Competition among fund managers and exchange traded fund (ETF) providers continues apace as they vie for $40 billion plus that needs to be invested elsewhere as bank hybrid securities are phased out by 2032.

Betashares is among the latest firms to adapt its product range by announcing in April 2026 updates to the former Betashares Hybrids Active ETF – now known as the Betashares Australian Credit Income Active ETF (ASX: HBRD). According to the issuer, a revised investment strategy allows for investment across a broader range of opportunities within the Australian credit market.

The issuer states that “the fund continues to provide exposure across the capital structure, including senior bonds, subordinated debt, and hybrid securities, but will now also include Australian securitised credit and credit hedging instruments in its investment universe,”.

The ETF has also adopted a new investment objective that seeks to deliver returns at least 2% per annum above the Reserve Bank of Australia (RBA) cash rate. This target is not guaranteed, and outcomes will depend on market conditions and portfolio performance.
Over a third of outstanding bank hybrids are expected to be called within two years, with a steady decline in the remaining securities in each of the years leading up to 2032 – creating a push for advisers to begin considering alternative investments now. The abolition of the securities was confirmed by the Australian Prudential Regulation Authority (APRA) in late 2024.

Numerous listed investment products with varying strategies and target returns have been launched to tap the anticipated demand from investors who previously used bank hybrids to generate income. Providers have also ramped up marketing of products that were already on offer.

Fixed income manager Kapstream Capital, a subsidiary of Janus Henderson, in March 2026 listed the Kapstream Investment Trust (ASX: KIT) – which invests in investment-grade global and Australian fixed income securities as well as asset-backed securitisation deals. It was pitched as a direct alternative to bank hybrids and, like similar vehicles launched recently, incorporates liquidity features intended to reduce the risk of trading at a discount to its NAV.

It aims to provide regular distributions (expected monthly) and targets a return of the RBA cash rate plus 3.50% per annum (pre-tax, net of management fees and costs).

In December 2025, VanEck listed its Australian Fixed Rate Subordinated Debt ETF (ASX: FSUB). The portfolio of 44 securities consists of investment grade fixed rate subordinated bonds issued by leading banks and financial institutions, mainly in Australia but also in other regions like the United Kingdom and Europe.

Trading trends

An AUSIEX analysis of trading among advisers who use its platform suggests that while many listed alternatives to bank hybrids have won business, a handful dominate investments by advisers with income-hungry clients.

The analysis shows the dollar value of advised clients’ holdings in bank hybrids fell by 6.6% in the year to March 2031. Meanwhile, the collective holdings in select ETFs suggested as alternatives to bank hybrids increased by more than a third and the number of advised clients holding those vehicles jumped by 21%.

Long-standing vehicles like Betashares Australian Credit Income Active ETF (ASX: HBRD) and the VanEck Australian Subordinated Debt ETF (ASX: SUBD) account for much of the investment in these ETFs by advisers. Betashares’ Australian Bank Senior Floating Rate Bond ETF (ASX: QPON) also appears relatively popular among advisers.

A similar trend is observed in listed private credit vehicles, with the $90.75 million Metrics Master Income Trust (ASX: MXT) accounting for a significant portion of trading of those vehicles by advised clients on the AUSIEX platform.

Beyond the ASX

Cboe offers different options to advisers seeking to replace clients’ exposure to bank hybrids with other income-generating securities. Schroders Australian High Yielding Credit Fund (Cboe: HIGH) for example, is a diversified corporate credit fund that seeks to generate competitive income from Australian corporates and AUD-denominated bonds from global corporates. It aims to outperform the RBA cash rate plus 2.5% to 3% before fees over the medium term.

Meanwhile, the Coolabah Global Floating-Rate High Yield Complex ETF (CBOE: YLDX) aims to generate higher income than other traditional fixed income investments by investing in a floating-rate portfolio of investment-grade bonds and hybrid securities issued predominately by global banks and insurers. It also uses gearing to enhance yields.

The final retail bank hybrid, NAB Capital Notes 8, is scheduled to be called in March 2032. In the meantime, advisers will likely have to continue sifting through marketing material which argues the case for any number of investments that may fill the gap left in portfolios by the abolition of the securities.

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