Solactive partners with FIIG to launch Australian domestic sub-investment grade bond index
Solactive has partnered with FIIG to launch the Solactive FIIG Australian High Yield and Non-Rated Bond TR Index, the first index to exclusively cover High Yield and Non-Rated Bonds in Australia and allows investors to assess the performance of the AUD high yield bond market.
The index was developed as a joint collaboration between the German, index provider Solactive and Australian fixed-income specialist, FIIG Securities (FIIG). It is engineered to mirror performance of the AUD-denominated Australian corporate bonds rated high yield or not rated universe.
A recent study published by Deloitte shows a 40 per cent increase in desire for corporate bonds in Australia between 2010 and 2018. Currently, only 16 per cent of high net worth individuals in Australia directly own corporate bonds. The research shows that older Australians allocate more than a third (34 per cent) of their investment portfolio to shares.
Despite the lack of awareness and attentions corporate bonds receive in comparison to other investment options, Vanguard research shows that Australians bonds have returned 8.3 per cent per annum over a 30 year period from 1 July 1987 to 30 June 2019, compared to 8.6 per cent for Australian equities and 6.9 per cent for international equities and are a lot less volatile than equities.
Since inception in December 2012, the Solactive FIIG Australian High Yield and Non-Rated Bond TR Index have generated a cumulative return of 58.2 per cent to 31 July 2019 or a compound annual return of 7.20 per cent over the same period. Currently, the Index contains 49 bonds issued by 36 issuers. NextDC, Downer, Crown Resorts, Australian Unity and Virgin are the top five issuers by outstanding volume and make up 58 per cent of the index.
With the Australian corporate bond market having grown by more than 40 per cent since 2010, currently reaching over AUD1 trillion of Australian corporate bonds outstanding (this is more than two-thirds the size of the Australian stock market), more Australian investors are now looking to bonds to deliver reliable returns and protect their portfolios.