Retail investors to diversify through bonds


By Elizabeth Somerville

Email Article Print Article

Exchange-traded bonds (XTB) were set to provide retail investors with a convenient way to diversify their portfolios and access previously difficult-to-reach asset classes, online trading platform and broker CMC Markets said yesterday.

The XTBs, which were due to be launched in the next month, would provide investors with exposure to specific, individual corporate bonds issued on the wholesale market, which would help to facilitate portfolio diversification, CMC Markets chief market strategist Michael McCarthy told financialobserver.

“When you trade an XTB security on the stock exchange you are buying a unit in a trust,” McCarthy said.

“The unit will reflect the performance of the underlying corporate bond, so the unit performs exactly like a bond.”

As they would be traded on the ASX, the XTBs would combine the income and capital stability of corporate bonds with the transparency and liquidity of the ASX market to provide investors with greater flexibility and choice to enter the corporate bond market, he said.

That was in comparison to the wholesale bond market, which traditionally had required institutional investors to buy in bulk to access bonds, he added.

“In the past, corporate issuers have gone to the wholesale market and have excluded the retail market,” he said.

“So they don’t go through the procedures required to offer [these opportunities] to investors.

“XTBs will provide a conduit between the wholesale market and retail investors.”

He said the demand for XTBs had come as a result of the global financial crisis, which made investors realise the need for greater portfolio diversification.

“One of the positives [of the GFC] was the understanding that being wholly invested in a single asset class is a very high-risk approach,” he said.

“Spreading your investment across different asset classes helps to deliver longer-term returns.”

Further, he recommended XTBs be included as part of the fixed income or cash components of investment portfolios.

“Being allocated to cash is a drag on long-term performance so investors can consider moving some into bonds to get higher returns capability and stability,” he said.

« Back to Articles