Diversification is Rewarding
Australian investors may be well-aware of the basic diversification benefits of global equity investing relative to domestic investing, but franking credits tend to win the day and keep home country bias firmly entrenched in portfolios.
There is however, more to the story than is usually understood. It’s worth looking deeper into the risks associated with a portfolio dominated by Australian equities, and the benefits a global opportunity set can provide when constructing investment portfolios.
What is a Managed Investment?
You'd like to invest in shares, property, bonds and cash but you don't have unlimited time?
The solution? Managed Investments
What are Bonds?
Bonds are long-term securities that pay interest at regular intervals until maturity. They are effectively IOUs. You purchase the investment and you receive an income stream (interest payments) while you hold the investment.
Bonds are considered medium-to-long term because they can have maturities ranging from one year to many years. Typical maturities are between three and thirteen years.
Most bonds are fixed rate bonds. They pay interest twice a year, with interest being based on the contractual rate of interest, which always remains fixed.
Some bonds are known as floating rate notes. They pay interest four times a year, with interest payments calculated at a margin above a reference rate, such as the 90-day bank bill rate. Like fixed-rate bonds, they have a fixed repayment date but sometimes may be paid earlier at the option of the issuer.
Bonds are fully tradable and do not need to be held until maturity.
Why Stapled Securities
Stapled Securities involve the stapling together of separate securities such as a share in a company and a unit in a trust which cannot be traded separately. This type of structure, of which there are many variants, has been used quite intensively in Australia by A-REITS (real estate investment trusts) and infrastructure funds. The major banks have also previously utilised stapling in the construction of non-innovative tier one (NIT-1) capital instruments, such as StEPS (issued by ANZ), PEARLS (CBA), SPS (Westpac) and NIS (NAB).