Investing

XTB portfolios outperform bond ETFs in 2017 – Total Return of up to 7.51%

  • 06.FEB.2018
  • ,  XTB

We have been tracking the performance of our recommended portfolios for over 1 year, with great results. Our best performing portfolio over 2017 and currently our best YTM portfolio, the Concentrated High Yield, returned 7.51% net of fees for 2017.

The performance of our suite of recommended portfolios and SMA after fees in 2017 was:

  • Concentrated High Yield: 7.51%
  • High Yield: 6.99%
  • Maturity Ladder (Series 1 – 2016): 6. 31%
  • Cash Plus (floating rate notes): 3.55%
  • Maturity Ladder Series 2 which only has a track record starting 30 January 2017 is 6.07% since inception
  • XTB SMA available on Praemium and Macquarie Investment Wrap. This portfolio was created on 8 February 2017 and since inception has returned 5.05%.

 

For more information on the ACBC Fixed Income No. 1 SMA please follow this link.

Click here for more detail on the performance of XTB Portfolios and the XTB SMA.

Market

Since the end of November 2017, 3 and 10-year government bond rates have increased by around 30 bps in yield (bonds sold off). This has mainly been due to US rate rises dragging the rest of the world up. Ian Martin, CIO at XTB sees “no rate change in 2018 with the possibility of 1 in early 2019”. Ian believes that current issues with CPI, currency and wage growth will still be key drivers of interest rates staying on hold in 2018.

Chart 1 shows that the market isn’t currently pricing in a full rate rise until February 2019.

 

If you look at the 3-year government bond rates, they are currently trading with a yield of 2.15%. Although some commentators are calling for higher RBA rates in 2018, the markets are only implying one rise by the RBA within 18 months.

Chart 1: ASX 30 Day Interbank Cash Rate Futures implied yield curve as at 01 Feb 2018


Source: ASX

http://www.asx.com.au/data/trt/ib_expectation_curve_graph.pdf

XTB performance vs other ETFs that have 1-year performance

In Chart 2 you can see the 1-year performance of our four XTB recommended portfolios compared to AAA, iShares IAF and Vanguards VAF and their corporate bond ETF VACF. Over 2017, the 3 XTB fixed-rate portfolios outperformed the other fixed bond ETFs by a minimum of 50% and up to 130% in some cases.  The Floating-Rate XTB Cash Plus portfolio outperformed AAA.

To remind you what to look at when selecting XTBs or a bond fund/ETF, the key benchmark is the expected YTM after fees. YTM is a forward-looking number that indicates what you are expected to earn if you hold to maturity. Remember with an ETF or bond fund, you’ll never know this, as they don’t mature – they are perpetual.

Something to consider when you look for the YTM of a fund or ETF, is that the funds or ETF won’t show the YTM after fees, so you need to remember to deduct their fee to get closer to their real yield to maturity to compare with XTB returns.

Chart 2: 1 year performance of XTB recommended portfolios vs 4 comparative bond ETFs

 

ASX ETFs Absolute Returns Annualised Volatility
AAA 2.1% 0.2%
IAF 3.3% 2.3%
VAF 3.2% 2.1%
VACF 5.1% 3.0%
XTB Recommended Portfolios
Concentrated High Yield 7.5% 1.6%
High Yield 7.0% 1.5%
Maturity Ladder S1 6.3% 1.1%
Floating XTBs
Cash Plus 3.6% 0.3%

The pricing data used to determine the returns in the ASX ETFs is taken using the last trade price on the day and not the NAV. We have assumed reinvestment of distributions as at ex-dividend date unit price. Comparison ETFs were chosen based on them having a track record of greater than 12 months, there may be other fixed income ETFs which did not have a track record of more than 12 months that may have achieved different total return outcomes. Past performance is not a guarantee of future performance.

Source: Australian Corporate Bond Company and Bloomberg

 

Events

  • 23May 2018

    YTMSG2: STOCKLAND 4.50% 23 NOV 2022

    This is the coupon date

  • 23May 2018

    YTMCTX: CALTEX 7.25% 23 NOV 2018

    This is the coupon date

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