Investing after hybrid securities are phased out

APRAS phase-out of hybrid securities has left many investors and SMSFs wondering where to turn for reliable, fixed-income alternatives.

For investors seeking low-risk, diversified investments, now is the time to reassess portfolios and explore smarter strategies.

Why are hybrid securities being phased out?

APRA’s decision to phase out hybrid securities stems from concerns over their complexity and reliability during financial downturns. The key reasons include:

• Unpredictable performance in crises: Hybrid securities are designed to absorb losses, but past financial shocks have shown they don’t always work as intended. The regulator was concerns that hybrid holders could be converted into equity in the next crisis. 
• Retail investor risk: Many hybrid investors don’t fully understand the risks, leading to potential unexpected losses.
• Stronger banking system: APRA wants Australian banks to rely on more transparent capital-raising methods where investors were better informed about potential risks.

Some of the more popular hybrids include: AMPPB, ANZPH, ANZPI, AN3PJ, AN3PK, AN3PL, AYUPA, BENPH, BENPI, BOQPF, BOQPG, CBAPG, CBAPI, CBAPJ, CBAPK, CBAPL, CBAPM, CGFPC, CGFPD, CINPA, GC1PA, IAGPE, IAGPF, JDOPA, LFSPA, MBLPC, MBLPD, MQGPD, MQGPE, MQGPF, MQGPG, NABPF, NABPH, NABPI, NABPJ, NABPK, RHCPA, SSLPA, SUNPH, SUNPI, SUNPJ, WBCPH, WBCPJ, WBCPK, WBCPL, WBCPM, WHFPA.

Investors who previously relied on the bank hybrid securities mentioned above for income and growth potential, must find alternative ways to grow and protect their wealth.

What are the best alternatives to hybrid securities?

Investors looking for reliable income sources could consider:

1. Government and corporate bonds

Government and corporate bonds provide predictable income and are generally lower-risk (and therefore lower return) than hybrids. Government bonds are especially secure, while investment-grade corporate bonds offer better yields.

2. Term deposits

With fixed interest rates and capital protection, term deposits are a stable choice, although they may not offer high returns compared to other investments.

3. Dividend-paying ETFs and shares

Some shares and exchange-traded funds (ETFs) provide consistent income through dividends, helping investors generate passive returns, although they are riskier than hybrids due to being equity on the capital structure.

4. Stockspot’s automated investment portfolios:

For those looking for a hands-off approach, Stockspot offers expert-managed portfolios that include a mix of bonds, cash, gold and dividend-paying ETFs. This helps to generate income while also providing some protection with asset allocation. Stockspot has a popular income portfolio for those looking for regular income while also maintaining the potential for capital growth over time. This approach provides diversification, stability, and long-term growth potential, alongside an income yield.

How Stockspot can help investors after the hybrid securities phase out

Stockspot specialises in helping investors gain access to diversified, low-cost portfolios designed to withstand market changes, without the need to pay an expensive financial adviser. If you’re looking for a simple, stress-free way to invest post-hybrid securities, Stockspot provides a powerful alternative. At Stockspot we believe in smart, low-cost investing designed to keep your portfolio resilient to market changes. Here’s why 15,000 Australian individual investors and SMSFs already use Stockspots:

1. Low-risk, diversified investment strategy

Stockspot’s diversified portfolios are built with a mix of defensive assets, including bonds, gold, and dividend ETFs, helping investors reduce risk while maintaining steady returns.

2. No guesswork

Our fully automated investing service optimises automations and robo-advice strategies to systemically ensure investors’ portfolios are rebalanced, without any need for investors to monitor the market constantly.

3. Lower fees than traditional investment products

Unlike hybrid securities and actively managed funds, Stockspot keeps fees low, allowing you to keep more of your returns.

4. Proven long-term performance

Stockspot’s portfolios have outperformed 99% of high-fee actively managed funds over 10 years with lower risk compared to single asset managed funds.¹ Our portfolios have delivered positive returns for 10 out of the past 11 years (as at 31 December 2024).

Should you sell your hybrid securities before 2027?

If you currently hold hybrid securities, here are a few things to consider:

• Will they lose value? Prices may fluctuate as demand decreases before 2027.
• Are there better alternatives? Transitioning to diversified ETFs and bonds may provide more stability.
• How liquid are they? Selling sooner may provide more flexibility before liquidity dries up.
• What are the tax consequences? You might want to speak to your accountant or tax adviser to get advice on the optimal way to dispose of your hybrids.

We’re seeing some investors already make the switch from a portfolio of hybrids to Stockspot’s professionally managed portfolios as a hassle-free alternative.

Getting started with Stockspot

Switching to a more stable investment strategy is easy with Stockspot. Here’s how to get started:

1. Sign up online: It only takes a few minutes to create an account.
2. Answer a few questions: We’ll recommend the best portfolio for your time horizon and risk tolerance.
3. Let us handle the rest: We’ll automatically manage and rebalance your investments.

The phase-out of hybrid securities marks a shift in Australia’s investment landscape, but it also presents an opportunity. Stockspot is here to help you navigate this transition, offering a low-cost, automated investment solution tailored to your financial goals.

Book a complimentary call or portfolio review with one of our investment advisers

1. Performance is after-fees as at 31 January 2025. Returns are after ETFs fees and after Stockspot fees based on the Silver tier. We use the compound time weighted return methodology including the reinvestment of distributions but excluding individual tax. The Stockspot portfolios have been published since July 2013 and open for investment since May 2014. Investing in financial products involves risk. Past performance of financial products is no guarantee of future performance.
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