ACBC expands XTB suite for investors

25-May-2016

By Daniel Paperny

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A year after the first tranche of exchange-traded bonds (XTB) was launched in the Australian market, Australian Corporate Bond Company (ACBC) has expanded its range with the addition of six fixed-rate XTBs.

The latest instalment is the fifth release of XTBs by ACBC, bringing the XTB suite to 39 securities covering fixed and floating-rate bonds.

The suite of XTBs will include a senior bond from each of AGL Energy, Alumina, Ausnet Services and BHP Billiton, as well as two senior bonds from Downer EDI.

ACBC co-founder Richard Murphy told financialobserver the appetite for fixed income was growing, with XTBs becoming an increasingly attractive option for investors.

“Investors in this post-GFC (global financial crisis) environment have been hit with wave after wave of shock. However, there’s also a genuine appetite for yield in the face of volatility [and] that’s what corporate bonds and government bonds are an opportunity for,” Murphy said.

While volatile market conditions continued to be a concern for advisers and investors, he said there needed to be greater education on what bonds were and their benefits to investors, particularly as corporate bonds in Australia were still in their infancy.

“We started with just 17 XTBs and we did another 16 XTBs six months later. We said that if this is going to be successful, there needs to be a wide range of XTBs available to investors; it can’t be just a handful,” he said.

“It’s really about the range and the industry coverage – the classes we covered – all adding towards the investors’ need for diversification.”

He added he expected demand for XTBs would continue to evolve as many advisers and investors had benefited from having direct access to senior corporate bonds since the launch of XTBs in May last year.

“We think the corporate bond market will grow – I reckon we will get to 50 XTBs by the end of this year and we will continue growing that out as a range,” he said.

“Technological transparency is really what will open up the market for corporate bonds in Australia and our being on the ASX is crucial to that.”

In a recent blogpost, he expanded on the group’s reasoning behind opening up the corporate bond market to retail investors.

“Australia has had an historic reliance on equities. Diversification meant ‘more-safe-equities’ versus ‘less-safe-equities’, so fixed income didn’t feature enough,” he said.

“We developed XTBs as a solution to a big problem – you can’t access most corporate bonds on the ASX. Corporate bonds are important because they’re defensive assets that balance growth assets and you get a better return than term deposits without the volatility of equities and hybrids.”

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