The IAF ETF is a ~$3.6bn low-cost ASX bond ETF that invests in a diversified portfolio of Australian government, semi-government and investment-grade corporate bonds with ~90% of the portfolio in fixed rate debt – offering investors steady income and portfolio diversification. The ETF pays quarterly distributions and tends to dampen portfolio volatility relative to equities, with a current yield of around ~3.1%, though again, this moves with bond prices and underlying interest rates.
We’re investing through interesting times, with investors increasingly turning to corporate bond ETFs like CRED to capture ~5% yields on the ASX, well above traditional government bond funds. However, recent private credit concerns are weighing on the ETF, which we will look at later, a reminder that higher yield rarely comes without higher risk. The IAF ETF offers a far safer yield just above 3%, not exciting but safe – a similar rate to term deposits with CBA unless you’re prepared to tie up money for 12 months or longer. We like IAF as a stabiliser within a balanced portfolio, having traded broadly between ~$96 and $104 in recent years, reflecting the steady nature of its underlying bond portfolio – not all portfolio holdings should go up and down by 20-30% a month as we often see from the likes of lithium and gold stocks.
- We can see a few % downside in the short term as inflation fears push up bond yields – MM holds the IAF ETF in its Core ETF Portfolio.
MM is bullish towards the IAF around $98-99
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