Hybrids: sell or wait until the APRA deadline? Should investors in bank hybrids hold or sell?
Jonathan Sheridan
There has not really been that much value in the listed hybrid market, suggests Jonathan Sheridan, Director at FIIG Securities, the Fixed Income Division of AUSIEX.
“If you think that there’s still value in hybrids, versus other fixed income instruments that are somewhat equivalent, then you should keep them.”
Though he notes “many advisers are acting now and transitioning as their investor clients recognise there are other bond yields that are more attractive today”.
Mr Sheridan notes that while there’s no like-for-like replacement, advisers are splitting money across different investments. “For example, Tier 2 bank bonds are one area, listed fixed income offerings are another, as are fixed income funds – and all can bring diversification into a portfolio.”
What will replace bank hybrids?
“I think tier two bonds, for example, are the natural home,” says Mr Sheridan. “They have some equity characteristics, and the equity characteristics only come into play in crisis times. And I don’t think anyone thinks that any of our major banks, for example, are likely going to fail.”
He adds, “The other thing that we’re seeing is growth of the listed bond market. As investors look for higher-yielding listed alternatives to hybrids, we’re seeing issuers coming to the listed market knowing that there is this investor capital pool that is becoming more interested.
“For example, we participated in the recent raising for RAM Capital, and another is in progress from a global infrastructure manager – these issuers are looking to capture funds that are coming out of the hybrid market.”
Mr Sheridan says, “This offers greater diversification for fixed income investors.” FIIG, through its parent AUSIEX, operates in both the over-the-counter and the listed markets.
“Diversification is actually easy within our space. You can have 4 – 5% bulletproof government debt and you can have 15% high-yield corporate debt – and everything in between.”
