Invest in Single Bond ETFs

How are Single Bond ETFs different to the underlying bond?

The underlying bonds are not on a listed exchange, whereas these are listed via the ETF, making them more accessible. You can also trade smaller parcels than the wholesale market, which has a minimum investment of $50k. Minimum parcel size of the SBETF is subject to the rules of your broker.

The performance will closely track the performance of the underlying bond, however they differ in that they’ll incur management fees and costs. The costs charged by the Trustee total 26.5bp per annum.

Everyday Australians can make an investment in Single Bond ETFs via stockbrokers, share trading apps or investing platforms by using the “ticker”.

Why would I not just buy the underlying bond directly?

You can! Income Asset Management offers corporate bonds to wholesale investors in parcels of at least $50k. The cost to hold these bonds in custody is 15bps per annum. However, the SBETF is available to retail as well as wholesale investors.

How does a Single Bond ETF differ from fixed income funds and fixed income ETFs?

Single Bond ETFs offer investors economic exposure to a single corresponding corporate bond which is different to traditional bond funds, which give you economic exposure to a pool of various bond assets chosen by the investment manager.

With SBETFs you get to choose the bonds you’d like to invest in, whereas with a bond fund the manager chooses. When multiple SBETFs are available, you’ll be able to create your own portfolio of listed bonds. This allows investors to tailor their income and principal payments to suit their needs. Indeed once there are enough SBETFs available, an investor will be able to match their income needs at a much lower cost than presently possible.

There’s greater transparency in being able to determine the income you’ll receive and the performance of the underlying bond should reflect the performance of the SBETF, minus fees and costs.

Each SBETF we offer is backed by an investment grade, ASX-listed company, including some household names.

What is the liquidity of the SBETF, and how it compares to the underlying bond or a bond investment fund?

SBETFs are generally more liquid than traditional bonds because they can be bought and sold on exchanges. However, liquidity can vary depending on the specific SBETF and market conditions. For large parcels an investor can contact us for options around liquidity.

Do I own the bond?

As with any ETF, investors own the units that reflect the returns of the underlying asset in this case, a single bond. Please refer to the IAM Listed Bond ETF – Product Disclosure Statement.

What are the benefits of investing in a Single Bond ETF?

The benefits of investing in a SBETF are:
• Diversification – it allows you to diversify your portfolio across different bonds in smaller parcel sizes
• Performance – this will closely track the performance of the underlying bond.
• Liquidity – you’re able to buy and sell as required.
• Transparency – the buy and sell price, and fees, are disclosed
• Access – the underlying bonds are not on a listed exchange, these are listed via the ETF, making them more accessible as you don’t need to purchase individual bonds directly from issuers.

What are the risks of Single Bond ETFs?

A Single Bond ETF will be subject to the same risks as the underlying corporate bond.
These risks include:
• Credit and information risk
• Liquidity and suspension risk
• Concentration risk
• Market risk

Refer to the relevant IAM Listed Bond ETF – Product Disclosure Statement and Target Market Determination for full details about risks.

What happens if the issuer of the Single Bond ETF defaults?

If the issuer of the underlying bonds defaults, the SBETF’s value will decrease similar to any other fixed income asset or fund.

The issuer of the underlying bond will generally have an investment-grade rating. An investment grade is a rating that signifies a relatively low risk of default. In Australia, default statistics are lower than Global averages by nature of it being a largely investment grade market.

IAM will provided an independent recommendation on the fundamental view of the credit. The recommendation will be positive, neutral or negative based on the team’s internal credit research. IAM will consider, but not limited to:
• The financial analysis of the borrower;
• The industry the borrower operates in;
• The company’s business position;
• Macroeconomic considerations, such as economic growth and interest rates; and
• The capacity and ability of the borrower to repay.

Investors may also have recourse to the issuer’s assets depending on the specific terms and protections of the underlying bond which would be considered.

Do I get paid a coupon?

ou will be paid a distribution that reflects the coupon, minus fees and costs. The distribution will match the coupon frequency of the underlying bond.

Will the return on the bond be impacted by changes in interest rates?

This depends on the nature of the bond, whether it’s fixed or floating, and if you sell it before maturity.

What is the expected return on investment?

Returns depend on factors such as interest rates, credit quality, and market conditions and length of holding the asset. SBETFs generally provide income through regular interest payments and may have potential capital gains or losses. If you sell or redeem your investment in a SBETF before the maturity of the corresponding underlying bond, the face value may not be earned.

What are the costs associated with Single Bond ETFs?

The fees we charge are on the capital invested, at a rate of 0.265% per annum. There are no other charges such as an establishment fee or performance fee and there are no transaction costs charged by Trustees Australia Ltd or its parent, Income Asset Management.

There may be additional fees charged by your platform provider or broker.

As a guide, the fee for investing $50,000 into a Single Bond ETF is simply 0.265% of $50,000, which equals $132.50.

A $250,000 investment would incur a fee of $662.50, five times the fee of a $50,000 investment.

The yield you will earn from your investment will be 0.265% lower after our fees. So an expected yield-to-call of 5.5% would earn a net fee of 5.235%.

Further information is available in the IAM Listed Bond ETF – Product Disclosure Statement.

How are the fees charged?

The annual fee for the SBETF is 26.5 basis points (0.265%), see the IAM Listed Bond ETF – Product Disclosure Statement.

This fee is calculated and accrued daily based on the net asset value of the ETF, with SBETF units valued daily. Fees are deducted from interest coupons received before the remaining balance is credited to your designated account. TAL as responsible entity of the SBETFs manages and processes these deductions.

Fees are calculated and accrued daily and charged periodically based on the coupon payment frequency of the underlying bond.

How is the market price of Single Bond ETFs determined?

Single Bond ETF prices reflect the price of the underlying bond, which is determined by market forces, adjusted for fees and charges.

The trustee will calculate a price daily for each class, which is used by the market maker to determine a bid and offer price as published on the exchange.

How often are Single Bond ETFs priced?

Single Bond ETFs are traded on the exchange and largely reflects the real time price of the underlying bond.

SBETFs can be traded at any time of the day at any time the exchange is open.

The market maker Nine Mile provides an end of day valuation on the days the exchange is open for trading.

How are Single Bond ETFs traded on the exchange?

SBETF’s can be traded like shares through your stockbroker, advisor or investment platforms where the ETF has been added by the platform operator. Each SBETF will have its own ticker code which can be easily used for identification.

Everyday Australians can make an investment in SBETFs via stockbrokers, share trading apps or investing platforms by using the “ticker code” of each SBETF on offer.

What are settlement times of Single Bond ETFs?

Settlement times are the same as all CBOE Securities Exchange listed products. Settlement is T+2.

Are there any specific requirements for buying Single Bond ETFs?

You will need a brokerage account to buy and sell SBETFs. You can buy a minimum of one unit, or the minimum parcel size subject to the rules of your broker.

How can you track your Single Bond ETF investments?

Via your broker or trading app or through the APEX listed registry online portal. Distribution statements and annual statements will be provided by APEX.

How will Single Bond ETFs be taxed?

Single Bond ETFs are taxed as exchange traded funds. Interest income is typically taxed as ordinary income, and capital gains from selling Single Bond ETFs are subject to capital gains tax.