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A hybrid alternative – Bentham enters ETF market

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ETF issuer VanEck has teamed up with Bentham Asset Management to launch its first actively managed exchange traded fund (ETF) of global capital securities. Global capital securities are similar in many ways to the preference shares or hybrids we know and love in Australia, but issued by a more diverse range of companies, sectors and in different geographies.

The ETF is called the VanEck Bentham Global Capital Securities Active ETF (GCAP) and will be traded on the ASX. It will invest primarily in Tier 1 (AT1) securities, contingent convertibles and subordinated debt securities.

Bentham Asset Management is a specialist global fixed income manager (distributed by Fidante Partners in Australia) is the portfolio manager. VanEck says this is the only global capital securities ETF on the ASX and will be fully hedged back to Australian dollars. Capital securities are similar in nature to Australian hybrid securities; that is, they are securities that have both equity-like and debt-like characteristics.

Bentham chief investment officer and managing director Richard Quin said, “With rates near all-time lows, capital securities can provide investors with regular income, while diversifying investors’ portfolios that are often heavily skewed towards Australian financials.”

The fund will aim to deliver investors an after-fee return 3% above the RBA cash rate over the long term. Dividends will be paid monthly. It will give investors exposure to offshore bank and insurance capital markets that are more than 30 times larger than the domestic ASX bank hybrid market.

VanEck’s CEO and MD Arian Neiron, said, “GCAP gives investors access to a wider opportunity set with the ability to generate attractive income via an actively managed and globally diversified capital securities strategy. Global capital securities offer an opportunity for investors to diversify their income away from concentrated Australian exposures, harnessing a sizeable global universe with deeper liquidity.”

Quin concluded by saying, “we have been investing in global credit markets and capital securities for many years and we look forward to offering this stand-alone investment to Australian investors. Global capital securities offer a deeper market compared to locally issued hybrids.”

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