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11 August 2022
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Australian investors are searching for investments that can benefit from evolving market conditions. With credit spreads at attractive levels, now might be the opportune time to have exposure to hybrids and credit.
Higher distribution levels and potential returns have caused many investors to turn to hybrids for the fixed income portion of their portfolio. Now may be a time to reassess the relative risk-reward balance of the instrument.
Major changes are underway in the methods used to distribute bank hybrids. Investor cannot rely on the previous ways of buying hybrids at IPO and now must be 'sophisticated', react quickly and know a broker.
During the GFC, bank hybrids fell heavily as bank equity sold off, but in the last dozen years, hybrids rules have changed and the market seems to accept hybrids are more resilient. What does the price data show?
Bank hybrids produced excellent returns in the last year and the biggest lesson from March 2020 is that many investors don’t understand the structures, and in a crisis, they panic first and think later.
The GFC provided asset managers with a source of behavioural data they could only dream of. However, no amount of modelling can capture the full panic that some investors experience.
Hybrids deliver returns comparable with equities over the long term with less volatility, which makes the risk-adjusted return and lack of correlation to equities an attractive characteristic in a diversified portfolio.
Amid the many strategies proposed to overcome Labor's franking policy if adopted, often overlooked is building a portfolio of the right types of bonds and hybrids as an alternative source of income.
While property and equity markets remain expensive by historical standards, yields achievable relative to risk remain strong in the hybrid market, notwithstanding recent upticks in price.
Almost every hybrid has a unique structure, and some of the conversion terms, especially following a ‘loss absorption’ event, are as ugly as a cane toad. Billions have been issued recently as investors search for income.
The increases in margins on Australian listed hybrids are prompting investors to ask whether the returns finally match the risks. Hybrids come in many forms so watch the finer details.
The Bank Bill Swap Rate (BBSW) is an important metric in many markets. It’s used as the benchmark for hybrids, FRNs and billions of dollars of loans and bonds.
Amid thousands of comments, tips include developing interests to keep occupied, planning in advance to have enough money, staying connected with friends and communities ... should you defer retirement or just do it?
Retirement is a good experience if you plan for it and manage your time, but freedom from money worries is key. Many retirees enjoy managing their money but SMSFs are not for everyone. Each retirement is different.
Investing is often portrayed as unapproachably complex. Can it be distilled into nine tips? An economist with 35 years of experience through numerous market cycles and events has given it a shot.
A new standard argues the majority of Australians will never achieve the ASFA 'comfortable' level of retirement savings and it amounts to 'fearmongering' by vested interests. If comfortable is aspirational, so be it.
Billionaire fund manager standoff: Ray Dalio thinks investing is common sense and markets are simple, while Howard Marks says complex and convoluted 'second-level' thinking is needed for superior returns.
If you feel fear when the market loses its head, you become part of the herd. Develop habits to embrace the fear. Identify the cause, decide if you need to take action and own the result without looking back.