The demand for hybrid securities remains stronger than ever and continues to play out as an important trend for SMSF investments in 2013.
Rivkin chief executive Scott Schuberg said the key theme playing out was the move by SMSF investors into the hybrids space.
Six months on, Schuberg said the appeal of hybrids had not dwindled despite the market sell-off in the past six to eight weeks.
“If anything, the volatility that’s come about has reignited interest in the space because the instruments generally have bond-like characteristics and some have redemption dates, so there’s less reason for their capital to fluctuate,” he said.
“That’s really attractive to anyone in this space at the moment and the demand for hybrids is as strong as it ever has been.
“There are all of these retail investors out there who really want and need income and there’s never been a time when our members have been hungrier for quality yield.”
Rivkin’s model portfolio, of which hybrids occupied about 30 per cent, recently underwent adjustments to its income bucket to become more defensive.
The income bucket included hybrids, convertible preference shares and floating-rate notes, Schuberg said.
“We manage this portfolio as though it’s a corporate bond portfolio,” he said.
“Before the global financial crisis (GFC), everyone was looking for 15 to 20 per cent returns and really high levels of income.
“The GFC came and went and now I think that people are really realistic in their expectations, so if we can come up with an income bucket with maybe seven or eight income securities and have an average yield of 8 per cent, investors will be thrilled with that.”
In addition, the potential for companies to increase debt levels was greater than it had ever been, he said.
“If we can get a clean election out of the way and companies feel more confident in terms of business growth, there are plenty of reasons why Australian companies will look for more debt because in general they’re under-leveraged as opposed to being well over-leveraged in 2007,” he said.
“That stands to see this hybrids space benefit.”
However, the area still remained under-researched, he said.
“There’s very little transactional business associated with buying and owning hybrids, so are you going to see some of the bigger personalities within the full service and full advisory broking houses write up hybrids? I don’t think so,” he said.
“By virtue of that, it’s still under-researched.”
