Next wave of XTBs (Exchange Traded Bond units) now live on ASX

Richard Murphy

Richard Murphy

Reinforcing its commitment to improving investor access to corporate bonds on ASX, the Australian Corporate Bond Company (ACBC) has expanded the range of XTBs available, with the official release yesterday of a second tranche of six XTBs. This takes the range to 23 with a third and fourth tranche to be released in the coming weeks.

With the first tranche launched in May this year, XTBs offer investors simple ASX-traded fixed income securities. Each XTB provides access to the returns of an individual underlying senior corporate bond, with a low minimum investment amount. XTBs give investors access to an asset class on ASX previously only available in opaque, Over-The-Counter (OTC) wholesale markets.

Yesterday’s release of XTBs includes senior bond coverage of three Qantas bonds, and one each from APA Group, Caltex, and Mirvac. The indicative yields of these new XTBs ranged between 2.83% and 4.98% on 03 Nov 2015.

Greater options for capital stability

CEO and co-founder of ACBC, Richard Murphy, said the broadening of the XTB range should resonate with investors on the hunt for predictable income returns without sacrificing capital stability in a low yield environment.

“XTBs are an easy way for investors to protect their investment portfolio by accessing fixed income diversification. Exposure to the senior corporate bond market provides regular, predictable income as well as capital stability. Corporate bonds and XTBs, typically sit in the defensive part of investor portfolios. They are generally negatively correlated to equities and hybrids”, Mr. Murphy said, “so, as a general rule, corporate bonds or XTBs do not decline in capital value when equity markets fall, whereas shares and hybrids generally do.”

The yields on XTBs generally sit between the yields available on Term Deposits and the income available on hybrids. However, like their underlying senior bonds, XTB capital values are not as volatile as hybrid securities. XTBs and their underlying bonds are fixed income investments more suited to the defensive part of investor portfolios.

“In this second release of XTBs, some of the corporate bonds, such as Qantas, offer a higher yield than the first tranche, which broadens the risk profile of underlying bond issuers on offer and therefore the range of yields XTBs can deliver.”

Mr Murphy added that in addition to higher yields with capital stability, other features of XTBs, such as the transparency and liquidity of ASX and the ease of holdings & administration alongside share portfolios are appealing to investors and SMSFs.

“While it’s still early days for XTBs, we’ve been very encouraged by the positive feedback we’ve been getting from advisers and investors to date. Going forward we remain focused on continuing to educate investors on the benefits of gaining exposure to corporate bonds and rolling out new tranches of XTBs,” Mr Murphy said.

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