ETF investors to capture corporate credit benefits
Vanguard | 24 May 2016
Fund manager Vanguard Australia today launched a new exchange-traded fund (ETF) that offers investors a broadly diversified collection of quality corporate bonds.
The Vanguard Australian Corporate Fixed Interest Index ETF (ASX: VACF) offers access to around 260 investment-grade, Australian-issued bonds from corporations like Australia's four largest banks, overseas banks, other lending institutions and property trusts, for an annual management fee of 0.26 per cent.
The fund's top holdings includes bonds from Commonwealth Bank of Australia, National Australia Bank, Australia and New Zealand Banking Group, Goldman Sachs, Norway's Kommunalbanken, GE Capital Australia Funding and Apple.
As VACF is an additional unit class of an existing managed fund, the Vanguard Australian Corporate Fixed Interest Index Fund, investors in the ETF are investing in a fund with established scale.
Vanguard Australia Head of Fixed Income, Stephen Howard, said VACF represented an important evolution in the ETF market by providing more options for investors to tailor their defensive asset allocations in a low-cost and diversified manner.
"Last year we saw international fixed income enter the Australian ETF space, and that will prove to be an important element in many portfolios as investors' appreciation of that asset class grows. Now that all the major asset classes are covered by ETFs in Australia, providing investors with options for more nuanced use of fixed income was a logical next step," Mr Howard said.
"Until now, there has been a lack of fully diversified corporate credit ETFs on the market, and investors have largely had to look to the managed fund space to serve that requirement in their portfolios. VACF can help to fine tune fixed income exposure, offering an option with normally higher yield than government-issued bonds, which typically make up a high proportion of holdings within diversified fixed income ETFs.
"For investors concerned about interest rate risk, corporate bonds can also be a welcome addition to their portfolios. Because of their shorter maturity dates, corporate bonds tend to suffer less from the devaluations that come when interest rates rise, which impact the value of fixed interest assets.
"Yield has become a major concern for investors as we've moved into a lower return environment, which we expect will be with us for a while. Corporate bonds have the dual benefits of offering the potential for higher risk/return than government-issued bonds, while also providing greater defensiveness when compared to securities in other asset classes from investment-grade corporate issuers.
"This new ETF is the latest in a growing field of products that has helped make diversified fixed income portfolios more accessible to a broader set of investors in a cost effective manner. Although fixed income can benefit any portfolio, we particularly see ETFs as offering greater opportunities for investors who put a high priority on income, like those in or nearing the pension phase of their self-managed super fund."
VACF is now available to trade on the ASX. For more information on the fund, please visit www.vanguard.com.au/VACF