Financial advisers must take measures to actively manage the liquidity and complexity of their clients’ hybrid portfolios, says BetaShares.
Speaking to InvestorDaily, BetaShares chief executive officer Alex Vynokur said financial advisers are under pressure to maintain large portfolios of bank hybrids for their clients.
The high-yielding securities are in high demand among retail investors looking for sources of income, but concepts like capital triggers and non-viability clauses are poorly understood, Mr Vynokur said.
Mr Vynokur said BetaShares began investigating on an indexing solution for an Australian hybrid ETF last year, but decided upon an active approach for a number of reasons.
“ASX hybrid securities are liquid by and large, but they're nowhere near as liquid as the equities of those particular banks that issue the hybrids. So it does require actively managed expertise in order to manage the liquidity,” he said.
The enthusiasm of retail investors for hybrids also means that they can easily become overpriced, which necessitates an active approach, Mr Vynokur said.
In November, BetaShares launched an actively managed hybrid ETF called HBRD – appointing journalist-cum-fixed income manager Christopher Joye’s Coolabah Capital Investments as an adviser.
“With HBRD, you can preserve the benefits of hybrid exposure (monthly income, franking credits) but at the same time it's professionally managed for you and in a fund that aims to outperform the hybrids market,” Mr Vynokur said.
Most importantly, he said, it means advisers will have more time on their hands to do what they’re paid for.
“An adviser's job is talk to all of their clients and deliver financial planning outcomes – not many advisers view themselves as professional portfolio managers,” Mr Vynokur said.
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