There was a 24.5% per cent increase in fixed interest ETF buy trades in the half year to end December 2022, according to data from wholesale trading platform AUSIEX. And it is continuing this year.
A mixture of floating rate, government, corporate and composite Bond ETFs comprised the top 10 most bought fixed income securities.
“Advisers report continued interest from their clients about opportunities in fixed income this year,” said Brett Grant, Head of Product, Marketing and Customer Experience at AUSIEX.
Mr Grant said: “Increased trading volumes highlight the potential opportunities that ETFs provide in a market like Australia that lacks a deep and easily accessible direct bond market for retail investors”.
He noted that AUSIEX data, as at end February 2023, showed “Financial advisers accounted for a significantly higher proportion of total holdings value compared with self-directed investors. Baby boomers showed by far the strongest preference for the asset class, followed by Generation X”.
In terms of specific securities, Vanguard’s Australian Fixed Interest Index ETF (ASX: VAF) accounted for the lion’s share of total holdings value, followed by the same issuer’s International Fixed Interest Index (Hedged) ETF (ASX: VIF), I-Shares Core Composite Bond ETF (ASX: IAF) and Van Eck’s Australian Floating Rate ETF (ASX:FLOT), and BetaShares Australian Bank Senior Floating Rate Bond ETF (ASX:QPON).
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Returns on fixed interest ETFs
AUSIEX data shows there are more than 20 ETFs listed on the ASX that give investors access to all quarters of the local fixed income market, including Australian government bonds, investment grade corporate bonds, inflation linked bonds, floating rate bonds and composite investments which combine different sections of the market.
Among the biggest products, the Vanguard Australian Fixed Interest Index ETF (ASX: VAF) produced a 2.2% total return in the three months to January 3 2023, as did the iShares Core Composite Bond Exchange Trade Fund (ASX: IAF).
There are also more than a dozen global fixed interest ETFs on the ASX that allow investors to tap all areas of the international market, again ranging from conservative US treasuries to high yield bonds and ethically invested assets.
ASX listed fixed interest ETFs
Ticker |
Name |
| IAF | iShares Core Composite Bond ETF |
| VAF | Vanguard Australian Fixed Interest ETF |
| VGB | Vanguard Australian Government Bond Index ETF |
| VCF | Vanguard International Credit Securities Index (Hedged) ETF |
| XARO | ActiveX Ardea Real Outcome Bond Fund (Managed Fund) |
| QPON | BetaShares Australian Bank Senior Floating Rate Bond ETF |
| VIF | Vanguard International Fixed Interest Index (Hedged) ETF |
| VBND | Vanguard Global Aggregate Bond Index (Hedged) ETF |
| IHCB | iShares Core Global Corporate Bond (AUD Hedged) ETF |
| GBND | BetaShares Sustainability Leaders Diversified Bond ETF – Currency Hedged |
Source: ASX (February 6, 2023)
New funds keep coming
Half a dozen new fixed interest ETFs were launched in 2022 as providers sought to broaden the scope of assets and investment philosophies available.
In the international space, the index-tracking Global X US Treasury Bond ETF (Currency Hedged) (ASX: USTB) was listed in July and is benchmarked against the iBoxx $ Treasuries Index (AUD Hedged). It provides exposure to US treasuries ranging from 1-year to 30-year maturities (and produced a total return of 4% in the three months to 3 February 2023).
There are also now several global fixed interest funds which use ESG principles following the listing of the iShares Global Aggregate Bond ESG (AUD Hedged) ETF (ASX: AESG) on the ASX in August. AESG produced a 3.24% total return in the three months to end January 2023 and tracks an index that measure the AUD hedged performance of global investment grade ESG screened bonds).
Mr Grant said several of the new products appeared to be part of a trend in which global investors were increasingly using ETFs to allocate capital to non-core sectors of the fixed interest market.
In local fixed interest, Betashares launched an Australia Composite Bond ETF (ASX: OZBD) in February last year (2022) that tracks the Bloomberg Australian Enhanced Yield Composite Bond Index. This index takes an intelligent investment approach by weighting bonds on the basis of their risk-adjusted income potential rather than debt-weighting, aiming to provide investors with higher returns than the most commonly used Australian fixed income benchmark, the AusBond Composite Index which returned 3.4% after fees in the three months to the end of January 2023.
Mr Grant concluded: “For income-focussed advisers and investors there are plenty of heavily-traded options available via ETFs to gain diversified exposure to a range of both domestic and international asset types to maintain and protect income. We may well see interest in these ETFs continue to rise.”
