Aussie ETF firm BetaShares has launched the BetaShares Australian Bank Senior Floating Rate Bond ETF, the first ETF in Australia to offer exposure to a diversified portfolio of bank floating rate bonds in one trade on the ASX.
QPON aims to provide investors with attractive income paid monthly, along with the diversification benefits and relative capital stability of floating rate notes.
BetaShares writes that Australian bank senior floating rate bonds have historically provided attractive income levels compared to typical cash and deposit products, along with a high level of capital stability and limited capital variability during market declines.
They have also exhibited low correlation to equities, and thus potentially offer defensive investment characteristics. While term deposits require investors to lock up their money for extended periods, QPON offers high levels of liquidity and can be bought and sold on ASX like a share.
QPON invests in a portfolio of some of the largest and most liquid floating rate bonds issued by Australian banks. The Fund invests at least 80 per cent of its assets in floating rate bonds issued by the big four Australian banks, and up to 20 per cent in bonds issued by the large ‘regional’ banks, including Macquarie Bank. These bonds are amongst the highest quality corporate bonds issued in Australia.
Commenting on the launch of QPON, BetaShares Managing Director, Alex Vynokur (pictured), says: “In the current environment of historically low interest rates, we believe the case for investing in floating rate bonds is very compelling. In the US, the Federal Reserve has raised interest rates twice in the past six months in the effort to return monetary policy to a more normal footing. In Australia, the last increase in the cash rate by the Reserve Bank was in November 2010, while the current cash rate is at historic lows.”
“While retail investors have traditionally used fixed-rate bonds for their fixed income allocations, such investments are at a heightened risk of price declines in rising rate environments.” By contrast, institutional investors have long been able to mitigate the risk of rising rates. Australian investors will now have access to an ETF that can be expected to deliver an increased total return, rather than decreased, during rising interest rate periods,” adds Vynokur.
The Index that QPON aims to track is currently yielding 2.87 per cent pa (before fees) – and these income returns have historically tended to be consistently above cash and short-term bank deposits.
“Facilitating greater accessibility and price transparency is one of the hallmarks of the ETF industry. QPON provides access to a valuable investment strategy that has traditionally been difficult for the majority of investors to access directly, due to high minimums in institutional bond markets and administrative burdens,” says Vynokur.