Uncertainty is stalking the listed perpetual preference share sector in the wake of the demise of African Bank UNCERTAINTY is stalking the listed perpetual preference share (pref) sector in the wake of the demise of African Bank (Abil). It has brought to the fore the reality that prefs are far from being a low-risk asset class.“[The downfall of] Abil is a big setback for the pref market,” says Gareth Stobie, head of capital markets at Grindrod Bank, the leading retail pref fund player. Abil prefs, now written down to zero value, had a 2.6% weighting in the JSE pref index, he says.Investors in high tax brackets have been attracted to prefs by the low tax of 15% on their dividends, which are linked to the prime overdraft rate (prime). The pref sector’s average yield of 7.6% equates to a net yield of 4.56% at a 40% tax rate compared with a money market fund’s net yield of about 3.7%.Despite the tax benefit yield uplift, Stanlib’s fixed interest head Henk Viljoen believes pref investor...
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