Exchange-traded bonds (XTB) have now given retail investors an avenue to access the corporate bond market following their launch on the Australian Securities Exchange (ASX) recently.
The Australian Corporate Bond Company (ACBC) unveiled an initial series of 17 XTBs that would deliver exposure to individual corporate bonds issued by the top 50 companies, ACBC chief executive and co-founder Richard Murphy said at a media briefing in Sydney.
“What we’re essentially doing is taking the otherwise wholesale corporate bond market and packaging it up in individual securities to give investors access to those underlying corporate bonds,” Murphy said.
“That’s what XTBs are: they’re exchange-traded bond units, giving the investor direct exposure to individual corporate bonds.”
Available XTBs included senior bonds for BHP, Mirvac, Stockland and Woolworths among others, and ACBC planned more in due course, he said.
“It’s not a leveraged product, there’s no gearing – it really is extremely transparent,” he said.
“They’re ASX-quoted, the price is transparent, and as they’re distributed by that network, they’re on the grid straightaway from the moment they’re quoted on the ASX.”
XTBs also had the capability to deliver higher returns compared to government bonds, he said.
“We generated an index of our 17 XTBs and then, on an after-fee basis, that index outperformed the relevant government bond curve by 88 points based on the data we saw,” he said.
ACBC expected to see high demand as investors and advisers used XTBs to make up the fixed income component of portfolios, he said.
“We see a very, very large pool of demand,” he said.
“There’s $700 billion sitting in fixed income with an ever-decreasing return and with a limited pool of alternative investments to invest into.
“We are putting something on the exchange which suddenly opens up to investors this asset class which has superior returns.”