With a wide range of fixed & floating rate XTBs, there are plenty to choose from. But, how do investors choose between the available XTBs?
Selecting XTBs: How do investors choose between them?
- Do you just choose the XTBs with the highest yields?
- What about the risk of repayment from the different bond issuers?
- What about the time left to maturity when the principal is repaid?
From your perspective, it may be that ranking XTBs by yield and picking the top XTBs is the way to go. However, you need to be aware of the trade offs and comparisons with other XTBs, and other investments before you and your adviser make a final decision.
Note: The information in this section is very general in nature and should not be taken as advice – whether general, or specific. It is intended to be a guide to help you choose. As each of our Product Disclosure Statements makes clear, we recommend you get specific advice from your financial adviser before making any investment.
Building a portfolio of XTBs
The predictability of the final outcome of an investment in bonds or XTBs over them is a strong feature for building portfolios.
At the time you invest you know:
- The XTBs income rate you’ll receive
- When you will be paid back
- How much principal you will be paid back
- So, you also know the return you’ll get if you hold to maturity (absent of default)
There aren’t many investment options that provide the same up-front, pre-investment clarity as investments like Term Deposits and bonds.
When starting to build a portfolio, you can either:
- Include all, or substantially all available securities from the class (not unlike the ETF or managed fund approach), which can be expensive, or
- Create your own filters, or selection criteria to whittle down the range
Because of the predictability, XTBs offer you can set clear and transparent investment rules.
How to narrow your selection
There are a number of filters you can use to narrow your selection. Some of these include:
Let us do it for you
Using the expertise of our CIO, Ian Martin, we developed a series of predetermined portfolios. Portfolios include:
- Concentrated High Yield – 5 of the highest yielding XTBs
- Maturity Ladder – 5 XTBs providing a maturity in each calendar year
- High Yield – A broader portfolio of the highest yielding XTBs
- Cash Plus – 3 floating-rate XTBs providing a monthly cash flow.