Until now, access to the over-the-counter bond market has been largely the domain of large super-funds and high net worth individuals due to high entry costs and retail ownership limitations.
About ETBs
We have a vision to empower Australian investors to access markets that offer better returns with lower volatility than traditional listed investments
The current experience of retail investors
Limited
Uncertain
Smaller investors were left with a choice of lower risk and lower return options like term deposits or higher risk and uncertain returns in the stock market.
No middle-ground
Investors have traditionally had access to investments at the extremes of the risk/return spectrum without access to investments to balance the scales.
Predictable
ETBs cover this middle ground by providing an easily accessible, affordable and tradable investment which provides everyday investors economic exposure to the interest returns and capital preservation of high-quality corporate bonds.
What are ETBs?
ETBs are essentially a listed corporate bond-backed investment which gives investors exposure to interest payments (subject to fees) and capital preservation of a single corresponding corporate bond.
ETBs offer returns that track the overall returns of an underlying over-the-counter corporate bond. Over-the-counter bond markets are generally harder to access for retail clients but with ETBs we are opening this market to everyday investors.
A variety of ETBs will be made available to investors through the Cboe Securities Exchange, meaning investors will be able to construct their own portfolios from available ETBs, based on the underlying bond exposures they want.
Everyday Aussies can make an investment in ETBs via their stockbrokers, share trading apps or investing platforms by using the “ticker code” of each ETB on offer.
| Asset Type | Indicative Rate of Return |
|---|---|
| Bank Deposits | 3.00 - 4.00%* |
| Term Deposits | 4.25 - 4.75%* |
| Government Bonds | 4.00 - 4.50%* |
| Corporate Bonds | 5.75 - 8.5%* |
*rates are indicative at the time of writing and take into consideration market conditions at the time of writing
The World of Fixed Income
The RBA estimates Australian bond markets are worth $1.9 Trillion. In fact, globally, the value of bond markets has been estimated to be more than double the size of equity or share markets (cite).
Most Australian bonds are traded in over-the-counter bond markets which are generally harder to access for retail clients, with high minimum entry requirements. Some Australian corporate bonds are limited to direct wholesale investment meaning that retail investors have been largely confined to a choice between lower risk and lower return bank deposits or higher risk share investments with no guarantee of their capital being returned (an investment in notes or corporate bonds should not be compared to a bank deposit. Notes and corporate bonds have a greater risk of loss of some or all of an investor’s capital when compared to bank deposits.)
Are there different types of Bonds?
There are several types of corporate bonds that a company can issue, each with its own features and characteristics. Here are some of the most common types of corporate bonds:
Fixed Rate Coupon Bonds
Fixed rate coupon bonds, also known as fixed rate bonds, are a type of debt security that pays a fixed interest rate to bondholders for the life of the bond. The interest rate (aka coupon rate) is set at the time of issue and does not change throughout the life of the bond, regardless of any changes in market interest rates. This means that bondholders will receive a predictable stream of income from the bond, making it a popular choice for investors who value stability and certainty. As the coupon return does not change, the traded price of this type of bond may fluctuate during its life. When the bond reaches maturity, the principal amount is returned to the bondholder, and the bond is no longer in effect. Investors will receive the face value principal back at maturity, paid by the issuer.
Floating Rate Coupon Bonds
Floating rate coupon bonds, also known as variable rate bonds, are a type of debt security where the interest rate is not fixed but rather fluctuates with market interest rates. The interest rate of a floating rate coupon bond is typically tied to a benchmark rate, such as the Bank Bill Swap Rate (BBSW), and resets quarterly to reflect changes in the benchmark rate. As a result, the interest payments to bondholders vary over the life of the bond. These bonds are popular among investors who wish to benefit in a rising interest rate environment, and as such provide a level of protection in higher inflationary periods.
Callable Bonds
These bonds will have both a final legal maturity (“maturity date”) and an earlier date at which the bond may be called or redeemed by the issuer (“call date”). Total returns or yields may be quoted to bondholders for yield to call or yield to worst, representing the lowest return a bondholder could expect, taking into consideration the call date.
Frequently Asked Questions
What is a corporate bond?
