Hybrids Aim to Bridge the Yield Gap in Balanced Portfolios

Allianz Global Investors’ February 2026 analysis by François Fabreges evaluates whether hybrid securities can enhance traditional 50/50 equity-bond allocations in a low-spread, high-valuation environment.

• With yields around 5–6% and average BBB ratings, hybrids sit between investment grade and high yield, offering improved income without materially compromising credit quality.

• Portfolio optimisation suggests moderate allocations can lift excess returns and Sharpe ratios with only modest increases in volatility.

• Correlations to equities remain meaningfully lower than high yield, though drawdowns can deepen in crises, underscoring the need for active duration and call-risk management.

Can hybrids structurally improve portfolio efficiency, or do they simply repackage risk? The full paper explores the trade-offs in detail.