Income Strategy

Although hybrid securities can be considered complex financial products, an understanding of their characteristics can help investors accept and manage risks associated with them. The main feature of hybrid securities is that they pay a regular dividend at a predetermined rate (usually an amount above the Australian Bank Bill Swap Rate) that makes the dividend income more predictable than for an ordinary share. Hybrid securities also have a par value which is the amount that in investor would receive back if the issuing company decided to redeem them. This redemption date is specified in the issuing prospectus and in some cases, it can be indefinite (for a perpetual hybrid).

Rivkin selects the top seven hybrid securities based on their yield to maturity and includes them in the Income portfolio. Some additional criteria (such as liquidity and an aversion to holding more than one hybrid per issuer) can also come into the ranking process.

How To Follow This Strategy

Rivkin’s strategies are designed to be as easy as possible for investors to follow. To follow the ASX Income strategy, investors need to buy the securities in the above table in equal weights. Weights can drift over time as prices move, but we only recommend re-balancing security weights if they stray too far from the target weight (14.3% per security). The volumes shown in this table are based on a $5,000 investment per hybrid which produces a $35,000 portfolio.

Now and then, the list of stocks will be updated in what we call a ‘re-balance’. This means investors will need to look at the new list and sell any stocks that are no longer on the list. After these stocks are sold, the new stocks from the current table can be bought.

About The Strategy

The ASX Income strategy was developed by Rivkin during 2015 and was rolled out as a strategy to clients in 2017. Please click here to find out more about the strategy.

Important notice:

Quantities and calculations in this post use the Rivkin Model and might differ from yours. This post does not constitute an invitation to buy or sell any securities. Before conducting any transaction, make sure you fully understand the terms of the product and the relevant risk factors involved. You can seek professional advice to determine the appropriateness and cost of any transaction from the broker you use.