The Maturity Ladder starter portfolio of XTBs aims to provide:
- An opportunity to benefit from rising interest rates using fixed-rate bonds
- A regular and predictable income stream
- Return of capital from maturing XTBs on an annual basis
- A capital preservation focus and low levels of price volatility
- Liquidity, to ensure investment flexibility
What’s in the Maturity Ladder starter portfolio?
|ASX Code||YEAR OF MATURITY||Underlying Bond|
|YTMSCG||2019||SCENTRE 5.00% 23 OCT 2019|
|YTMLL1||2020||LEND LEASE 6.00% 13 MAY 2020|
|YTMQF2||2021||QANTAS 7.50% 11 JUN 2021|
|YTMDO1||2022||DOWNER 4.50% 11 MAR 2022|
|YTMMG2||2023||MIRVAC 3.50% 18 SEP 2023|
What is a Maturity Ladder Strategy?
A bond maturity ladder is a portfolio with one bond maturing per year. Our 5 year Starter Portfolio has a bond maturing in each of the next 5 years. Investors can constantly roll the portfolio by reinvesting the maturing capital every year into new 5 year bonds. Or you may use the maturing capital elsewhere.
A key purpose is to take advantage of bonds maturing at a fixed amount during a rising interest rate environment. Rising bond yields means bond market prices are falling. But all bonds mature at par value ($100 for XTBs), no matter what happens to bond yields, interest rates or market prices before maturity (assuming no issuer default).
If bond markets move into a period of sustained yield increases (prices falling), the bond ladder provides protection against this. In fact allows investors to take advantage of it by delivering capital back to investors annually that is impervious to the changes in yields or interest rates.
As the first XTB matures, the $100 is reinvested into a new 5 year XTB (with a 2024 maturity). If yields have risen because the RBA has increased the cash rate, this new XTB will now be cheaper and its yield higher. $100 fixed capital now buys more XTBs than before the rate hike.
This turns the apparent disadvantage for fixed-rate bonds of their prices falling when interest rates are rising into an advantage.
Investors must hold the XTBs to maturity to take advantage of this approach. If you sold the 5 XTBs in the example in the second year of investment, and yields have risen in the meantime – you will be selling XTBs on market that will have been impacted by the yield increase (their prices will have dropped). Maturity delivers this advantage.
Ready to trade?
You can buy the 5 XTBs which form the Maturity Ladder starter portfolio through any online broker, starting from as little as $2,500. Alternatively, contact your stockbroker or financial adviser to include these XTBs in your investment portfolio or SMSF. It’s that simple.
Please note each XTB in this portfolio is a separate transaction.
Find out more about How to Buy and Sell XTBs.
What income stream does this starter portfolio provide?
Use our cash flow tool to map out the income stream you’ll receive from this starter portfolio.
Email a copy of the results to yourself; or send a copy to your financial adviser to discuss, or as execution instructions.
Other available Starter Portfolios
If you’d prefer, you can customise your own portfolio of XTBs. Use the cash flow tool to map out the income you will receive from up to 10 XTBs, to check that it meets your needs.
Your Portfolio Manager: Experience you can trust
Ian Martin has over 30 years experience in fixed income markets globally. Ian is passionate about fixed income and how it provides certainty and protects against volatility in investment portfolios.
If you have any questions about this starter pack, or on XTBs more generally please contact us on:
Tel: 1800 995 993