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MIF – Update: Impact of Royal Commission on MIF

May 3, 2018


MIF – Update: Impact of Royal Commission on MIF Outcome – Neutral

Customers and industry participants have been surprised by the extent of issues within the financial services businesses of AMP and the four major banks. The following details the impact of the Royal Commission on MIF.

About MIF
MIF invests conservatively in Australian bank senior and subordinated securities but excludes all Tier 1 or hybrid securities. It has a running yield of 3.40%, with quarterly distributions and strong performance. MIF continues to outperform its benchmark across all periods.

Impacts from ANZ, CBA, NAB and Westpac – Negligible
Majority of concerns for the major banks have been in their Wealth divisions and have been known for some time. Banks are in the process of rectifying these concerns, and in some cases are selling their divisions to other groups. While there has been some impact on the equity prices of the big 4, their credit, both senior and subordinated, has remained well supported. ANZ issued senior debt on 2nd May and had a bookbuild in excess of $3 billion, again illustrating strong support.

Impact from AMP – Negligible 
AMP has been the hardest hit at the Royal Commission. Their equity price has sold off and their lower tier capital instruments (subordinated and tier 1) have sold off. MIF does not have any exposure to AMP subordinated debt, does not purchase Tier 1 securities and has not been impacted by this sell off. MIF has a small 4% exposure to AMP Bank (not AMP Group) senior debt. While this has been placed on negative watch, it has traded only a few points wider than the market and has not had any material impact on MIF.

Summary
We continue to monitor the Royal Commission, and its impact on bank spreads. MIF’s conservative profile and low credit duration has meant there has been little impact to performance. We continue to manage MIF in this manner and are very comfortable with current settings. MIF performance for April during the Royal Commission was 0.22%, outperforming the benchmark by 0.06%.

Please feel free to call us if you require further information about the Royal Commission or any of our Investment Funds.

Wayne Buckingham
Managing Director
0413 465 207

Brian Buckley
Director
0468 931 347