What are XTBs

XTBs (Exchange Traded Bond units) are a new type of Exchange Traded Product that is tradeable on the ASX that provide investors access to the returns of individual corporate bonds.

Buying XTBs is just like buying shares. They have all the benefits of ease of access and transparency that comes with all ASX investments.

More about XTBs

How XTBs work

XTBs bring together the predictable income and capital stability of corporate bonds, with the transparency and liquidity of the ASX market.

  • They provide all the income and capital repayment of specific, individual corporate bonds – such as Telstra, Woolworths and BHP bonds
  • The performance of an XTB closely follows its individual bond performance in the wholesale market
  • Select the individual bonds which you wish to gain exposure to
  • Each individual XTB reflects the maturity date and coupon payment of its respective corporate bond
  • Their yield and price is expected to reflect the yield and price of the underlying bond, after fees and expenses.
  • The full fee for XTBs is already incorporated into their price on ASX. Fees are 0.4% of the face value of the bond for the life of the bond, for fixed-rate XTBs and 0.2% for floating-rate XTBs.
  • The impact of the fee is to lower the yield of the XTB compared with the bond. A fixed rate corporate bond trading in the wholesale market at a yield of 4.8% becomes an XTB trading on ASX at about 4.4%. There are no other product fees payable.
  • There’s no minimum investment amount so you can invest as little as $500 in each XTB. This gives you the control to build the corporate bond portfolio of your choice to meet your investment objectives.

Who are XTBs suitable for?

The rule of thumb coined by Vanguard founder and global investment manager John Bogle is:

“your bond allocation should roughly equal your age”.

While clearly un-scientific it makes the point, that investors need to be aware of the increased need for defensive assets like XTBs in their portfolio as life moves forwards.

Key features of corporate bonds

Bond Issuer

Companies vary in their financial strength, depending on a range of factors such as their size and position in the industry and how much money they have already borrowed

Face Value

The nominal value of the bond – the principal lent to the company, which it promises to re-pay when it matures

Coupon

The annual income paid to investors expressed as a percentage of the Face Value. This term comes from the time when investors would detach coupons from their paper bond and take it to the company’s bank for payment. Coupon payments are usually half-yearly or quarterly and occur on set dates. This means bonds allow investors to accurately forward-plan to match known income from bonds with outgoings. Most other investments don’t have the ability to very accurately forward-plan in this way.

A bond with a face value of $10,000 and a coupon of 5%, paid semi-annually will provide an income of $500 per year (two payments of $250 per year) until maturity. At this time the investor receives the last coupon and the $10,000 repayment of principal.

Example cash flows of a bond

Fixed or floating coupon bonds
Many bonds have a coupon that is fixed. However, some have ‘floating’ coupons pegged to an industry benchmark that offers a fixed margin above that benchmark. Example: A floating coupon bond that tracks the Bank Bill Swap Rate (BBSW) and offers investors 0.75% above this rate would have a coupon referred to as BBSW + 0.75%. As at July 016, BBSW was in the region of 2% so the total coupon at that time would be 2.75%

Term to maturity (or tenor)

This is the length of time from the bond being issued until its maturity, when the face value and the final coupon are paid to investors. It can also mean the amount of time left to maturity from the day you are looking at the bond. The term is also known as the bond’s ‘tenor’.

Capital Ranking

When you invest in a company, it’s important to understand where your investment sits in the capital structure of that company. In the event that company gets into financial trouble, some securities are paid out before others and before shareholders.

XTBs are all “senior unsecured bonds”, which are the bonds the market refers to as ‘the bond market. Senior corporate bonds sit above subordinated bonds, which are in turn above hybrid securities, then equities. The lower the ranking in the capital structure, the higher the risk and potential reward associated with that security.

Capital Structure of a bank

An important practical and day-to-day implication of where securities sit in the capital ranking is the price stability or volatility of each security in the market. Senior bond prices/yields are generally far less volatile than securities below them in the structure such as equities and hybrids. This is important when it comes to the capital stability of your diversified portfolio.

Available range of XTBs

  • From Alumina to Woolworths, XTBs are available over many of the top ASX100 companies. Companies that you are likely familiar with, and already a shareholder in.
  • With almost 40 XTBs available to select from, you can build the portfolio that works for your requirements, and your personal preferences.

Cash Flow Tool

Check out XTBs Cash Flow Calculator to estimate income payments.

Cash flow tool

XTB Benefits

Access

XTBs give all investors access to the benefits of a wide range of corporate bonds from leading ASX listed companies, previously only available to institutional investors. XTBs can form part of the fixed income component of your diversified investment portfolio.

Transparency

Being on ASX you can track the value of your XTBs on a daily basis.

Capital Stability

Bonds are typically less volatile than shares, hybrids or property prices. They offer investors a known income and a known outcome at maturity. XTBs give you 100% of the coupons paid and the full face value of the bond in cash at maturity, subject to the creditworthiness of the underlying bond issuer.Corporate Bonds Compared

Liquidity

Buy or sell XTBs on ASX at any time, just like shares (subject to liquidity).

Income

For investors looking for regular income, XTBs provide a regular and reliable income stream. This allows you to match your income to your cash flow requirements. The income from XTBs will generally be at a higher rate than the interest paid on term deposits and cash based products.

Choice

XTBs provide a new listed fixed income alternative in a diversified investment portfolio, delivering capital stability, security and reduced risk. They are available across the bonds of some of the largest ASX listed companies, allowing you to select the XTBs that best meet your investment needs, based on investment term, type of income, or credit quality.

Security

Corporate bonds and the XTBs over them offer greater security of capital repayment than shares and hybrids. As creditors to the bond issuer, they rank ahead of hybrids and shares if a company is wound up.

Available to SMSFs

SMSFs may access XTBs as part of an investment portfolio, providing a regular income stream.

Click on the image below to download the XTB infographic.

Who’s behind XTBs

Find out more about the company behind XTBs with our exclusive interviews.

How to trade XTBs

You can trade XTBs just like shares. Just log into your chosen trading platform and enter the XTB stock code in the order pad*.

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Useful Links

Available XTBs
How to select XTBs
XTB starter packs for retail investors:
XTB Model Portfolios for licenced advisers:
Cash Flow Tool
Yield / Price Calculator
XTB Fact Sheets
XTBs in the news
The company behind XTBs

For  more information on XTBs visit www.xtbs.com.au

*The information on this webpage is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.