Clients are becoming more ‘pointed’ in their requests for sustainable income and less volatility in their fixed income allocations as they struggle to generate income in a low interest rate world.
Speaking to Money Management about the launch of the firm’s Hybrid Opportunities product, Daintree portfolio manager, Brad Dunn, said he had seen increased demand from clients for a product like this.
“We haven’t had clients specifically asking for hybrid products but what they are asking for is ways to generate sustainable income with less volatility and for capital preservation over time.
“In an environment of low interest rates, which are likely to stay low, the question of how to achieve that and what they can add to their portfolios is being asked more pointedly by clients.”
He said hybrids were familiar for Australian investors and were already used as a sub-set of the firm’s Core Income and Higher Income funds.
The fund would invest in a diversified portfolio of 25-125 hybrid bank securities including Credit Suisse and ING Group, targeting a return of 3.5%-4.5% per annum above the cash rate, with quarterly income distributions.
“Hybrids offer some of the best yield in the fixed income market for a near-investment grade credit rating, with lower risk than investing in equities markets.”
“Over the past decade banks have strengthened their balance sheets as a result of tougher capital rules and they...