Advisers make the switch to XTBs

27 February 2017

Providing greater certainty and less volatility than equities or hybrids, and generating better returns than term deposits, advisers and investors are increasingly turning their attention to Exchange Traded Bonds, according to XTBs' CEO and founder, Richard Murphy.

Predictable and consistent income remains a foremost consideration for retiree investors. This is where Exchange Traded Bonds, a corporate bond traded on the ASX, come into their own.

“If you are a retiree [or] if you are a planner trying to plan somebody’s retirement savings and retirement outgoings, you need to know exactly what money you will get,” Murphy said.

“You can get that with TDs (term deposits), [but] you can’t get it with shares, and you can’t get it with managed funds or ETFs, he said. “But owning bonds individually … you can actually plan out exactly what your client needs … [and pick] the bonds to match people’s outgoings, whereas you lose that automatically in any managed fund or any ETF,” he said. 

Each XTB gives investors access to returns from a corporate bond that may be held with BHP, Telstra or Woolworths,.

Typically, these bonds would only be available through the wholesale market, often in $500,000 parcels. XTBs, however, have made them available on the ASX via a single trade.

“48 XTBs is 48 different bonds that are available on the ASX, and they pay the coupons from the bonds; if the bond matures, you get the principal back,” Murphy said. “It’s like owning the bond: if it’s a five-year XTB, that’s a pretty long-dated one – you don’t have to hold it for five years, you could sell it tomorrow, [if] for some reason you needed the money.”

According to Murphy, some XTBs have increased client’s income by 46 per cent when compared against term deposits.

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