Hybrids vs Equities: How Does Risk vs Return Trade-Off Stack-Up?

Christopher Joye

Two quick charts looking at the risk and return trade-off between ASX equities and ASX major bank hybrids. The first chart considers the current cash (unfranked) and fully franked dividend yield on the ASX200 index versus a range of major bank hybrid yields in both franked and unfranked terms. The bottom line is that you can currently get better cash and franked yields in the hybrid market. This begs the question about relative risk. The second chart looks at the volatility of the equities market compared to the ASX hybrids index. Since 2012, the annualised volatility of the hybrid market (2% pa) has been about 1/6 the volatility of the Aussie sharemarket (12.2%)...What about during the GFC? On our estimates, the ASX hybrids market fell about 27% peak-to-trough versus a 48% loss suffered across the broader sharemarket.

The author is a portfolio manager with Coolabah Capital Investments, which invests in fixed-income securities including those discussed by this column. The information herein shall not in any way constitute financial advice.


Christopher Joye

Christopher Joye is Co-Chief Investment Officer of Coolabah Capital Investments, which is a leading active credit manager that runs over $2.2 billion in short-term fixed-income strategies. He is also a Contributing Editor with The AFR.

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yield shares Hybrids bank hybrids

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John Coombe

Would you not compare vol and yield on Hybrids to vol and yield on the bank equity to do the comparison properly?

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Peter Murch

Have used hybrids over the years to "park" funds, in an environment which offers better than bank interest with an acceptable risk. Am now using Betashares Australian Hybrids Fund (HBRD) - established Nov 2017, pays income monthly, saves me researching individual products and is a perennially open fund so to speak.

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Russell Muldoon

Peter Murch, also managed by Chris Joyes Outfit. Its a good product for what you say below, being able to buy a basket of Hybrids and the liquidity of having a market maker on both sides provides ample scope to exit at reasonable prices should you wish. Not so easy when buying individual securities in this space. Its a great product (HBRD).

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