It has been a great month so far for trading in the Hybrid security market. Since the beginning of March, the overall Hybrid market has rallied about 1%. Below is the chart for Hybrid ETF –(HBRD.asx). The chart shows the general moves in sentiment in this market – moving through the year in a 2.5% trading range, which demonstrates the relative defensiveness in this sector. By comparison, the ASX 200 has moved in an 880 point or 15% range for the year.
Our office bid for $1m of the new NAB hybrid, the June 2026 issue – NABPF, but was scaled back due to the high demand to $377,000. The new issue commenced trading on the 21st March, closing the week at about 1% premium to the issue price. The security was issued at a margin of 4% above the 90-day bank bill rate, currently 1.81%, for a total running yield of 5.81%. The 10-year Government Bond has rallied to 1.77% this morning, highlighting the yields being offered in the Hybrid market.
As previously mentioned, Macquarie also issued a new September 2026 Hybrid at a 4.15% margin above the 90-bank bill rate for a total running yield of 5.96%. The stock will begin trading on the 28th March, hopefully with a 1% to 2% premium to the issue price of $100. The Macquarie issue has the added attraction of only being 45% franked on the dividend payment. This is an important factor if the Labor party wins the election and scales back the refunds of the franking credits.
For example, normally you would receive a $70 cash dividend with a $30 franking credit attached to it, for a total dividend of $100. If you are a superannuation fund in the accumulation phase your tax rate is 15%. Because the $30 franking credit represents prepaid tax, your fund would be eligible for a $15 refund after paying $15 tax. If your superannuation fund is in the pension phase your fund’s tax rate is zero so you would receive a $30 tax refund.
The proposed franking credit changes means you would no longer receive any refunds. Your accumulation phase super fund would lose $15, and your pension phase super fund would lose $30.
With the Macquarie Hybrid paying dividends only franked to 45% means that Macquarie would pay a $86.50 cash dividend plus a franking credit of $13.50.
Should the franking credit changes occur, your accumulation phase super fund would incur no penalty, saving $15. Your pension phase superannuation fund would lose a $13.50 refund rather than a $30 refund.
In terms of trading opportunities, the December 2020 NABPB was yielding just over 5% last week but an aggressive bid this morning pushed the yield down to 4.17%. This allowed us to take a profit and switch into a higher yielding security at around the 5.5% level.
Remember, tomorrow night at 7pm we are running a webcast on Hybrid securities at 7pm, where we will cover the above points and other material.