Investing

Living with a Maturity Ladder Portfolio

  • 11.MAR.2019
  • Michael Rockliff,  XTB

Maturity Ladder bond portfolios over time

The XTB Maturity Ladder portfolio has one XTB maturing each year. It is very popular among advisers and for good reason as it:

  • Delivers all the benefits of owning XTBs directly
  • Provides a regular and reliable cash flow
  • It is a buy and hold to maturity investment strategy which still provides flexibility for the investor when cash flows are paid
  • The characteristic of regularly maturing bonds creates a different risk metric for portfolio construction. Many advisers and their clients find this feature attractive in a portfolio.

 

In implementing this strategy, advisers and their clients need to decide what to do with XTB proceeds as the underlying bonds mature. Do you take the money or re-invest?

Choices for consideration

The simplest choice is to take the proceeds and either spend it, or invest it elsewhere as envisaged when the Maturity Ladder portfolio was acquired.

For example: You may have invested with the intention to use the capital for mortgage repayments, school fees, an annual holiday, or some other known expense. For these investors, the choice is simple, continue by using the proceeds as planned.  Each time an underlying bond matures in the Maturity Ladder portfolio, clients will receive the XTB Face Value (subject to no default).

 

However, many investors purchase a maturity ladder portfolio with the intention of re-investing the capital as it’s returned. This raises a number of key points for you and your clients to consider.

The original Maturity Ladder portfolio we recommended in 2016 is quite different to the Maturity Ladder portfolio we are recommending today. Many investors want to retain the characteristics of a maturity ladder portfolio they already own, by adding a single additional XTB to extend the life of the ladder.

This is one of the reasons why, since first launching our recommended portfolios, we have created a series of Maturity Ladder portfolios, based on when you first invest:

  • The Maturity Ladder Series 1 portfolio has already had 2 repayments to investors in 2017 and 2018 and its final XTB repays in 2022.
  • Maturity Ladder Series 2 first repaid investors in November 2018, and its final XTB repays in 2022.
  • Late in 2017, we introduced Series 3 with the first XTB repaying principal in October 2019 and its final XTB maturity in 2023.
  • The latest Maturity Ladder Series 4 had its first maturity in 2021 and the final XTB matures in 2025.

 

Our approach

Our approach is to create buy and hold to maturity portfolios, which give provide predictable outcomes. Therefore, it is practical for a client to simply reinvest proceeds back into their original Maturity Ladder portfolio. Alternatively, a client could invest in the newest series of the Maturity Ladder portfolio – this would result in a portfolio with a slightly longer dated maturity profile.

To make the options available as simple as possible, our decision tree takes you and your clients through the options available to them, with the aim of finding the best possible outcome for each investor.

Find out more about the Maturity Ladder Portfolio

Try a Maturity Ladder Portfolio in the XTB Cash Flow Tool

Download a PDF of the Maturity Ladder Decision Tree

 

Disclaimer
The information in this article is general in nature. It should not be the sole source of information. It does not take into account the investment objectives or circumstances of any particular investor. You should consider, with or without advice from a professional adviser, whether an investment is appropriate to your circumstances. Australian Corporate Bond Company Limited is the Securities Manager of XTBs and will earn fees in connection with an investment in XTBs.

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