Investment Ideas


Fixed Income

Defend Your Portfolio

Bonds. Often underrated, they can be reliable when needed the most. Now may be time for you to reassess your portfolio and reconsider the important role fixed income can play.

Why Invest in Bonds?

For most investors, the key role of bonds is to reduce overall portfolio risk and increase certainty. Most bonds have a fixed maturity date, repay the principal amount at maturity, and pay regular coupon payments. In addition:

  • Bonds typically move in the opposite direction to equities and thus work well as a portfolio diversifier. This makes the asset class attractive, especially in times of heightened market volatility.
  • Bonds allow for capital preservation and provide a predictable income. Cash also offers capital protection; however, returns may be lower, and in periods of inflation, it could erode in value.

 


Experience

23 Yrs

Track record in managing indexed fixed income strategies


Assets

$430B

Amount in fixed income assets


Offering

100+

Fixed income index strategies


A $100 Trillion Market


The global bond market is $102.8trillion in size1 and offers a wide variety of investment opportunities, from different types of issuers and credit qualities, to a range of maturities.

In Australia, the bond market is split into two main types of bonds:

  • Government bonds. In general, bonds issued by the Commonwealth government/government sponsored entities are regarded as low risk as the probability of default is very small. This is because the government can always use taxes to raise revenue to repay debt. As a result, these bonds are viewed as more secure and liquid, and hence offer lower yields compared to corporate bonds.
  • Corporate bonds. On the other hand, issuers such as banks and corporations cannot raise taxes and therefore their probability of default is higher. But the higher an issuer’s credit risk, the higher the yield the issuer must offer to attract investors.

To build a well-diversified and high-quality portfolio, you need to think beyond a broad fixed income benchmark.

Having exposure to a variety of issuer types and maturities, to include bonds issued by corporations, state governments and foreign institutions, will increase the diversification of your portfolio. However, it will also increase credit risk.

The risk of default can also be mitigated by focusing on investment grade-rated bonds, which tend to be from companies with stronger balance sheets that are able to better withstand economic downturns.


Gain Access to Bonds with SPDR® ETFs


Debt markets have typically been expensive and hard to access for retail investors, requiring a high minimum investment. Fixed income ETFs can offer easy execution at a fraction of the cost of fixed income managed funds. Traded on the ASX like a share and with a transparent investment process, you will know exactly what they hold and can choose ETFs that align closely with your risk/return profile.

ETFs can also offer investors diversification and quality, depending on their underlying index. Index methodologies can screen for high quality issuers, so you don’t have to do it on your own. ETFs also further narrow down the index holdings to a manageable number of holdings to keep costs under control.


Pioneering ETFs


Recognised as an industry pioneer, we created the first US-listed ETF in 1993 and the first Australia-listed ETFs in 2001. Since then, we have developed a range of ETFs that provide Australian investors with the flexibility to select investments that are aligned to their investment strategy.

Each new member of the SPDR ETF family reflects our intimate knowledge of the ETF market and over 40 years of indexing experience.

As with our first ETF, all out ETFs are physically backed to closely replicate the performance of each index.


Insights


SPDR Bond Compass - Quarterly Report

 

ETFs: a low cost, Simple, and Tax Efficient Investment for SMSFs

Typically structured like managed funds, but listed and traded on an exchange like stocks, ETFs are flexible trading and investment vehicles that can be used to help the Self-Managed Superannuation Fund investor satisfy several critical investment needs.

1 Source: BIS as of Q4 2018; http://stats.bis.org/statx/srs/table/c1