed debt securities are all above 100 points for the first time. And many of the indices are at the highest levels seen since inception, at the end of December 2014.
Chart 1 Indices Performance
The adverse impact of the repricing of many subordinated and hybrid instruments over 2015 has now been offset by the accumulation of distribution payments. The majority of the securities included in the indices pay quarterly distributions and 20 of these went ex-distribution in June.
The best performing index over the month was the Yellow index (of complex debt securities) with an annualised return of nearly 50% or 3.39% in the June month. Much of the return was due to the uptick in the market price of the Crown Resorts subordinated notes: CWNHA and CWNHB.
With the announcement of a restructure of the group, the privatisation fears of noteholders were greatly diminished. This saw the price of the CWNHA notes increase to A$95.75 at the end of June, up from A$93.40 at the end of May, and the price of the CWNHB notes increased to A$84.00, from A$78.05.
The Orange index (of more complex securities) was the next strongest performer generating a total return of 0.72% for the month. The strong performance of the index is attributable to improved prices for most securities in the index, even among many of those that went ex-distribution.
The Green index (of simple securities) returned 0.56%, thanks to securities going ex-distribution, and the Blue index (of relatively simple securities) returned 0.42% over June, but unfortunately lost two securities as the remaining period to the call dates of the securities fell below one year. As this index is comprised entirely of pre-Basel III subordinated note issues, it will soon cease to exist, unless some simple subordinated note issuance takes place in the meantime.
Since inception the Blue index has generated a total return of 4.44%, while the total return from the Green index is 4.43%.
The Red index (very complex securities) was the weakest performer returning only 0.22% over the month. Despite many securities going ex-dividend, prices were restrained by the launching of the Westpac Capital Notes 4 and NAB Capital Notes 2 issues into the market.
This will likely constrain the performance of the index in July, as well.
With the Red index being the largest by market capitalisation, the combined index returned only 0.23% over June.
Chart 2 - Franked and Unfranked Indices
The Unfranked index includes all the securities that do not pay franked distributions, as the name implies. The index returned 0.80% for June and has returned 3.69% since inception.
The Unfranked index includes all of the securities in the Green, Blue and Yellow indices and some of those in the Orange index. The Franked index includes the remainder of those in the Orange index and all of those in the Red index.
The Franked index returned 0.54% for the month but has returned just 0.58% since inception.Indices Methodology
The family of indices consists of individual indices following the Product Complexity Indicator (PCI) scale, and a composite index that includes
all securities tracked in the individual indices. There are also sub-indices for securities that make franked and unfranked distributions.
The indices are accumulation indices with a start date of 1 January 2015 which coincides largely with Australia Ratings’ appointment under the ASX Research Scheme.
The indices track security price movements and distributions since that date. And at present, are compiled at the end of each month but this will change if demand warrants it.
Included in the indices are only those securities with a call or maturity date of more than twelve months away, and only those with floating rate distributions. The pre-tax equivalent value of the distribution is used when distributions are franked, and each security is volume weighted.
Index data is sourced from ADCM Services.
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