Retirement
SMSF investors warned on risk of hybrids
Hybrid securities should not be categorised with investment grade bonds since they are positively correlated with equities and designed to protect banks, says the chief executive of a bond exchange.
SMSF investors warned on risk of hybrids
Hybrid securities should not be categorised with investment grade bonds since they are positively correlated with equities and designed to protect banks, says the chief executive of a bond exchange.
Australian Corporate Bond Company (ACBC) chief executive Richard Murphy told nestegg.com.au’s sister publication SMSF Adviser there is not much difference between hybrid securities and equities in terms of risk.
“I suspect a great number of SMSFs are probably treating them as fixed income, which is not appropriate from an asset allocation point of view,” said Mr Murphy.
“You really want to allocate into assets where one asset isn’t correlated with the other, because otherwise you have all your eggs in one basket when things go pear-shaped for equities.”
Mr Murphy said that unlike investment grade bonds, which are negatively correlated with equities, hybrid securities tend to track the equity markets and therefore do not offer the same diversification.
“When the GFC happened, the corporate bond index went up in value, so in other words, bond prices increased because people moved out of equities in the panic of the GFC and into the safety of bonds.”
While some of the older-style hybrids tend to be more debt-like, all of the new-style ones tend to be much more like equities, particularly with some of the recent regulation imposed on banks regarding capital requirements.
“When equities go south badly, hybrids follow them down because their job is to protect the banks, not to protect your portfolio,” said Mr Murphy.
“So if equities fall 20 per cent to 30 per cent because there’s trouble afoot in the equity market, hybrids would fall as well because that’s them doing the job they were designed for.”
RELATED ARTICLES
Self managed super fund
Superannuation guarantee to be paid on government paid parental leave, says ASFA
The Association of Superannuation Funds of Australia (ASFA) has hailed the government's decision to include Superannuation Guarantee payments with its Paid Parental Leave policy as a critical step ...Read more
Self managed super fund
SMSF experts advise against hasty reactions to potential super tax changes
As the Australian Government proposes a new tax measure on superannuation earnings for balances exceeding $3 million, experts from the self-managed super funds (SMSF) sector are urging members not to ...Read more
Self managed super fund
Federal government announces changes to superannuation contribution caps
The Federal Government has announced changes to the superannuation contribution caps, impacting self-managed super funds (SMSFs) and their members from 1 July 2024. Read more
Self managed super fund
SMSF Association calls for joint effort to tackle early super access
The SMSF Association is calling on a collaborative approach including the Government, the Australian Taxation Office (ATO), the Australian Securities and Investments Commission (ASIC), and the ...Read more
Self managed super fund
Rest Super members file class action over alleged insurance premium deductions
Shine Lawyers has initiated a class action lawsuit against Rest Superannuation (Rest), alleging the unlawful deduction of income protection insurance premiums from members' superannuation accounts. Read more
Self managed super fund
Debunking a superannuation tax myth: SMSF Association clarifies the impact on Aussie farms
In the ongoing debate about a proposed new tax targeting superannuation funds exceeding $3 million, the SMSF Association has stepped in to challenge claims from the Association of Superannuation Funds ...Read more
Self managed super fund
Is an SMSF right for you?
When it comes to planning for retirement, one of the most significant decisions Australians have to make is how to manage their superannuation. Read more
Self managed super fund
SMSF growth continues after pandemic peak
The statistics have begun to change coming out of the COVID-19 pandemic, according to new findings from Australian Investment Exchange Limited (AUSIEX). Read more
Self managed super fund
Superannuation guarantee to be paid on government paid parental leave, says ASFA
The Association of Superannuation Funds of Australia (ASFA) has hailed the government's decision to include Superannuation Guarantee payments with its Paid Parental Leave policy as a critical step ...Read more
Self managed super fund
SMSF experts advise against hasty reactions to potential super tax changes
As the Australian Government proposes a new tax measure on superannuation earnings for balances exceeding $3 million, experts from the self-managed super funds (SMSF) sector are urging members not to ...Read more
Self managed super fund
Federal government announces changes to superannuation contribution caps
The Federal Government has announced changes to the superannuation contribution caps, impacting self-managed super funds (SMSFs) and their members from 1 July 2024. Read more
Self managed super fund
SMSF Association calls for joint effort to tackle early super access
The SMSF Association is calling on a collaborative approach including the Government, the Australian Taxation Office (ATO), the Australian Securities and Investments Commission (ASIC), and the ...Read more
Self managed super fund
Rest Super members file class action over alleged insurance premium deductions
Shine Lawyers has initiated a class action lawsuit against Rest Superannuation (Rest), alleging the unlawful deduction of income protection insurance premiums from members' superannuation accounts. Read more
Self managed super fund
Debunking a superannuation tax myth: SMSF Association clarifies the impact on Aussie farms
In the ongoing debate about a proposed new tax targeting superannuation funds exceeding $3 million, the SMSF Association has stepped in to challenge claims from the Association of Superannuation Funds ...Read more
Self managed super fund
Is an SMSF right for you?
When it comes to planning for retirement, one of the most significant decisions Australians have to make is how to manage their superannuation. Read more
Self managed super fund
SMSF growth continues after pandemic peak
The statistics have begun to change coming out of the COVID-19 pandemic, according to new findings from Australian Investment Exchange Limited (AUSIEX). Read more
