Five years of Corporate Hybrids: Test passed with flying colours
Once niche investments, Hybrid Corporate Bonds have established themselves over the past five years as core building blocks in the bond universe. The dedicated Swisscanto strategy for this asset class also boasts a track record of now over five years: Daniele Paglia and Stefan Weber take a closer look at the portfolio’s impressive record.
Authors: Daniele Paglia and Stefan Weber, Product Specialist Fixed Income
Three key points on Corporate Hybrids and the track record of the Swisscanto strategy
- The global market for Corporate Hybrids has gained significant depth in recent years. As of mid-2026 it comprises around 380 bonds from approximately 140 issuers with a market value of just under EUR 300 billion.
- There are several reasons to believe that Corporate Hybrids are likely to play a central role in strategic bond allocation in the years ahead.
- The Swisscanto (LU) Bond Fund Committed Corporate Hybrid has reached an important milestone with a track record of more than five years. Over this period, the strategy has increased its volume to EUR 316 million and outperformed its benchmark in every calendar year from 2022 to 2025. It should be noted that historical performance is not an indicator of current or future performance.
A good moment to look back: on 9 August, the Swisscanto (LU) Bond Fund Committed Corporate Hybrid celebrated its fifth anniversary. During this time, fund assets have grown to over EUR 316 million – and this in an asset class that was still considered a niche only a few years ago.
The anniversary also invites us to look ahead, because over the past five years the asset class of hybrid corporate bonds (see box below) has gained both depth and maturity. Today, corporate hybrids have established themselves as a core building block in the global bond universe.
Our focus is on the following three questions: Why are corporate hybrids likely to remain structurally attractive in the future as well? Which trends and drivers will shape investments over the coming years? And how has the Swisscanto strategy fared in a market environment that can justifiably be described as exceptionally challenging?
Corporate Hybrids: The golden mean in capital structure
Corporate Hybrids are subordinated bonds issued by non-financial corporations that are typically rated investment grade. They rank behind senior debt but well ahead of equity. Rating agencies typically classify them as accounting for about 50% of a company’s equity – a key consideration for issuers seeking to strengthen their balance sheet metrics without raising pure equity capital. Corporate Hybrids present the following opportunities and risks:
- For issuers: Hybrids improve financial metrics such as leverage, thereby strengthening the balance sheet, and are significantly more cost-effective in terms of cost of capital than the alternative of “50% senior bonds, 50% equity.”
- For investors: Issuers are typically large investment-grade companies in the utilities, telecommunications, infrastructure, and energy sectors. The hybrid tranche generally offers a significant yield premium over senior bonds issued by the same debtors. The premium primarily compensates for risks related to subordination, structure, extended maturities, and coupon deferrals, as well as higher volatility – but not for weak balance sheets. This can result in an attractive “sweet spot” for investors.
Review: From niche to EUR 300 billion market for corporate hybrids
The global market for corporate hybrids has gained significant depth in recent years. As of mid-2026 it comprised around 380 bonds from approximately 140 issuers with a market value of just under EUR 300 billion (see charts below). Issuers from the utilities, energy, telecommunications, infrastructure and industrial sectors as well as selected real estate names ensure broad diversification across sectors.
On the way there, the decision by the rating agency Moody’s in 2024 to adjust its methodology proved to be an important step in the market’s development: since then, corporate hybrids from the US have been treated – in line with European structures – as 50% equity. This adjustment has made hybrid bonds more attractive for US issuers as well. Since 2025, new issues have also been included in the relevant ICE indices, further increasing regional diversification.
Corporate Hybrids with broader sector coverage (sector breakdown in %)
...and higher volume (market growth in EUR billions, GNEC + HNEC)
Present: Where Corporate Hybrids stand in terms of yield, risk and duration
As things stand today, Corporate Hybrids typically offer a balanced profile when compared with traditional investment grade corporate bonds and high-yield bonds. In many cases, they combine, in our view, an attractive running yield with manageable interest rate sensitivity and solid issuer quality. In addition, investors in the hybrid segment have so far generally been able to benefit from above-average return opportunities without having to take on disproportionately high credit risks. It should be noted here that past performance is no guarantee of future returns.
