BEST INCOME ETFs
GOLD WINNER ISHARES In volatile times, an index-tracking bond fund can help steady the nerves
The winner, the iShares Core Composite Bond ETF, invests in quality AAA and AA Australian government and semi-government bonds.
It follows the Bloomberg AusBond Composite 0+ Year index, with roughly 73% in AAA-rated securities, 19% in AA bonds, 5% in A bonds, 2% in BBB and 1% not rated.
The ETF holds 51% in treasury bonds, 37% in government-related bonds, 11% in corporate bonds and 1% in covered bonds.
The bonds have a range of maturities with the biggest holding (22%) being seven to 10 years followed by three to five years (20%). The ETF charges an investment management fee of 0.20%pa.
Returns from government bonds have been lacklustre over three years but the past year has seen them return more than double the cash rate.
The second placegetter, Vanguard Australian Fixed Interest Index, is similar to the winner as it follows the same benchmark and charges the same fee. Not surprisingly, the returns are comparable too.
Returns from government bonds have been low over the past year compared with returns from local and global shares but investors typically hold fixed-interest securities for defensive reasons and to diversify their risk in times of falling sharemarkets.
The ideal investment time horizon for both exchange traded funds is a medium term of three to five years.