The ASX is home to what seems like an ever-growing pile of exchange-traded funds (ETFs). From the rise of the humble index fund two decades ago, the ASX ETF sector has blossomed over the past few years. You can now find an ASX ETF that covers just about every sector or theme you can think of. Well, this trend is set to continue with the launch of a new ETF from BetaShares. Today, the ASX welcomes the BetaShares Australian Composite Bond ETF (ASX: OZBD).
This new ETF is hardly the first fund on the ASX that covers fixed-interest investments. It's not even the first BetaShares fund that does so. But it is BetaShares' first ETF that tracks both government and corporate bonds, hence the 'composite'. The provider tells us that OZBD is "designed to be a core portfolio allocation for fixed income". It will hold both government bonds as well as "high-quality Australian corporate" bonds.
Bonds are also known as 'fixed-interest investments' and are a popular alternative to shares. Bonds can provide a steadier stream of income than shares and are often added to an investment portfolio to improve stability and reduce volatility (although that is never guaranteed, of course).
BetaShares launches new bond ETF. What's the deal?
So what makes the BetaShares Australian Composite Bond ETF different? This ETF reportedly takes a different approach to bond selection. It weighs bonds by using a "risk-adjusted income potential" rather than debt weighting. This, according to the provider, will aim to "provide investors with higher returns than the most commonly used Australian fixed income benchmark, the AusBond Composite Index (AusBond)".
To kick things off, OZBD has started life with a running yield of 2.78% per annum. Its average bond maturity is 7.52 years and it has an average yield to maturity of 2.46%.
Its largest holdings are sovereign Australian government bonds, followed by corporate bonds of Ausnet Services Ltd (ASX: AST), Inter-American Development Bank, Asian Development Bank, Lloyds Banking Group, and Vodafone.
The index that this fund tracks has returned an average of 3.71% per annum over the past 5 years. It will charge a management fee of 0.19% per annum.
So far this Monday, BetaShares Australian Composite Bond ETF has lost 0.4% in its first morning of trading and is currently being priced at $49.67 per unit.