The combination of comparatively short maturities to the first possible call date, robust corporate ratings and attractive yield spreads can make this asset class particularly appealing in volatile market phases. For investors seeking a balanced relationship between risk and return, Corporate Hybrids thus offer an interesting alternative within the bond spectrum.
Corporate Hybrids with above-average return opportunities (cumulative return from 2011 to 2026 in %, hedged in EUR)
Outlook: Corporate Hybrids as a building block in the new “fixed income regime”
There are now several reasons to believe that Corporate Hybrids are likely to play a central role in strategic bond allocation in the coming years:
- Spreads are trading near historic lows but are supported by solid fundamentals and structural demand.
- Major investment cycles – energy transition, grid expansion, AI infrastructure – are likely to increase the importance of subordinated financing instruments even further.
In such an environment, the key questions move into focus: how can investors obtain an attractive return for the risks they take – and can interest rate risk be kept in check? In our view, Corporate Hybrids offer a compelling answer – thanks to generally solid issuers, attractive running yields and manageable effective duration.
Over its first five years, the Swisscanto (LU) Bond Fund Committed Corporate Hybrid has shown how this combination can be translated into performance through a consistently active approach and a clear focus on quality and structure. This is the impressive result of five years of stress testing:
How the Swisscanto corporate hybrids strategy has performed
The Swisscanto (LU) Bond Fund Committed Corporate Hybrid was launched on 9 August 2021, shortly before the start of one of the most challenging interest rate and credit cycles in recent decades. In this relatively short period, the portfolio has faced an inflation shock, a turnaround in interest rates, geopolitical tensions and the repricing of interest rate and liquidity risks.
Nevertheless – or perhaps precisely because of this – the five-year track record speaks for itself. From August 2021 to the end of July 2026, the fund return (gross, hedged in EUR) was around 2.65% per year, compared with an annual average of 1.77% for the benchmark ICE BofA Global Hybrid Non Financial Corporate Index, constrained 3% per issuer. Cumulatively, this results in an outperformance of just under 4.8 percentage points as of the end of July 2026 (gross, hedged in EUR). Compared with the annual 0.71% in the global corporate bond market, the lead is even more pronounced.
In relative terms, the strategy managed to beat the benchmark in every calendar year from 2022 to 2025 – despite the sharply negative markets in 2022; the average annual outperformance versus the benchmark was 0.88% (gross, hedged in EUR). It should be noted that historical performance is not an indicator of current or future performance.
Our investment approach: quality, structure and active management of corporate hybrids
These results are, in our view, a direct consequence of our investment approach: it is based on active security selection and rotation, with overweight positions in issuers that pursue clearly understandable strategies and have convincing management teams. The fund, meanwhile, avoids names that we regard as problematic, as well as securities with elevated strategy risk or structures that are not investor-friendly. The portfolio management is characterised by the following features:
- Bottom-up analysis: all issuers considered for the portfolio are subject to a fundamental analysis. Our portfolio managers and analysts have access to extensive research material from external providers and regularly meet with the management of most issuers.
- Top-down steering by experts: the portfolio management team manages the credit beta, sector allocation and positioning along the first call curve. Cyclical segments such as REITs or selected auto issuers are currently deliberately underweighted, while energy and infrastructure hybrids as well as securities with higher reset spreads are overweight. Very long effective maturities (to the first call) remain underweighted in view of interest rate volatility.
- Relative value and trading: the fund makes use of opportunities in the primary market with attractive new issue premiums and systematically reallocates between currencies and issuers when the risk/return profile shifts. At the same time, the strategy is currently holding slightly more liquidity than usual in order to be able to take opportunistic advantage of event-driven volatility.
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