A spate of maturities of hybrids and notes listed on the ASX have contributed to recent falls in yields, according to Morgans. So much so, it is recommending certain hybrids be sold. “We attribute the strength in the ASX listed space to the redemptions of ANZPA, ORGHA and WOWHC which occurred during December and resulted in $2.7bn of funds hitting investors’ accounts.”
Morgans thinks investors tend to be attracted by hybrids with high issue margins (the margin above BBSW when the securities were first issued) and warns against choosing an investment based soley on the income side. “We caution investors about focusing solely on running yield and not considering the total return (yield to call) offered by the security. Yield to call takes into account the amortisation of the security’s price back to its face value over time as well as the income paid…We recommend clients trim positions in AMPPA, ANZPD, BENPE and WBCPE and remain cautious about adding to portfolios at current levels.”