A corporate bond is a debt security issued by a company (the “issuer”) to raise capital for several purposes. Companies may issue corporate bonds for expansion, to fund new projects, to pay off existing debts, or to provide regulatory capital. The buyer of a bond (or bondholder) is a lender to the bond issuer in exchange for the payment of a specific rate of interest in periodic payments over a defined period. At the end of the bond’s term (maturity), the bond issuer is obligated to repay the bondholder the principal amount of the bond and any residual interest owing. Corporate bonds are usually issued with a higher rate of interest than government bonds because they are higher risk investments, typically offering investors 2.0-4.0% higher returns than Government bonds. Corporate bonds are mostly traded over-the-counter (“OTC”) and not typically available through securities exchanges. Prices for corporate bonds can fluctuate based on various factors including changes in interest rates, the financial health of the issuer, and general market conditions which could herald movements in the official Reserve bank cash rate.
What are the names of the companies available through ETBs?
Investments in ETBs will enable investors to gain exposure to a variety of companies including but not limited to LendLease, Qantas, GPT Finance, Aurizon and Liberty. Investors will also gain exposures across a diversified array of industries including but not limited to rail and logistics, finance, non-bank lending, aviation and property development.
We will initially list five ETBs, which will be backed by the following companies. These companies are all listed on the ASX.
Liberty Financial: https://www.liberty.com.au/
Lend Lease: https://www.lendlease.com/au/
Qantas: https://www.qantas.com.au
Aurizon: https://www.aurizon.com
What can I earn from an investment in ETBs?
An investor in ETBs will earn distributions based on the interest payment made by a bond issuer minus fees and costs. The interest payments made by a bond issuer are referred to as “coupons” and the rate of the coupon for each underlying bond is outlined in the relevant Product Disclosure Statement. If an investor holds their investment in ETBs until the maturity date of the corresponding underlying bond, the investor will usually receive the capital value or face value of the bond (usually $100 per unit), minus fees and costs. This capital value or face value is not earned if an investor sells or redeems their investment in ETBs prior to the maturity of the corresponding underlying bond.
How are ETBs different to shares?
An investor in the shares of a company is a part-owner in that company, the value of their capital invested will fluctuate in value. Am investor with economic exposure to a company’s debt (bond) will receive periodic interest and return of initial capital investment on the bond’s maturity date (minus fees and costs). A share investor is looking for a return on their capital, a bond investor is looking for a return of their capital.
How do ETBs differ from bond funds?
ETBs offer investors economic exposure to a single corresponding corporate bond which is different to traditional bond funds, which give investors economic exposure to a pool of various bond assets chosen by the investment manager. Each ETB we offer is backed by an investment grade , ASX listed company, including some household names.
What are the risks of ETBs and how can I buy and sell them?
A listed ETB will be subject to the same risks as the underlying corporate bond. These risks include:
- Credit and information risk – Investors in ETBs are exposed to the creditworthiness of the issuer of the underlying bond. The underlying bonds are issued with documentation suitable for wholesale clients, therefore ETB investors will not receive retail disclosure documents in respect of the underlying bonds.
- Liquidity and suspension risk – With all listed securities, there is the risk that there may arise limited liquidity in the ETBs from time to time. An ETB investors is also subject to the risk that the Underlying Bond issuer has a change in control event where the resulting controlling entity and therefore the Underlying Bond no longer meet the approval requirements of Cboe and/or ASIC.
- Concentration risk – Investment in a single ETB will not create investment diversification on its own. Investors in ETBs who want investment diversifications can buy various ETBs.
- Market risk – The performance of ETBs as with the underlying bonds, may fluctuate in value due to factors such as market interest rates and macroeconomic factors such as inflation.
Refer to the relevant ETB Product Disclosure Statement and Target Market Determination for full details about risks.
Where are the Target Market Determinations (TMDs) for the ETBs?
You can find a copy of the Product Disclosure Statements here
Where are the Product Disclosure Statement (PDS) for the ETBs?
You can find a copy of the Target Market Determinations here
Free Download
Want to find out more?
Download a copy of our investor brochure for all the details on how ETBs work and how you can start investing today.
