Fees are a necessary part of investing. There are a number of ways in which fees are charged, but not all of them are transparent. With XTB fees the full fee is incorporated into their price on ASX; there are no surprises.
The fee for investing in XTBs is known as the ‘Securities Manager’s Margin’ (SMM). It is charged by the XTB manager (Australian Corporate Bond Company) and covers all relevant fees and costs involved in managing the XTB. It includes custodian fees, accounting fees, audit fees, ASX listing and CHESS fees and all other operational costs.
Fixed-Rate XTBs SMM
0.40% of the XTB $100 Face Value multiplied by the number of years to maturity.
Floating-Rate XTBs SMM
0.20% of the XTB $100 Face Value multiplied by the number of years to maturity.
XTB Face Value vs Unit Price
XTB fees are charged on Face Value NOT Unit Price. The Face Value of all XTBs is $100. Whether an XTB is trading at $101or$120, the fee for two fixed-rate XTBs of equal maturity will be the same.
An example using YTMQF3
- YTMQF3 is a fixed-rate XTB with a Unit Price of $118.46 and a Face Value of $100 (14 AUG 2018)
- YTMQF3 matures on 19 MAY 2022
- The fee is 0.40% of $100 multiplied by the number of years to maturity (4 years)
- The fee is built into the $118.46 XTB Unit Price shown on ASX
Note: Currently, most corporate bonds are trading at a premium to Face Value (above Face Value) because prevailing interest rates are lower than the coupon rate.
How are XTB fees deducted?
XTB fees are not payable directly by investors. They are included within the offer (or sell) price shown on ASX.
The XTB fee effectively lowers the yield of the XTB vs the underlying bond.
A fixed-rate bond trading in the wholesale market at a yield of 4.8% effectively becomes a fixed-rate XTB trading on ASX at about 4.4%.
How is this different from other products?
- Bond ETF and Managed Funds: Fees for ETFs and managed funds are deducted by the ETF or fund company. Adjustments are made to the net asset value (NAV) of the fund on a daily basis.
- Bonds traded Over-the-Counter (OTC): OTC bonds can have very opaque fee structures. Some brokers may even imply there are no fees associated with trading with them. Instead they will incorporate their fee within the price they sell or buy from you. In addition, OTC brokers often have a compulsory custody fee to hold your bonds. We do not charge custody fees for holding XTBs.
Why do XTB charge fees differently?
XTBs are a fixed income product. A core feature of fixed income is predictability. We believe fixed income investors should know exactly what income they will receive, when it will be paid and when their investment will mature.
By incorporating XTB fees within the purchase price, all coupon payments and the Face Value remains intact. This ensures the experience for XTB investors is as close as possible to the experience for wholesale market bondholders.
A simpler way to consider an investment
Two of our key brand values are certainty and transparency. Our aim is to provide you with a simpler investment choice. With XTBs, if you are happy with the YTM at purchase, then by holding to maturity, that’s the YTM you’ll receive, subject to no issuer default.
As with all ASX-traded products, brokerage costs apply when buying and selling XTBs on ASX. These costs vary, starting from around $15 per transaction.
One-way brokerage for buy-to-hold investors
Unlike most other ASX-traded products, XTBs mature. Following maturity, XTB holders receive the Face Value of $100 x the number of units they held.
This means investors who hold to maturity only incur brokerage when they purchase. This is unlike bond ETFs or managed funds which are perpetual (they have no maturity date). For these investors, a second brokerage fee will be incurred to sell units.
Performance before or after fees
Many investors look at Yield to Maturity (YTM) when considering which fixed income product best meets their needs. So, if you’re considering a bond ETF or Managed Funds against an XTB, it’s important to understand most ETFs and Managed Funds report YTM BEFORE fees. However, due to the transparency of our fees XTB YTM is AFTER fees. The XTB YTM on the day of investment is a true reflection of what an investor would receive. This assumes you hold to maturity and the issuer does not default. View Available XTBs and Yield to Maturity.