Q: What are XTBs?
A: XTBs bring together the income and capital stability of corporate bonds, with the transparency and liquidity of the ASX market.
- XTBs give you exposure to specific, individual corporate bonds issued in the wholesale market.
- For each corporate bond a new XTB “Class” will be quoted on ASX, each with its own ASX 6-letter code, starting with YTM.
- Investors can select which individual bonds to which they wish to gain exposure and can buy and sell the respective XTBs on ASX.
- XTBs give you the flexibility to access the benefits of the corporate bond market, without a minimum investment amount. This contrasts with the wholesale bond market, where institutional investors are typically required to buy bonds in large amounts ($500,000 or more).
- All XTBs mature at $100.
Q: What are the key benefits of XTBs?
A: XTBs deliver a number of benefits, including:
XTBs give all investors access to the benefits of corporate bonds from leading ASX listed companies, previously only available to institutional or “wholesale” investors.
Being traded on ASX, you can view the price of your investment at any time.
Investors have the advantage of being able to buy and sell on ASX at any time, just like shares (subject to liquidity of the underlying bond).
XTBs are offered over a wide range of bonds of some of the largest ASX listed companies. This allows you to select the bonds that meet your needs, or match your investment portfolio based on investment term, type of income, or credit quality.
Exposure to corporate bonds allows you to build a diversified investment portfolio, which may provide capital stability and security, and reduce risk. By selecting individual XTBs over a range of ASX listed companies, such as TLS and BHP, you can achieve the diversification that meets your investment needs.
- Capital Stability
Bond prices are typically more stable than shares, hybrids or property prices. An exposure to corporate bonds offers investors a source of income and a known outcome at maturity, which may provide an additional level of diversification within investment portfolios.
Q: What are the key risks of XTBs?
A: As with all investments, there are risks you should be aware of before making an investment decision.
- Credit risk
- Liquidity risk
- Concentration risks
- Market risk
- Trust risk
Q: How do XTBs work?
A: XTBs are units in a unit trust that is similar to ETFs or managed funds except each XTB covers a single underlying corporate bond, rather than an index. For each individual corporate bond selected, a new XTB is issued on the ASX, each with its own unique 6-letter ASX code, starting with YTM (view the full list).
When an investor buys an XTB (for example over TLS, 2020, 7.75%pa Coupon), an equivalent number of underlying corporate bonds are purchased and held by a custodian on behalf of the investor (the unitholders). The performance of the XTB (over TLS) should reflect the underlying performance of the corporate bond and when coupons are paid, they flow directly to XTB unitholders as a distribution.
Key measures of a corporate bond
Read more on this subject, in our Insight Centre article, Bond Measures Explained.
Q: How do investors use XTBs?
A: XTBs can be used by investors to implement a wide range of investment strategies:
- Portfolio Construction & Asset Allocation
XTBs can be used as core holdings in a portfolio as the building blocks for portfolio construction. For example, XTBs used in combination with direct equities, ETFs and property investments offer diversified exposure across different asset classes potentially reducing the overall risk of the portfolio and providing consistent returns.
- Core/Satellite Strategy
XTBs may be used in an active investment strategy to improve the risk/return of a portfolio. Where an investor has built a core portfolio using managed funds and ETFs, XTBs can then be added as a ‘satellite’ to tilt the portfolio to a defensive and income producing position.
- Cash flow management
XTBs provide investors with a regular, reliable income stream. Investors can tailor their investment portfolio to include XTBs, ensuring that the portfolio is able to meet the day-to-day ongoing cash flow requirements of the investor.
Prospective investors should seek their own financial and/or tax advice as appropriate.
Q: How do I buy XTBs?
A: XTBs are traded on the ASX in the same way as shares. You should contact your financial adviser or broker to buy and sell XTBs. A brokerage fee may be charged. There is no need to open a separate trading account. For investors wishing to buy XTBs in larger volumes, you should contact our Authorised Participants and Market Makers for more information.
Q: Do I need to set up a new broker account to buy and sell XTBs?
A: No, XTBs may be bought and sold through a stockbroker using you existing account. No additional forms are required. If you do not have a stockbroker, or online broker, please visit the ASX website for a list of brokers.
Q: Can I purchase or redeem XTBs directly through Australian Corporate Bond Company?
A: Individual investors need to buy and sell XTBs on the ASX through a broker, or financial adviser. XTBs may only be purchased or redeemed directly through ACBC in agreed large amounts by institutions known as Authorised Participants.
Q: How is liquidity provided on ASX?
A: Liquidity is provided in three ways:
- Investors may buy and sell XTBs between each other on ASX, in the same way as shares;
- Market Makers may provide liquidity on the ASX by placing bids and offers in the market;
- Authorised Participants may create and redeem units on a daily basis, to provide additional liquidity where market demand has increased.
Q: What is a Market Maker?
A: The role of a Market Maker is to provide the market with ongoing liquidity, allowing investors to buy and sell. This is done by the market maker acting as a buyer and seller of units on the ASX during market hours.
When an investor buys (or sells) they are generally trading with the market maker, that is, they are the other side of the transaction (investor buys – market maker sells, and vice versa). When a transaction has occurred, the market maker will update their bid (or offer) and volume.
To find out how to become a Market Maker click here.
Q: What is an Authorised Participant?
A: An Authorised Participant is a large financial institution which has the ability to create and redeem XTB units.
Q: Can I buy XTBs in my self-managed super fund (SMSF)
A: Yes, all XTBs may be purchased within a SMSF.
Q: Is there a brochure I can download?
A: Yes, you can view or download our XTB brochure here.
Q: Do you have a Tax Guide?
A: Yes, you can view or download our Australian Tax Guide
Q: Where can I download the Product Disclosure Statement (PDS)?
A: You can view or download our Product Disclosure Statements (PDS) here.
Q: Is there a 1800 number I can call you on?
A: Yes, call 1800 995 993 to speak to one of the XTB team.