Sydney-based BetaShares has teamed up with Frankfurt-based index provider Solactive to launch the BetaShares Australian Investment Grade Corporate Bond ETF (CRED AU) on the Australian Securities Exchange.

Timo Pfeiffer, head of research at Solactive

The ETF, which tracks the newly launched Solactive Australian Investment Grade Corporate Bond Select TR Index, becomes the lowest-cost Australian fixed-rate corporate bond ETF currently available on the ASX.

It has a management fee of 25bps per annum.

Timo Pfeiffer, Head of Research at Solactive, commented: “The Solactive Australian Investment Grade Corporate Bond Select TR Index is an addition to our range of smart beta indices in the fixed-income space. We are very happy to partner up with BetaShares, one of the leading players in the Australian ETF market, and increase the portfolio of investment strategies targeting Australian investors.”

The index seeks to replicate the performance of investment grade, senior corporate bonds denominated in Australian dollars (AUD). The methodology will favour securities which offer superior expected excess returns over Australian government bonds.

By selecting bonds based upon expected returns rather than debt outstanding, the index methodology seeks to avoid shortcomings of traditional debt-weighted indices and provide relatively higher returns.

The index is calculated as a total return index and up to 35 bonds are selected from the eligible universe.

Each security is assigned an equal weight and a maximum weight per issuer of 7%. Eligible bonds must have amounts outstanding of at least $250m and a term to maturity of between 5.25 to 10.25 years.

The index is most heavily weighted towards financials (34.2%), followed by consumer (15.3%) and industrials (12.9%).

Solactive has previously partnered with BetaShares to launch the Solactive Australia 200 Index underlying BetaShares Australia 200 ETF.