Hybrids vs Equities: How Does Risk vs Return Trade-Off Stack-Up?
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.
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Chris co-founded Coolabah in 2011, which today runs over $8 billion with a team of 40 executives focussed on generating credit alpha from mispricings across fixed-income markets. In 2019, Chris was selected as one of FE fundinfo’s Top 10 “Alpha Managers” based on his risk-adjusted performance throughout his career across. He previously worked for Goldman Sachs in London and Sydney, the Reserve Bank of Australia, and founded the award‐winning research/investment group, Rismark. He has regularly advised governments, developing unique policy proposals. Chris graduated with the University Medal (Economics & Finance) from Sydney University. He studied in the PhD program at Cambridge University in 2002/03, leaving to set up his funds business.
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Chris co-founded Coolabah in 2011, which today runs over $8 billion with a team of 40 executives focussed on generating credit alpha from mispricings across fixed-income markets. In 2019, Chris was selected as one of FE fundinfo’s Top 10 “Alpha...
Expertise
Chris co-founded Coolabah in 2011, which today runs over $8 billion with a team of 40 executives focussed on generating credit alpha from mispricings across fixed-income markets. In 2019, Chris was selected as one of FE fundinfo’s Top 10 “Alpha...
Expertise
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