Fixed-interest ETFs supplanting bank hybrids in retail portfolios: AUSIEX

APRA’s decision to draw the curtain on this controversial investment that blends debt and equity might be seven years away, but investors are increasingly looking elsewhere to get this asset fix, with some of the more adventuresome venturing offshore.

It might be seven years before bank hybrids – also known as ‘additional Tier 1 capital’ securities – are completely phased out, but it’s already changing investors’ investment habits.

Chris Hill (pictured), national manager of strategic relationships at the trading platform AUSIEX, says the data highlights that clients are increasing their allocations to fixed-income ETFs.

“The fact that bank hybrids are being phased-out is certainly increasing the attractiveness of fixed interest. They’re using ETFs to get their fixed-interest exposure as well as going directly to the bond market,” he says.

“While they’re predominantly seeking Australians bonds, there’s a minority investing in offshore bond markets. But investing overseas does involve another layer of complexity, so that does limit the appeal.”

Hill notes that self-managed super funds (SMSFs) with more than $3 million are focused on a mix of miners, such as Woodside and BHP, along with banks such as Macquarie and Westpac as well as industrials such as CSL – coupled with a wide range of ETFs.

“The latter included the VanEck S&P/ASX MidCap, the VanEck MSCI International Quality (hedged), Global X Euro STOXX 50, iShares S&P 500 AUD, Vanguard Australian Shares Index and the fixed-income VanEck Australian Subordinated Debt ETFs.”

He surmises that the growing appeal of ETFs, in particular, for SMSFs with assets totalling $3 million plus is partly due to the looming Division 296 legislation that proposes a 15 per cent higher tax on these funds’ earnings above this benchmark.

“While the key reason is to get diversification via a particular ETF rather than having to do the stock-picking themselves, it will also make it easier if they do have to make changes to their portfolios because Division 296 becomes law.

“Right now it’s a bit of a holding game, of a wait-and-see approach as to what will happen with this legislation. But that doesn’t mean they’re not thinking about it and determining what strategies they can implement to minimise the impact of this tax.”

The data also highlights that the investment habits of those who seek financial advice vary from those who go it alone.

In the last months to June 30, 2025, the top buy trades by retail investors (non-advised) were BHP, Fortescue, Woodside Energy, Pilbara Minerals and Appen. The most-sold stocks by this cohort over the first half year included Westpac, Commonwealth Bank, Fortescue and Appen. This saw retail investors’ largest portfolio holdings at June 30 being CBA, Westpac, National Australia Bank, BHP and Wesfarmers.

By contrast, the most-bought stocks by advised investors over the same period were Woodside, followed by BHP, CSL, Macquarie and Westpac. Their most-sold stocks were Commonwealth Bank, Telstra, Woolworths and Fortescue.The top stock holdings of advised investors are Commonwealth Bank, Wesfarmers, BHP, Westpac and National Australia Bank. 

“During the past financial year, individual retail investors tended to buy mining stocks, taking profits in some bank stocks,” says Hill. “In stark contrast, advisers relied on a handful of blue-chips and a broad range of ETFs to build clients’ portfolios in the first half of 2025. The latter included Australian stock indexes, US and European indices as well as fixed-income ETFs.”

He also notes “that the volume of trading by advised investors in the second half of the past financial year is down nine per cent compared to the second half of the 2024 calendar year, as these investors tended to hold stocks and trade less. By contrast, the number of their ETF trades exceeded 30 per cent compared with the first six months of 2024.”