VanEck has launched the VanEck Vectors Australian Subordinated Debt ETF (SUBD), making it their 20th ETF on the Australian Securities Exchange (ASX).
The SUBD ETF gave investors access to the Tier 2 Capital asset market, which was expected to exceed $50 billion over the next four years due to the Big Four banks implementation of Australian Prudential Regulation Authority (APRA) regulations that required them to double their Tier 2 Capital.
VanEck said it was the only ETF that would only invest in investment grade subordinated debt, tracking the iBoxx AUD investment grade subordinated debt index.
SUBD offered the potential for higher returns than cash, term deposits and traditional bonds, although there was a relative increase in risk with the main issuers of those bonds being Australia’s Big Four banks.
Arian Neiron, VanEck managing director and head of Asia Pacific, said with low interest rates, three rate cuts and another expected, investors are being starved of risk-free income from sources like government bonds and deposits.
“Australian investors are therefore going up the risk curve to higher yielding assets, such as subordinated bonds,” Neiron said.
“As at 30 September the SUBD Index is yielding 2.4%, which is much higher than the average interest rate of 1.3% on 12-month bank term deposits available in September."