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Hybrid Bank Shares - Pros/Cons?

Discussion in 'Other Asset Classes' started by LoanSharkJR, 8th Aug, 2016.

  1. LoanSharkJR

    LoanSharkJR Active Member

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    Wonthaggi
    Just wanting opinions on what my dad should do, his financial advisor mentioned hybrid bank shares as a "Less risky"investment option for his super (which he wants to keep as safe as possible, not much left).
    We get the feeling The financial advisor is trying to hold onto my dads super for as long as he can as he gets a commission for the admin/annual fees that the fund pays. This is in comparison to a term deposit or high interest savings account.

    I has a quick look on ASIC website, these hybrids are very confusing, I hardly can understand how they can be less risky than share market, they seem more risky to me, but, as I said, I am finding it hard to understand them.

    Any thoughts?
     
  2. ErYan

    ErYan Well-Known Member

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    I believe hybrids are preferred over normal shares. To lose your money the company needs to go belly up. Normal shares can go down whereas the return on the hybrid is fixed and near enough to guaranteed.

    Basically there is a protected downside and a decent upside especially compared to fixed interest. I was told the old type hybrids are the best.

    Not advice and I have yet to use hybrids.
     
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Commissions were bannned about 5 years ago now.
     
  4. Scott No Mates

    Scott No Mates Well-Known Member

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    Geez. Why do peeps have such an aversion to paying for advice?
     
  5. OscarBravo

    OscarBravo Well-Known Member

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    In my opinion, the best way to think of hybrids is like preferred equity. Being preferred they sit higher on the capital structure than normal equity and are therefore by definition "less risky"; that is to say, in the event that something terrible happens to the company, the equity holders are wiped out before the hybrid holders.

    Hybrid instruments definitely do have downside risk though - if you are looking for an asset class that is "as safe as possible" then hybrids probably aren't it. Unfortunately I think ErYan has it wrong - hybrids have 100% downside but hold to maturity investors will only ever receive a fixed yield.

    Safe to say that a number of financial planners aren't as informed about hybrids as they should be, in my opinion. Obviously you should take this with a grain of salt given I'm not licensed to give financial advice. Traditional safe assets are cash/term deposits.