Investors looking to diversify their portfolios beyond their traditional U.S. equity and fixed-income securities holdings may wish to consider Australian bond exchange-traded funds (ETFs), to efficiently gain exposure to fixed-income securities of governments, government agencies, and the corporate debt of companies in Australia. The following high-yielding Australian bond ETFs warrant a closer look.
- Investors who seek to add fixed-income exposure to their portfolios should contemplate Australian bond exchange-traded funds (ETFs).
- Two of today's marquis funds are the SPDR S&P/ASX Australian Bond ETF (BOND.AX), offered by State Street Global Advisors, and the iShares Core Composite Bond ETF (IAF), offered by BlackRock Inc.
- Australian corporate bond ETFs have been on the climb in recent years, representing 17% of the overall Australian ETF market.
The SPDR S&P/ASX Australian Bond Fund
The SPDR S&P/ASX Australian Bond ETF (BOND.AX) was issued by State Street Global Advisors on July 26, 2012. The fund charges an annual net expense ratio of 0.00% and is managed by State Street Global Advisors Australia Limited. The fund aims to provide returns corresponding to those of the S&P/ASX Australian Fixed Interest Index, which is the fund's benchmark index.
The fund boasts the following sector breakdown, in its exposure profile:
- Commonwealth government bonds (54.70%)
- Semi-government bonds (27.07%)
- Supranational bonds (5.08%)
- Government-related bonds: (5.02%)
- Corporate-finance bonds (4.74%)
- Corporate industry bonds (2.44%)
- Other (0.58%)
- Corporate utility bonds (0.37%)
As of November 10, 2019, the fund's YTD total return was 8.4%. The average maturity of its underlying investments is 6.96 years, and it currently has AU$47.7 million in assets under management.
The iShares Core Composite Bond ETF
The iShares Core Composite Bond ETF (IAF) was issued by BlackRock Inc. (BLK) on March 12, 2012. The fund seeks to track the performance of the Bloomberg AusBond Composite Index, which is the fund's underlying index.
To achieve its investment objective, this ETF primarily holds investment grade fixed-income securities issued by the Australian government, and by corporations domiciled in Australia. Investing in the fund requires an annual management fee of 0.2%.
As of November 11, 2019, the fund had 521 holdings and total net assets of AU$1.0 billion. The fund's YTD total return was 8.08%. The average maturity of its underlying investments is 7-to-10 years, with 24.88% of the fund committed to such investments. This is closely followed by bonds with a 7-10 year duration (17.72%), bonds with a 10-15 year duration (10.51%), and bonds with a 2-3 year duration (10.18%).
This ETF currently has AU$47.7 million in asset under management.
General Australian Bond ETF Growth
As a broad asset class, Australian corporate bond ETFs have experienced an undeniable surge over the past five years. During that time, these investments spiked 54% annually, on average, to reach total assets of approximately AU$9.3 billion, representing about 17% of the overall Australian ETF market. Many analysts expect this uptrend to continue, despite the interest rate risk that can harm profits in a rising rate environment, because this is usually a temporary situation.
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