Now is a good time to invest in bonds. If you only have one or two bonds, we suggest here a few more you could add, whether you’re a retail or wholesale investor. We also briefly describe the benefits of a bond portfolio and our new online ordering system
There may be a whole range of reasons that you only own one bond but, regardless of why, it is not healthy for your portfolio. It exacerbates the portfolio’s risk as you only have exposure to one company, one sector, one type of bond and one maturity date.
The last few years have generally been good for bond investors and it may be that your bond has outperformed, delivering a higher than expected return. It’s worth checking its current status to see if there’s something better to switch into or whether you should add some more bonds to your portfolio.
If you’ve held your bond for a while, you may be unaware that you can add to your portfolio or transact from as little as $10,000.
Benefits of a bond portfolio
One of the key benefits of fixed income is the diversification it can bring to your portfolio. A single bond is better than no bonds at all but a portfolio of five bonds or more is even better. So, if you have some spare cash sitting around or you have a term deposit that matures soon, it’s worth considering adding more bonds to your portfolio.
There are many companies that issue bonds and some that aren’t listed on the ASX. For example, monopoly Queensland coal port, Dalrymple Bay Coal Terminal. This is an infrastructure asset and some of the bonds are quite short, maturing in just 12 months in June 2016, while others are longer dated, maturing in six years in June 2021 or 11 years in June 2026.
Both of the longer dated bonds are floating rate, meaning they will capture any expected increases in interest rates by increasing the income you receive.
Infrastructure investments are great in retirement providing defined income over long terms.
- Cover your portfolio for any economic climate
If you hold just one bond, then you have only covered one of the fixed, floating and inflation linked options available. Ideally, you would have an allocation to all three types of bonds. Fixed rate bonds give you certainty of income, floating rate bonds protect your portfolio if the market expects higher interest rates and inflation linked bonds are linked to the Consumer Price Index, so protect your purchasing power.
- Better returns than term deposits
Corporate bonds will provide higher returns than term deposits for slightly higher risk and current returns range from 4% to 8%.
- Bonds available in $10,000 parcels
FIIG has been at the forefront of making wholesale bonds available in smaller parcels to both retail and wholesale investors. You can now hold a portfolio of five bonds of $10,000 per bond. So if your single holding is $50,000 or more, you could sell down part of your holding to diversify into other bonds.
Some bonds to consider
- Retail - low risk, investment grade
One of the ways to get higher returns on low risk companies is by investing for longer terms. Three of the bonds below are for more than five years. The Sydney Airport inflation linked bond on the list below has a very long maturity date. But, it’s important to remember that bonds are tradeable and you don’t have to hold them until maturity.
If you wanted to buy all of the bonds shown, the overall statistics of the portfolio are shown below. The weighted average yield to maturity shows the expected return on the bonds if they were all held until maturity. The running yield or income is what you could expect to earn in the next 12 months.
2. Retail - high yield
Four of the bonds on this list were originated by FIIG and offer high returns given higher risk when compared to investment grade bonds. All four have call dates, when the company can choose to repay investors, so you’ll see some additional columns in this table. These are the first call date, being the earliest date the company can opt to repay bondholders, and the yield to first call which is the expected return if you hold the bond to that first call date.
There’s a mix of bonds on this list. Three are investment grade, with the Rabobank bond being the lowest risk, followed by Royal Women’s Hospital and Adani Abbot Point. The Qantas bond is the only one of the three Qantas bonds on issue that remains available to wholesale investors only. It offers almost 5% until maturity in six years and remains good value if you think interest rates will be lower for a long time. Dicker Data, 360 Capital and Moneytech are non-rated FIIG originated bonds.
There’s no need to call a FIIG dealer to transact any more. If you already own a bond and have an account with us, you can use our new online trading service.
In just a couple of months we’ve had over 50 clients place instructions online for almost 100 transactions.
If you are keen to try the system, follow the process below:
- Log on to My FIIG, go to the ‘Bonds’ tab and see the featured offers. This is a list of the recently traded bonds by all clients and includes a link to the research.
- If you click on the issuer’s name, this will bring up more specific details about the bond. You can click on the PDF for a full factsheet.
- Click on the ‘Buy Request’ button, or view the model portfolio, which you can buy as well.
- You can always use the search function to find bonds not shown on the page.
- Buying bonds is as simple as clicking on the ‘Buy Request’ button. The bonds are added to your shopping cart, which you can view at any time.
- If you want to sell bonds you need to go to click on the ‘Portfolio’ tab to see the list of the bonds you hold, then click on the ‘Sell Request’ button. Your current portfolio is the only place where you can lodge a sell request. You’ll need to type how much you want to sell (in $10,000 lots) and add the request.
