Question 1: What are your thoughts on XTBs?
Answer: I think XTBs (exchange traded bonds) are fine but because the yield-to-maturity is so low (generally under 2%), they’re pretty unattractive. Unfortunately, we don’t have a strong corporate bond market. Retail investors are essentially “incentivised” by the banks (paid higher rates than institutional investors due to various APRA liquidity measures) so it’s very hard to go past term deposits for fixed interest investments up to five years. If you think interest rates are going to fall or are prepared to consider “non-investment grade” risk, or potentially want a term of more than five years, then consider XTBs. Otherwise, stick to term deposits or access the market with a diversified portfolio from a manager.
Question 2: As a retiree, I value bank dividends but am underweight banks due to concerns about concentration risk. Can you comment and suggest some additional higher dividend stocks outside the top 50?
Answer: You won’t find many “higher” dividend stocks other than the banks. Sorry, I don’t get you concerns about “concentration risk”. It’s very hard to suggest some stocks without knowing more about your risk appetite and existing portfolio. However, for some ideas, you could look at the portfolios of some of the income-focused managed funds such as:
- Australian Foundation (AFIC).
- Switzer Dividend Growth Fund (SWTZ).
- Contango Income Generator (CIE) – focuses on stocks outside the top 30.
- Einvest Income (EIGA).
Typically, each of these funds will publish a list of their top 20 holdings each month. Also, keep reading the Switzer Report for ideas from our experts including Tony Featherstone, James Dunn and Charlie Aitken.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.