The Elstree Hybrid fund has received a rating from Evergreen Ratings as it offers a higher yield than term deposits.
Issued by financial institutions, hybrids had less risk than equities, discretionary distributions and could be converted into equity by the issuer or regulator.
The Elstree Hybrid fund was actively managed and received a ‘satisfactory’ rating from Evergreen Ratings as the ratings house said it offered a “well-considered, carefully-crafted portfolio of equity hybrids, while enjoying the yield experience of this market segment”.
It aimed to deliver returns greater than short-term interest rates from a portfolio of hybrid securities.
Founder, Angela Ashton, said: “We believe that hybrid portfolios require ongoing active management because hybrids come in many flavours of debt, equity and embedded options.
“As hybrids are sold into the market, retail investors tend to sell older hybrids (where some of the optionality creates additional uncertainty) in order to buy the newer issues. The result is that the market can oversell, creating opportunities for informed investors.”
Campbell Dawson, Elstree Hybrid management director, said: “We believe the hybrid market offers opportunities for active investors as it is inherently inefficient. It is dominated by retail investors who have a limited understanding of bank and insurer capital issues, and who under and overreact to issuer specific risks and equity market movements. We construct portfolios which seek to benefit from market opportunities and inefficiencies and pass these returns on to our investors”.