Aussie ETF provider BetaShares has launched the BetaShares Australian Investment Grade Corporate Bond ETF (ASX: CRED), based on the AUD1 trillion Australian corporate bond market.
The firm writes that CRED is designed to provide investors with exposure to a portfolio of investment grade, fixed-rate Australian corporate bonds, which, the firm says, at the time of writing, is offering investors the highest income levels available from all Australian Corporate Bond ETFs trading on the ASX.
Annual fees of 0.25 per cent make CRED the lowest-cost Australian fixed-rate corporate bond ETF currently available on the ASX, the firm says.
The launch of CRED responds to continued investor demand for fixed income ETFs, according to BetaShares, a category which has received over AUD360 million of inflows in the first four months of 2018.
BetaShares CEO, Alex Vynokur (pictured), says: “The majority of fixed income indices tend to adopt a market capitalisation approach. While it is well understood and accepted in equities, in the case of fixed income it means that companies are rewarded by receiving the highest allocation of investor capital simply by issuing more debt. CRED, on the other hand, invests in a portfolio of investment grade corporate bonds based on the income returns that those bonds are generating.”
Due to its underlying investment strategy, CRED is designed to provide income, paid monthly, which is expected to exceed the income paid on cash, term deposits, government and composite bond exposures.
In addition, CRED’s index has historically exhibited outperformance against benchmark fixed-rate bond indices tracked by other Australian fixed income ETFs.
At as 31 May 2018, the portfolio of bonds in the Index tracked by CRED would have provided a yield-to-maturity of around 4.0 per cent annually, versus a yield-to-maturity of 2.6 per cent annually from the benchmark Australian Composite Bond Index and the current RBA cash rate of 1.5 per cent p.a.
BetaShares writes that there has also historically been a negative correlation between Australian Corporate Bonds and Australian equities, providing investors in CRED with opportunity for an added portfolio diversification benefit.
“We believe Australian Corporate Bonds have an important place in investors’ portfolios. CRED provides this access in a simple, cost-effective way, with the additional liquidity benefit of an exchange traded fund”, says Vynokur.
