Hybrids

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Question asked 11/06/2022

Hybrids

Hi James, Your commentary is a great help in navigating the market in these difficult times. What is causing the Sell Off in Bank Hybrids Are investors selling Hybrids to go long in Bonds at the peak? Are the new restrictions on Retail Investor participation in Hybrids causing the Sell Off? I note you are continuing to hold Hybrids in the Portfolio.

Answer

Hi Richard,

The small decline in hybrids has occurred for a few factors. Credit spreads have widened which is effectively the pricing of risk, the new NAB note was issued at a higher margin than what the market was trading on at the time, and the majority of bank hybrids have traded ex-distribution.
Bonds are now a legitimate option, we have recently added a bond fund and a fixed rate government bond to the income portfolio. If you believe like MM that expectations around interest rates have become too extreme, it makes sense to buy fixed rather than floating rate exposure.
We hold a mix of Equities, Hybrids and Bonds in the Income Portfolio – it’s not all or nothing. We think this mix sets us up well for that portfolio to achieve it’s objective.

Click here to visit the Market Matters Income Portfolio

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NAB hybrid (NABPF)

LAST UPDATED 11/06/2022 10:04

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