Aussie ETF provider BetaShares has added to its stable of fixed income products with the launch of the BetaShares Australian Government Bond ETF (AGVT AU).
Alex Vynokur, Chief Executive Officer, BetaShares.
Listed on Australian Securities Exchange, the fund provides exposure to high-quality, income-producing bonds primarily issued by Australian federal and state governments.
Alex Vynokur, Chief Executive Officer, BetaShares, commented, “This is our first product that offers specific exposure to government bonds, a category that enjoys the highest level of investor security within the Australian bond market.
“Government bonds are a core part of a balanced portfolio given their historical negative correlation to equities and high level of stability relative to corporate bonds.
“Australian government bonds are considered to be an important ‘safe-haven’ asset class for investors and their advisers, and we are excited to deliver another compelling, cost-effective fixed income investment solution to the market.”
The fund is linked to the newly created Solactive Australian Government 7-12 Year AUD TR Index. To be eligible for inclusion in the index, bonds must be denominated in Australian dollars, issued under Australian law, retain a minimum amount outstanding of AUD$500 million, and have remaining time to maturity between 7 and 12 years. Inflation-linked bonds, zero-coupon bonds, and floating-rate notes are excluded.
The index consists of a 75% exposure to federal and state government bonds, while the remaining 25% is dedicated to bonds issued by supranational organizations, sovereign agencies, provincial governments, development banks, and foreign developed market governments and their agencies.
The index is currently offering a yield-to-maturity of 1.51% and boasts a ‘AAA’ average credit rating. With an effective duration of 7.8 years, the index is expected to be sensitive to changes in interest rates.
Timo Pfeiffer, Head of Research at Solactive, commented, “Our new Solactive Australian Government 7-12 Year AUD TR Index is a fitting index for investors who want to access income while keeping a bond-like risk profile.
“Low interest rates force investors to look out for lucrative investment opportunities. With AUD-denominated bonds, they can participate in the performance of a small but growing market that is expected to continue its impressive development.”
The fund comes with an expense ratio of 0.22% which prices it at the lower end of the scale compared to the four other Australian government bond ETFs listed Down Under.
The cheapest (and largest) fund in this space is the AUD$300m Vanguard Australian Government Bond Index ETF (VGB AU) which costs 0.20% and is linked to the Bloomberg AusBond Govt 0+ Yr Index.