Fixed-income ASX exchange-traded funds (ETFs) have become particularly popular with investors over the past 12 months, new data reveals.
So, what's the appeal?
Let's investigate.
Image source: Getty Images
Why are investors loving fixed-income ASX ETFs this year?
ASX ETFs, which provide exposure to a basket of assets, have been popular for a number of years now.
Their key benefit is providing instant diversification in a single trade.
There are many types of ETFs covering many different asset classes.
One of those asset classes is bonds, and this is what fixed-income ETFs are all about.
A fixed-income ASX ETF gives investors exposure to a diversified basket of bonds.
A bond is like a tiny slice of a large loan pie.
They are used by corporations and governments as a way to borrow funds from many investors for a specified period.
During that period, they promise to pay interest at a set rate, before returning the capital to the investors in full at the end of the specified period.
Bonds typically pay a higher rate of interest than savings accounts. That's how organisations attract investors. If they didn't pay a higher rate, then conservative investors would just leave their cash in the bank.
Say you buy a 10-year bond with a coupon or interest rate of 5%, and it costs you $10,000.
You'll then receive your coupon payments periodically — usually twice per year — and in 10 years' time, you'll get your $10,000 back.
You can also sell your bonds during that 10-year period if their market value goes up.
Bonds are considered a safe-haven asset for investors in times of economic uncertainty, like now.
Bond prices tend not to fluctuate as much as share prices, and the coupon payments provide a predictable passive income stream.
Buying a fixed-income ASX ETF gives investors exposure to a bunch of bonds, thereby spreading the risk.
New ASX data reveals the best-performing fixed-income ETFs for total returns over the year to 31 August.
The top 5 fixed-income ASX ETFs
According to the data, here are the top five fixed-income ASX ETFs today:
The VanEck Australian Subordinated Debt ETF (ASX: SUBD) has delivered a 6.34% total return over the past 12 months. This includes reinvested dividends with a historical yield of 4.62%.
The iShares Government Inflation ETF (ASX: ILB) has delivered a 5.44% total return over the past 12 months. This includes reinvested dividends with a historical yield of 1.02%.
The BetaShares Australian Investment Grade Corp Bond ETF (ASX: CRED) has delivered a 5.15% total return over the past 12 months. This includes reinvested dividends with a historical yield of 4.57%.
The Betashares Australian Major Bank Hybrids Index ETF (ASX: BHYB) has delivered a 5.14% total return over the past 12 months. This includes reinvested dividends with a historical yield of 4.58%.
The iShares Global High Yield Bond (AUD Hedged) ETF (ASX: IHHY) has delivered a 5.02% total return over the past 12 months. This includes reinvested dividends with a historical yield of 4.11%.
