ETFs, Investments

Fixed income active ETF to target SMSFs

BetaShares and Legg Mason have launched Australia’s first fixed income active exchange-traded fund (ETF), which will target SMSFs and other retail investors.

The firms unveiled the BetaShares Legg Mason Australian Bond Fund (BNDS) at a media briefing at the Australian Securities Exchange (ASX) in Sydney today.

Legg Mason affiliate and globally integrated fixed income manager Western Asset is managing the fund.

BNDS invests in Australian government and semi-government bonds, supranational and Australian corporate bonds and other eligible securities. Investors can access the ETF through a trade on the ASX.

The portfolio currently has an average AA credit rating.

Western Asset head of investment management and Australian operations Anthony Kirkham told the media briefing bonds are significantly underrepresented in Australian portfolios, particularly in SMSFs.

“Australian investors have typically held an underweight exposure to fixed income,” Kirkham said.

“However, with equity market volatility increasing, as well as broader concerns around global growth and political outcomes, the defensive qualities of a well-constructed bond fund can add much needed diversification and protection to an overall portfolio.”

He also noted many investors believe they have fixed income exposure by holding hybrids, cash or even term deposits.

“But as we know the ability for those to actually offset the drag of risky assets moving downwards as we’ve seen most recently in volatile markets, they don’t actually provide that negative correlation benefit,” he said.

“In some cases they don’t even provide the capital protection they’re expected to hold.”

This is the third active ETF released by BetaShares and Legg Mason this year after they formed their partnership in February and launched two equity income strategies.

BetaShares chief executive Alex Vynokur told selfmanagedsuper a lack of accessibility and education have prevented SMSF investors from including fixed income in their investment portfolios.

“The stakes are very high for us to do a great job in educating the market about the benefits that fixed income has in the portfolios,” Vynokur said.

Minimum investment amounts are usually $500,000 for an individual bond, but investors can invest as little as $100 in BNDS.

Vynokur stressed it is vital for SMSF investors to invest in fixed income to provide them with a layer of defence as it is an asset class that has historically demonstrated a negative correlation to risk assets.

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