Investing

Disappearing Subs Dilemma

$4.4 billion of old-style tier II hybrids, or ‘subs’ may be redeemed in the next few months. This creates a dilemma for advisers, as these were the only ASX securities at that point on the risk-return spectrum.  They can’t be replaced.

Subs have lower volatility and are more debt-like than equity-like hybrids. Advisers now have to either go up the risk curve away from fixed income, or down it to bonds/XTBs or bond funds. Staying put isn’t an option as soon the remaining hybrid options will be ‘growth’ rather than ‘defensive’. 2017 may be pivotal for hybrids, with growing researcher concerns that certain securities won’t be called, and future issues may be wholesale only.  With uncertainty ever present for growth assets, the range of advisers looking at XTBs is growing as XTB FUM nears the $200m mark.

Table 1: Disappearing Subs to August 2017

ISSUER CALL DATE ISSUE SIZE (mio) COUPON MATURITY DATE
NABHB JUN 17 1,188 BBSW+275bp 18 JUN 2022
ANZHA JUN 17 1,530 BBSW+275bp 20 JUN 2022
WBCHA AUG 17 1,704 BBSW+275bp 23 AUG 2022

 

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