There are limited options for individual investors to invest in bonds directly. XTBs bonds are exchange traded bonds which allow retail investors direct exposure to some fixed income options on the ASX. However the list of bonds and liquidity is quite limited (or even non existent).
Alternatively, some investors uses Real Estate Investment Trust or dividend exchange traded funds as proxy for the fixed income portion of the portfolio. Returns of bonds are result of investors taking credit risk while the dividend yield of VHY ETF and REIT index funds are derived from equity income of the companies in the ETF.
The best option for investors looking for fixed income exposure is through Fixed Income ETFs or Bond ETFs. Theses funds allow self managed super funds or individuals direct exposure to a low cost liquid portfolio of bonds with typical fees for the funds are less than 0.40% a year.
Not all fixed income exchange traded funds are created the same. Each has a mandate to invest in specific type of bonds:
1. Government Bond ETF – These funds invest in only Australian government bonds only (ASX GOVT, ASX RGB, ASX VGB). The different exchange traded fund owns bonds in particular section term structure of the interest rate curve. Within these funds there are also government fixed income funds that focus only on inflation linked government bond (ASX ILB)
2. Corporate Fixed Income ETF – Listed fixed income funds invest in corporate bonds (ASX RCB). Corporate bonds are simply borrowings made by companies. The returns for corporate bonds are slightly higher than government bonds due to greater risk. They are still considered much more safer than equities or even hybrid securities.
3. Semi Government – Semi government entities are companies that has implicit backing by government. Semi government bonds typically issued by infrastructure or utility companies that are owned by the government (RSM).
4. Diversified Bond ETF portfolio includes bonds across all sub sectors of the fixed income asset class.
ASX Government Bond ETF List
The list below highlight all the major fixed income ETF listed on ASX. Due to the limited corporate bond market in Australia hence limited products. Most of these listed funds invests predominately in government bonds.
|Russell Australian Select Corp Bd ETF||RCB|
|SPDR S&P/ASX Australian Govt Bd ETF||GOVT|
|Russell Australian Government Bond ETF||RGB|
|Vanguard Australian Government Bond ETF||VGB|
|SPDR S&P/ASX Australian Bond ETF||BOND|
|iShares Composite Bond||IAF|
|Vanguard Australian Fixed Interest ETF||VAF|
|iShares Government Inflation||ILB|
|Russell Australian Semi-Govt Bd ETF||RSM|