VanEck Australia, Director of Investments, Russel Chesler talks about the VanEck Vectors Australian Corporate Bond Plus ETF (ASX:PLUS) and its importance in providing fixed interest exposure and diversification within long-only equity portfolios.
Rachael Jones: Hello I’m Rachael Jones for the Finance News Network. Joining me today from VanEck Australia (ASX:MVW) is Director of Investments, Russel Chesler. Russel, welcome back to FNN.
Russel Chesler: Good to be back here today.
Rachael Jones: VanEck is one of the most active issuers of Exchange Traded Funds on the local market. Why the focus on ETFs?
Russel Chesler: VanEck is a leading global provider of ETFs and we currently have almost $50 billion invested across over 80 ETFs worldwide. We have 16 ETFs listed on the ASX. We launched ETFs in order to provide investors with a diverse, transparent, liquid and cost effective means to achieve their investment objectives.
Rachael Jones: Before we move on to talk about Bond ETFs. Can you tell me about the asset class and why people should consider bonds?
Russel Chesler: Bonds have a number of advantages and benefits for investors. Firstly, they provide really stable, reliable income, plus a return of capital at maturity. Secondly, they are more defensive than shares and can help reduce volatility in a portfolio. And thirdly, they provide portfolio diversification benefits, as bonds generally do not move in tandem with equity markets.
Rachael Jones: Now to your ETF, can you introduce that for us?
Russel Chesler: The VanEck Vectors Australian Corporate Bond Plus EFT (ASX:PLUS) was launched in May 2017 and offers investors access to a portfolio of the highest yielding, predominantly investment grade, Australian dollar bonds. The ETF tracks the Markit iBoxx AUD Yield Plus index. This is what is known as a Smart Beta index, which selects the bonds based on the highest yield and limits issue exposure to five per cent. In contrast, the normal market index weights the bonds by their size, which means that companies who have larger debt, have a better proportion of that index.
Rachael Jones: Can you tell us about the performance, Russel?
Russel Chesler: PLUS has achieved a performance of 3.42 per cent over the last year, which is 0.4 per cent ahead of the Bloomberg AusBond Composite index. Over the last five years, the Markit index has outperformed the AusBond Bloomberg Composite index by 1.36 per cent, per annum. This is really good performance for a corporate bond portfolio.
Rachael Jones: Is there anything else investors need to know?
Russel Chesler: The fee on PLUS is a very competitive fee of 0.32 per cent, which is significantly lower than what you have on an unlisted managed bond fund. PLUS provides investors with a diversified portfolio across sectors, bonds, as well as issuers. There are currently 77 issuers in the ETF and 117 bonds. PLUS has an average duration of 4.4 years, which compares to 5.2 years for the Bloomberg AusBond Composite Bond index. The shorter duration makes it less sensitive to interest rate movements.
Rachael Jones: To the last question now Russel. What is the key message you’d like to leave investors?
Russel Chesler: The VanEck Vectors Australian Corporate Bond Plus ETF maintains a diversified exposure. And offers investors a portfolio, which is currently invested in the highest yielding investment grade bonds, with an average rating of A. The bonds are of shorter duration than the Bloomberg AusBond Composite index. And you can easily access the ETF on the ASX through a single trade, under the ticker PLUS.
Rachael Jones: Russel Chesler, thanks for the introduction to your ETF.
Russel Chesler: Thank you for the opportunity.