The iShares Core Composite Bond ETF (ASX: IAF) is a simple, low-cost way for ASX investors to express a falling interest-rate view. It is unlikely to shoot the lights out in a bull market, but in a diversified portfolio, it serves two important roles: generating relatively stable income and providing defensive diversification when equity markets come under pressure. Over the past 12-months the ETF has yielded 3.1% – solid but not exciting.
IAF holds a portfolio of Australian government and investment-grade corporate bonds with an average duration of around 6 years, meaning the fund is reasonably sensitive to changes in interest rates. As a rule of thumb, if bond yields fall 1%, the capital value of the portfolio could rise by roughly 6%, although the relationship is not exact. For investors positioning for RBA rate cuts or seeking a defensive portfolio anchor, IAF offers one of the cleanest fixed-income exposures available on the ASX.
- We like this ETF moving towards Christmas, believing the RBA will stay on hold, or lift rates one as a worse case scenario – MM owns the IAF in the Core ETF Portfolio.
MM is long and bullish on the IAF ETF from the $101 level
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