Wednesday 23 February 2022 by Daniel Johnson Retail-investors-time-to-feast Trade opportunities

Retail investors’ time to feast

Now is a good time to be a retail bond investor.

FIIG’s core objective has always been to improve access to bond markets for all Australian investors and late last year we reached a key milestone on this journey.

The retail bond offering was significantly expanded with nearly 25 new bonds added to our direct bond service which now includes more than 50 tradeable bonds. New bonds will continue to be added to this universe as they meet our selection criteria meaning retail investors will continue to see new opportunities to improve and build portfolios.

The expanded retail offering provides those investors who do not classify as wholesale (under the Corporations Act) with a greater ability to build well diversified portfolios and achieve target yields. Our retail clients now have access to a far wider range of investment grade bonds issued by household names along with higher yield options issued by smaller ASX listed businesses.

The benefits of this additional flexibility are clear:

  • Improved portfolio diversification
  • More opportunity to achieve yield targets
  • Improved liquidity
  • Ability to better construct portfolios and smooth income cashflows
  • More regular trading opportunities

The timing of this step change in the retail market has also been opportune. Yields have shifted higher in 2022 as markets reprice for an expected rate hike cycle and many of the new bonds now available are offering the highest returns we have seen for some time.

The start of a new year is a perfect time to review portfolios – now more so than ever given market movements and the new range of opportunities on offer. Over recent weeks we have been having many discussions with retail investors which have centred on how to take advantage of these changes.

Larger allocations to bonds which have performed strongly are now able to be reweighted, locking in profits and switching to better value alternatives. This helps to more appropriately stagger maturity profiles and smooth cash flows in the process.

The upcoming year will also see many widely held bonds mature and we are happy to provide investors with access to attractive options to address this reinvestment task and roll over key holdings.

Investors wishing put additional funds to work are now able to build out portfolios with longer term fixed coupon bonds like Pacific National 2029 and Qantas Airways 2030 which, as yields have jumped, suddenly don’t seem so boring at approx. 4% p.a.

As monetary policy normalises, we have also seen strong demand for new floating rate notes such as Ampol 2026c which pays a good coupon in the event rate hikes to do eventuate as quickly as some market participants expect.

‘Green’ bonds are also on the menu, with Lendlease 2027 giving investors the option to invest funds which are earmarked for environmentally positive projects and initiatives.

High yield bonds offering north of 5% are also available and we expect to add additional options here over the course of the year. We have provided more detail on several new bonds below.

While the menu of bonds has been widened, the criteria for suitable bonds remains narrow and we maintain a strict focus on credit quality with new retail bonds subject to approval from FIIG’s Credit Committee and Research team.

As part of the expanded retail offering, we have also further improved access to bond markets by reducing our minimum initial investment for new clients to $50,000, while individual bonds will continue to trade in minimum parcels of $10,000.

We understand that fixed income is an unfamiliar asset class for many Australians, and this lower minimum allows investors to familiarise themselves with the market, then build portfolios organically over time if they wish. With our assistance, new investors are able to select individual bonds and build bespoke portfolios which suit their needs. This can include fixed, floating and inflation linked bonds, corporate and bank hybrids, green bonds and also longer-term annuity style bonds from Australian infrastructure projects.

Retail portfolios which provide capital stability and a regular income are currently offering returns in the range of 4-6% p.a. You can view our retail sample portfolio here.