Melbourne's Elstree Investment Management has listed a hybrid fund on the Chi-X.
The Elstree Hybrid Fund (EHF1) invests in Australian hybrids and interest rate securities, targeting a return over short-term interest rates over a three-year period.
"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," Elstree director Campbell Dawson said.
"We construct portfolios which seek to benefit from market opportunities and inefficiencies and pass these returns on to our investors,".
|Sponsored by Eaton Vance|
Eaton Vance: Active vs. Passive in EMD
Its top three holdings include: ANZ CN 4 (ANZPG) which it says is a medium-maturity hybrid with attractive margin, NAB CN3 (NABPF), which it sees as performing well if margins contract, and the NAB CN4 (NABPH), which the firm said is the Longest maturity major bank hybrid and still marginally cheap after IPO.
The ETF is a retail-targeted, listed version of the Elstree Enhanced Income Fund, which is for wholesale investors.
The unlisted version has delivered 7.3% p.a. over 10 years to February before fees. One-year returns were 10.2%, three-year returns were 7.9% p.a.
Elstree said it uses proprietary research and expects hybrids to be less volatile than equities.
"Hybrids have been a popular choice for many investors over the last decade, producing returns that have been slightly less than equity markets, with much lower risk. Current margins of around 3% above the cash rate compare favourably with the post-2010 average margin of 3.4% and we expect volatility to remain materially lower than equities," the firm said.