It was only back in February that we last looked at exchange-traded fund (ETF) provider BetaShares newest addition to the ASX. That was the BetaShares Cloud Computing ETF (ASX: CLDD), which launched in late February.
But today, we have news that BetaShares, evidently not one to rest on its laurels, is back at it. Today marks the first day of trading for the new BetaShares Australian Major Bank Hybrids Index ETF (ASX: BHYB). This new fund began trading this morning after opening at $10.02 per unit. At the time of writing, it hasn't changed much, still priced at $10.02.
So if you're a little confused over this ETF's name, I wouldn't blame you. Lots of jargon there. So the first thing to note is that this ETF doesn't actually hold bank shares, like the Vaneck Vectors Australian Banks ETF (ASX: MVB) does. Or technically any ASX shares, for that matter. No, this new ETF will only hold what's called 'hybrid securities' issued by ASX banks.
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A hybrids ETF?
A hybrid is a type of security that combines elements of both a share and a bond (hence the name). The instrument is a bond (or a loan) but can be converted into equity (shares). As such, hybrids can offer interest income to investors, as well as possible dividend income and franking credits. All of the ASX banks routinely issue hybrid securities as part of their regular business. These hybrids trade on markets just like ASX shares do. And that is what this BetaShares ETF will invest in. Specifically those from Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd. (ASX: NAB) and Australia and New Zealand Banking GrpLtd (ASX: ANZ).
So BetaShares tells us the following additional information on hybrids:
ASX-listed hybrid securities offer the potential for attractive franked income returns for typically only moderate levels of return volatility. Historically, hybrids have exhibited relatively low correlation to equities. So can provide a useful source of portfolio diversification, and lower volatility during sharemarket declines when compared to ordinary shares… Hybrids can be expected to produce risk and return characteristics above those of traditional fixed income securities like bonds, but below those of ordinary shares.
The fund provider also states that the running annual yield of the index that this new ETF will track was 3.5% as of 31 March. That compares to the average of 4.1% per annum (5.8% grossed-up with franking credits) that the index returned annually between February 2012 and March 2021.
This new BetaShares Australian Major Bank Hybrids Index ETF will pay income distributions monthly. It also charges a management fee of 0.35% per annum.
