Caroline Ritchie: Now is a good time to dust off the bonds

Listed debt market, (NZDX), has been a fertile hunting ground. If you are looking for additional ways to increase profitability from your portfolio (and who isn't?), look to the bonds.
The fixed interest side of your affairs is an active investment just like your shares, and needs adequate attention and grooming.
Ignore the inclination to set and forget the listed debt instruments, they, and the companies behind them, can change just as fast as anything.
Commonly, listed bonds tend to be held for their total duration and portfolios are typically constructed with evenly spaced timelines of maturities and income streams.
This is great, and proper, and has excellent appeal for investors needing structured and reliable payments. Once in place, however, there can be a tendency to assume that the initial placements should be held without alteration or attention.
Actually, recently, our listed debt market, (NZDX), has been a fertile hunting ground for excellent deals and has provided clients with several opportunities to switch from low yielding securities to higher ones of equal credit quality for capital gain and, of course, additional income.
Outright stunner deal of last week was the example of Bond X.
This listed instrument is a ten year duration security with a five year call option. Standard & Poor's rate it a nice, comfy A-.
When a large, keen buyer came into the market last week and was prepared to pay a yield of 5.00 per cent for this bond, (which equated to a 13.5 per cent capital gain over the original issue price), it's profit taking time.
Especially when there are equal replacements paying higher rates of return.
If you hold bonds and didn't hear about this specific event, be sure to fill in the forms I blathered on about last week. Whichever firm you deal with, it's not likely that you may hear about the sweet stuff without doing so, for two main reasons.
The first is easy; the law may prevent them telling you about it after July 1 2011.
The second is more subtle.
Investment advisory houses can only, in reality, give the most accurate, up to date and specific advice and information to clients who hold their stocks and bonds in a custodial account with that company.
Why? Because then a client's investments become part of the company radar.
They are loaded into the live screen, the broker's diary and get the foremost attention of the two or more advisers monitoring and managing the account.
Equally, it is these clients that usually are afforded first dibs on new bond issues as they occur, another way to profit from this sector as recent fresh issuances have debuted at premiums.
So - at your next portfolio review - dust off the bonds - there's value there if you know where to look.
Caroline Ritchie is an NZX Adviser for Forsyth Barr in Napier. For sharemarket advice contact (06) 835 3111 or caroline.ritchie@forbar.co.nz.