XTB, a provider of Australian Stock Exchange-traded corporate bond units, has identified the corporate bond market as a key opportunity for investors to introduce diversification benefits to their portfolios and gain access to significant low-risk yield. It has announced the introduction of a new range of investment products to simplify access to the asset class for retail investors.
Investors have been shifting from bonds to term deposits to satisfy their desire for defensive fixed income as government bond yield dries up, but corporate bonds have recently been shown to deliver a considerable uplift on TD rates, from an average of 2.5 per cent for TDs, to 3.5 per cent for corporate bonds, according to XTB.
Although the percentage increase is objectively small, the relative return on investment can amount to nearly 40 per cent, with similar volatility.
XTB co-founder and chief executive officer Richard Murphy says the new product range will allow Australian investors to develop a “laddered portfolio” of fixed-rate bonds, with the portfolio structured so maturities occur annually.
The laddered approach allows investors to take advantage of future interest rate increases by holding the bonds to maturity and then reinvesting their “rate rise-impervious” capital back into bonds each year as one of the bonds in the portfolio matures.
“Discussions with ASX to launch the new PDS for the expanded range are underway,” Murphy says. “The continued broadening of our product range reinforces XTB’s commitment to driving innovation in the fixed income market.
“The expansion of the range is likely to include XTBs with higher yields. This will broaden the choices of XTBs available to retail investors and advisers that provide more than 40 per cent uplift on current term deposit rates.”
XTB said that although there is growing awareness and interest in corporate bonds, the asset class is still challenging for retail investors and advisers to access.
“Larger [securities] firms are thinking more about fixed income these days. If you look at even the more traditional stockbroking firms such as Shaw and Partners, which has rolled out their asset class diversification approach. It would have been ‘come to us and we’ll buy you equities’ 10 years ago,” Murphy says.
“Now they’re looking at global shares and Fixed Income, which they didn’t offer before but now do.
“Patersons Securities, which is the Western Australian capital raising king for small companies, have also hired a senior person to work on a multi-asset class approach. Everybody is adopting this approach.”
Among the new offerings announced by XTB is a responsible investing separately managed account (SMA), which the company intends to introduce to the Australian market by the end of the year. The product combines the two growing trends of SMA vehicles and responsible investment strategies, which have growing appeal among retail investors.
Ian Martin, XTB’s co-founder and chief investment officer, says that XTB has observed a substantial increase in the demand for ethical investment options over recent years. The upcoming Responsible Investing product aims to deliver what investors are looking for within the increasingly popular SMA structure.