Australia's fourth largest exchange traded product manager has listed a new ETF that will invest in up to 35 fixed-rate corporate bonds.
BetaShares has launched CRED, an ETF that will invest in investment grade securities denominated in Aussie dollars with at least $250 million outstanding and a term to maturity of between 5.25 and 10.25 years.
It hopes CRED will hit a yield-to-maturity of about 4% p.a. as compared to benchmark Australian Composite Bond Index's 2.6% p.a. and six-month term deposits' 2% p.a. , as at May end.
The ETP provider has chosen an index from a German provider for CRED, the Solactive Australian Investment Grade Corporate Bond Select TR Index.
"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," BetaShares chief executive Alex Vynokur said.
"CRED, on the other hand, invests in a portfolio of investment grade corporate bonds based on the income returns that those bonds are generating."
At each date of rebalancing, no bond can have more than 7% allocation. The bonds' negative correlation to equities and monthly distributions make them a good option for investors' to diversify their portfolios, the manager said.
CRED's top holdings currently include ANZ; Macquarie Group; Lloyds Banking Group; Vodafone Group; Telstra; Caltex Australia; Fonterra Cooperative; Emirates NBD; and Auckland and Brisbane airports.
BetaShares will charge 0.25% p.a. in management costs, which makes CRED the lowest-cost Australian fixed-rate corporate bond ETF currently listed on the ASX, the ETP manager said.
In the first four months of 2018, more than $360 million has flowed in fixed income ETF products, according to BetaShares. CRED currently has net assets of about $4 million.