A re-introduction to our sample bond portfolios. These are designed to offer an optimal mix of diversification, whilst still providing the best balance between risk and return.
Sample Portfolios
Due to the market dislocation we are seeing from the coronavirus, we have made the decision to slightly change the way we show portfolio opportunities. With liquidity so patchy, showing an existing holding from a year ago doesn’t, in our opinion, offer much in the way of value suggestions to investors.
Of more relevance, we think, is to show portfolios which are currently available (and this may change quickly as bonds are bought or sold but we will update regularly or have a like-for-like substitution) so that there are some actionable suggestions which investors can utilise.
We are doing this by offering a range of sample portfolios, in the same format as the previous model portfolios, with the same risk metrics and construction philosophy, but made up of bonds where we have had recent or ongoing access to.
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The portfolios are designed to offer an optimal mix of diversification and a level of investment at close to $500,000 that is open to most investors, whilst still providing the best balance between risk and return.
Conservative portfolio
All AUD, investment grade rated bonds. This portfolio has a higher allocation to each individual bond due to the relative credit strength offered by investment grade rated issuers.
Current indicative yield for buying this portfolio today is 3.95%, but could be expected to be in the range of 3.70% to 4.15% depending on pricing at the time of execution.
View Conservative portfolio.
Balanced portfolio
All AUD, with a mixture of rated investment grade, sub investment grade and unrated1 bonds, providing a mainly lower risk investment grade profile with a smaller individual allocation to higher yielding bonds to slightly increase the credit risk being taken and therefore also the yield.
Current indicative yield for buying this portfolio today is 4.86%, but could be expected to be in the range of 4.60% to 5.10% depending on pricing at the time of execution.
View Balanced portfolio.
High yield
For investors with a higher risk appetite or tolerance, this portfolio is composed entirely of bonds which offer a high yield, and may be rated either investment grade (but have a different pay off profile to 'ordinary’ bonds, such as an expected early call which delivers a higher return), sub investment grade or are unrated1.
This portfolio is more diversified than the Conservative portfolio with smaller allocations per individual bond, recognising the higher credit risk associated with each of the issuers. Diversification is one of the best mitigants against credit losses, hence there being 20 bonds in this portfolio compared to 10 in the Conservative portfolio.
Current indicative yield for buying this portfolio today is 9.09%, but could be expected to be in the range of 8.60% to 9.50% depending on pricing at the time of execution.
This portfolio contains two “discos”, or deep discount securities. These are investment grade rated subordinated bonds issued in the mid-1980s by the major banks.
They have a possibility of being called for regulatory reasons in early 2022, and if this eventuates, the yield above for the portfolio would increase to 11.40% if both discos were called at their earliest date.
View High yield portfolio.
1 Note – unrated simply means the issuer chose not to pursue a rating at issue. It does not mean they applied for a rating and were unsuccessful. Typically this occurs when the expected investors in the bond do not require a rating to comply with a mandate.