- Once you’ve made all of your buy and sell requests, click on the ‘Checkout’ button. On this summary page you can review, edit, delete and submit your orders. Prices shown are indicative only.
- Read the terms and conditions and tick the box, then submit your request.
- You’ll then receive a pop up note thanking you for the order. Your relationship manager will be sent an email with the request and call you within a day to confirm the order.
Finally, you can keep track of progress by opening the request page. Multiple orders can be at different stages, partly filled, filled and awaiting settlement.
Need more help?
- If you need a refresher course in bonds, you can register for our next Introduction to Fixed Income Webinar on 18 June, by clicking here
- Try reconnecting with your dealer. If you can’t remember their name just call our general office number on 1800 01 01 81
The contents of this document are copyright. Other than under the Copyright Act 1968 (Cth), no part of it may be reproduced or distributed to a third party without FIIG’s prior written permission other than to the recipient’s accountants, tax advisors and lawyers for the purpose of the recipient obtaining advice prior to making any investment decision. FIIG asserts all of its intellectual property rights in relation to this document and reserves its rights to prosecute for breaches of those rights.
Certain statements contained in the information may be statements of future expectations and other forward-looking statements. These statements involve subjective judgement and analysis and may be based on third party sources and are subject to significant known and unknown uncertainties, risks and contingencies outside the control of the company which may cause actual results to vary materially from those expressed or implied by these forward looking statements. Forward-looking statements contained in the information regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. You should not place undue reliance on forward-looking statements, which speak only as of the date of this report. Opinions expressed are present opinions only and are subject to change without further notice.
No representation or warranty is given as to the accuracy or completeness of the information contained herein. There is no obligation to update, modify or amend the information or to otherwise notify the recipient if information, opinion, projection, forward-looking statement, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.
FIIG shall not have any liability, contingent or otherwise, to any user of the information or to third parties, or any responsibility whatsoever, for the correctness, quality, accuracy, timeliness, pricing, reliability, performance or completeness of the information. In no event will FIIG be liable for any special, indirect, incidental or consequential damages which may be incurred or experienced on account of the user using information even if it has been advised of the possibility of such damages.
FIIG provides general financial product advice only. As a result, this document, and any information or advice, has been provided by FIIG without taking account of your objectives, financial situation and needs. Because of this, you should, before acting on any advice from FIIG, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If this document, or any advice, relates to the acquisition, or possible acquisition, of a particular financial product, you should obtain a product disclosure statement relating to the product and consider the statement before making any decision about whether to acquire the product. Neither FIIG, nor any of its directors, authorised representatives, employees, or agents, makes any representation or warranty as to the reliability, accuracy, or completeness, of this document or any advice. Nor do they accept any liability or responsibility arising in any way (including negligence) for errors in, or omissions from, this document or advice. Any reference to credit ratings of companies, entities or financial products must only be relied upon by a ‘wholesale client’ as that term is defined in section 761G of the Corporations Act 2001 (Cth). FIIG strongly recommends that you seek independent accounting, financial, taxation, and legal advice, tailored to your specific objectives, financial situation or needs, prior to making any investment decision. FIIG does not provide tax advice and is not a registered tax agent or tax (financial) advisor, nor are any of FIIG’s staff or authorised representatives. FIIG does not make a market in the securities or products that may be referred to in this document. A copy of FIIG’s current Financial Services Guide is available at www.fiig.com.au/fsg.
An investment in notes or corporate bonds should not be compared to a bank deposit. Notes and corporate bonds have a greater risk of loss of some or all of an investor’s capital when compared to bank deposits. Past performance of any product described on any communication from FIIG is not a reliable indication of future performance. Forecasts contained in this document are predictive in character and based on assumptions such as a 2.5% p.a. assumed rate of inflation, foreign exchange rates or forward interest rate curves generally available at the time and no reliance should be placed on the accuracy of any forecast information. The actual results may differ substantially from the forecasts and are subject to change without further notice. FIIG is not licensed to provide foreign exchange hedging or deal in foreign exchange contracts services. The information in this document is strictly confidential. If you are not the intended recipient of the information contained in this document, you may not disclose or use the information in any way. No liability is accepted for any unauthorised use of the information contained in this document. FIIG is the owner of the copyright material in this document unless otherwise specified.
The FIIG research analyst certifies that any views expressed in this document accurately reflect their views about the companies and financial products referred to in this document and that their remuneration is not directly or indirectly related to the views of the research analyst. This document is not available for distribution outside Australia and New Zealand and may not be passed on to any third party without the prior written consent of FIIG. FIIG, its directors and employees and related parties may have an interest in the company and any securities issued by the company and earn fees or revenue in relation to dealing in those securities.