Launching InvestSMART's Hybrid Income

InvestSMART offers a Hybrid Income Portfolio in its range of SMA products.
By · 19 Jul 2017
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19 Jul 2017 · 4 min read
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In response to client demand, InvestSMART has created a hybrid income portfolio which holds 23 different hybrid securities. Hybrids have become increasingly complicated as the issuers (usually banks) try to fit in with the various rules as around what is equity versus debt for regulators and credit rating agencies alike.

The InvestSMART hybrid income portfolio:

  • Provides up to 25 different securities for a minimum investment of $25,000
  • Diversifies the credit risks for investors
  • Actively managed by professionals to switch into the best relative value issues
  • Low trading costs (<0.05%) for rebalances

What are hybrids?

Hybrid securities have both equity and debt features, and have been a part of the Australian stock market investment choices for several decades.

Initially, hybrids took the form of simple convertible notes, which paid a fixed rate of interest for a fixed time before converting into a fixed number of ordinary shares on a conversion date. Investors received a fixed-interest-like income stream until maturity, then received the benefit of any capital appreciation on the underlying shares over the term.

These days, the term ‘hybrids’ effectively covers any interest-bearing security that has both debt-like and equity-like features embedded in it. Some hybrids (like those issued by the banks) take this dual nature all the way to the possibility of conversion into the ordinary shares, at the option of the issuer: others (like some corporate hybrids) only have equity-style features, such as the ability to defer interest payments without triggering a default.

Portfolio features

The InvestSMART Hybrid Income Portfolio aims to provide investors with exposure to a highly transparent portfolio of ASX listed debt and preference securities that offer diversification benefits to income from Australian Equities and cash deposit.

The portfolio aims to provide a sustainable level of income whilst seeking to preserve capital. The target total return (including franking) of the portfolio is 3% above the RBA cash rate. The return will be generated from a combination of cash (interest payments and dividends), franking credits and capital growth.

The expected yield (including franking credits) is 5.24% per annum (before fees), plus any capital gain generated from trading from over-priced issues to under-priced issues.

The InvestSMART SMAs offer daily liquidity, and give investors the choice of redeeming for cash or taking an in-specie distribution of the securities if they want to manage their own portfolio.

Learn more about InvestSMART's Hybrid Income Portfolio 

Register for the 'Investing in Hybrids for Income' webinar


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Alastair Davidson
Alastair Davidson
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