Our Q&As are emailed in our Saturday Morning Report, find the answer to this question below.
Hi James Thank you for helping us through a volatile year in 2023. You have a number of Bank Hybrids in the Income Portfolio . Could you advise what is your strategy for Buy and Sell? Apart from Buying the issue @ $100.00, what indicators do you rely on? Are you intending to hold to First Call date? When would be the ideal time to Sell as the Market Price declines as duration approaches First Call date and Maturity What factors would cause a Sell?
Hi Richard,
We continue to feel hybrids provide a great risk/reward balance for those looking for income with the benefit of liquidity. When assessing hybrids, we find it best to compare margin over swap for hybrids of a similar maturity.
While you are correct in saying hybrids will trend towards par value ($100) as they approach first call (assuming the expectations is that the issue will be redeemed and/or rolled) however this often provides access to a new issue at a reasonable spread premium to similar securities.
We are generally more passive with our Hybrid holdings preferring to hold till call dates unless a big anomaly opens up between relative valuations.
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