Industry Updates

BetaShares lists Australia's cheapest corporate bond tracker

David Tuckwell

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Today's new ETF listings from around the world.


BetaShares lists Aussie corporate bond ETF

Mirae-backed BetaShares is listing a new ETF that offers exposure to the bonds of Aussie corporates. The BetaShares Australian Investment Grade Corporate Bond ETF (CRED) will invest in AUD denominated investment-grade corporate bonds with a term to maturity between 5 and 10 years.

CRED will achieve its exposure by tracking the Solactive Australian Investment Grade Corporate Bond Select TR Index, which includes up to 35 bonds selected based on option-adjusted spreads. (The index factsheet is available here.)

To qualify in the index, debts must be senior, issued in Australia, have fixed coupons and at least $250 million outstanding.

The index puts a cap on each issuer at 7%.


In BetaShares rapidly growing stable, a plain vanilla corporate bond tracker was one of the only pieces of obvious waterfront yet to be developed. BetaShares is not the first to list a plain vanilla corporate debt tracker. Russell and Vanguard have vanilla corporate bond trackers (RCB, VACF), and VanEck has a high yield one (PLUS). Although BetaShares appears to have undercut them all on price.

Why investment grade corporates? The Australian corporate bond market is relatively small and there is little by way of a junk bond market. Most junk bonds come into being through M&A activity (when smaller companies gear up to buy out competitors), which there is less of Down Under.

Some interesting questions arise from this listing. For me, one was how BetaShares will compete with FIIG Securities and XTB. FIIG Securities runs, essentially, an investment bank. It offers accounts that allow investors to hold corporate bonds directly, rather than through a fund. This allows investors to reclaim their principal, which is particularly attractive for older investors.

For others there's always XTB, a company based in Sydney that allows corporate bonds to trade on exchange. Aussie investors that aren't rich enough to have an account with FIIG can just buy corporate bonds directly through XTB.

There are arguments for preferring an ETF and recycling the principal, although they may need to be spelled out.

Another question might be why Solactive and BetaShares chose to cap each issuer's bonds weights at 7%. One answer might be that it helps gets around the "bums problem": where bond indexes overweight corporate "bums" that binge on debt. Bond indexes, like equity indexes, weight companies by how big their footprint in the market is.

In an equity index this makes sense: the bigger the company - i.e. Apple and Exxon Mobil - the more secure it can be. But extending the same principle to bond indexes means that the most heavily indebted companies end up with the biggest slice of the index, which makes less sense. Hence, perhaps, the 7% cap.

It will be interesting to see how CRED flies. The market is tight and there's not much to distinguish between products. It may come down to distribution and brand name.


Hartford lists actively managed short duration bond ETF

Pennsylvania-based Hartford Funds is listing an actively managed short duration bond ETF. The Hartford Short Duration ETF (HSRT) can invest in the full spectrum of bonds. From the murky -- including junk bonds, mortgage backed CDOs, "Rule 144A" securities and "fixed income related derivatives", the prospectus says. It can also walk on the safe side and invest in government debts and investment grade bonds.

HRST caps the amount of junk it can eat at 35% and caps foreign exposure at 25%.

To lower interest rate risk and manage duration, HRST will use derivatives including treasury futures, options and interest rate swaps. It will maintain a dollar weighted average duration of less than 3 years.


Yuanta lists A Shares tracker

Taiwan's biggest ETF issuer Yuanta is listing a China Tracker. The Yuanta MSCI China A ETF (00739) will track the MSCI China A Shares index.


Invesco renames European ETFs

Invesco is rebranding its Source and PowerShares offerings. Every European ETF that has, to date, appeared under either Source or PowerShares brand name will now be called the "Invesco…. UCITS ETF". We wonder if they'll do something similar in the US, where all the products currently carry the PowerShares brand.

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