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Researcher Capital Preferences says super funds fail to appreciate the tension many retirees experience between their needs in their golden years and the size of their nest eggs.
Diversifying into bonds made easy
Investors and SMSF trustees looking to diversify away from low interest rate term deposits in search of fixed income strategies now have greater access to Australian bonds.
Bond investing enables investors to diversify income sources and is a defensive strategy to reduce equity portfolio risk. Typically, Australian investors have less invested in fixed income than in other countries.
Bonds can typically return around 5.1 per cent compared to the average term deposit of around 1 per cent.
According to the Australian Taxation Office, SMSF investment in bonds is only 1.48 per cent of the total investment portfolio compared to the Organisation for Economic Co-operation and Development average of 44.9 per cent.
Australian Bond Exchange (ABE) and Iress have partnered to allow Iress users across retail and online stockbroking and financial advice investors to digitally invest.
The ABE is Australia’s marketplace for investing in Australian bonds. Retail investors can transact in parcels as small as A$10,000 without the fees of managed funds or exchange-traded funds or the high costs of the over-the-counter market.
Bradley McCosker chief executive officer of the ABE recognises that an increasing number of Australians are entering retirement and generating a sustainable retirement income can be compromised by sharemarket volatility.
“By investing directly in bonds, Australians can now diversify their sources of income, reduce portfolio risks, and benefit from the security and peace of mind that bond investors enjoy,” he says.
The Australian bond market is not to be overlooked. It currently has over A$1.5 trillion in bonds on issue compared to the total market capitalisation of ASX listed companies of A$1.9 trillion.
ABE chooses from over 3000 corporate and government bonds that are on issue at any one time, which it admits to trading status on the IRESS platform based on investor preferences. Investors can select from a range of yields from 1 to 10 per cent on offer from corporate bonds.
McCosker says: “Most SMSF investors are currently attracted to yields between four and six per cent, and there are currently numerous bonds which offer this. New bonds come on the market almost every month, so there’s a growing selection for investors to choose from.”
The wholesale corporate bond market in Australia is predominantly used by large financial institutions who trade in multi-million-dollar transactions. The typical minimum trade size has, until now, frozen most private Australian investors out of the market.
“This market, while almost the total size of all the stocks on the ASX, has been largely out of reach to the Australian private investor,” McCosker says.
Investors who have access to Iress Pro, ViewPoint and Xplan will be able to access all the bonds admitted to trading status on the Australian Bond Exchange platform through integration with Iress’ software.
The integration gives these users the access to view real-time pricing data, subscribe to datafeeds and directly place execution orders, making the process of researching, tracking and trading corporate bonds as simple and easy as trading shares.
Kirsty Gross, managing director of financial markets at Iress says the partnership was driven by user demand from their client base for a more efficient way to access corporate bonds.
The new electronic interface removes inefficient, manual data entry processes, making it easier for brokers to see their clients’ total position as well as place orders and receive execution messages from the Australian Bond Exchange,” Gross says.
