The alternatives sector is unique in that it’s largely defined by what it’s not. Accordingly, how you fit alternatives within your existing asset class structure will depend on relativity, and how the investments interact with the other asset classes according to Atchison’s Kev Toohey.
The private markets juggernaut is one that has also thrown up a wealth of data that other players can use to sharpen up due diligence when making their own investment decisions – especially in the growing secondaries market.
Daintree launches global hybrid fund
Daintree Capital, the boutique investment management firm that specialises in building fixed income portfolios, has launched a new global bank hybrid fund at an opportune time. In a world of low interest, finding attractive investments with a decent yield without taking equity-like risk is hard to come by. Especially when global interest rates are likely to stay near current low levels for at least the next couple of years.
This is where Daintree appears to have developed a first of its kind in Australia, a single unit fund distributed by Perennial and eInvest that offers a high and consistent yield compared to cash.
The Daintree Hybrid Opportunities Fund invests in a diversified global portfolio of 25-125 hybrid bank securities, targeting a return of 3.5-4.5% a year above the cash rate, net of fees, with quarterly income distributions.
Brad Dunn, portfolio manager for Daintree says, “Against a backdrop of ultra-low interest rates, we are seeing increased demand from investors for sources of reliable, consistent income. Hybrids offer some of the best yield in the fixed-income market for a near-investment grade credit rating, with lower risk than investing in equities markets.”
Owing to the pandemic and the repayment of some bank hybrids, banks haven’t issued new hybrid notes despite strong demand from investors. The lack of issuance has opened up the opportunity for Daintree to issue a hybrid strategy and fill in the gap.
Dunn says, “Over the past decade, banks have strengthened their balance sheets as a result of tougher capital rules and they have a high average credit rating. We believe banks are also well-positioned to benefit from rebounding economies as the world emerges from the COVID-19 pandemic.”
The Daintree Hybrid Opportunities Fund (ASX: DHOF) will invest in a diversified portfolio of selected Australian and global hybrid securities to provide a steady stream of income. This includes hybrids of global banks including Bank of America, Credit Suisse, Lloyd’s Bank and ING Group.
The fund’s objective will be to target a return of 3.5% – 4.5% a year above the RBA cash rate, after fees, with quarterly distributions. The fund will aim to pay regular quarterly distributions of 0.6%, or 2.4% a year. As at 31 August 2021, the fund has delivered performance of 12.58% a year (after fees) since its inception* on 1 March 2020 and 6.49% (net of fees) over the past 12 months.
The beauty of this fund is that it can be bought and sold on the ASX as a normal ordinary share. The idea is to allow investors to have the choice to either gain exposure via the ASX with the option of having the real-time liquidity that comes with investing on an exchange or via a managed fund.
