Global X Australian Bank Credit ETF (ASX: BANK)

The Global X Australian Bank Credit ETF (BANK) offers a sophisticated entry point into the diversified debt portfolios of Australia’s premier financial institutions. By capturing the full capital structure excluding shares, the fund provides a strategic blend of senior bonds, subordinated debt, and hybrid securities. This first-to-market solution allows investors to access a universe beyond traditional term deposits and equities, targeting attractive yields without incurring excessive duration risk.

The fund tracks the Solactive Australian Bank Credit Index, employing a disciplined 40/30/30 weighting across fixed and floating-rate instruments. This rules-based approach ensures exposure to high-quality, investment-grade assets issued by APRA-regulated institutions. By prioritising the security hierarchy of the bank’s capital structure, BANK serves as a robust core holding for those seeking regular income and defensive diversification. It effectively delegates complex allocation decisions between senior and subordinated credit, providing a cost-effective tool for navigating the Australian banking sector’s credit markets.

The Global X Australian Bank Credit ETF (BANK) is an index-based ETF that invests in a diversified portfolio of Australian banking debt across the full capital structure excluding shares. It comprises fixed and floating-rate bonds, senior and subordinated debt (Tier 2 Capital), and hybrid securities (Additional Tier 1 Capital).

The Global X Australian Bank Credit ETF (BANK) aims to provide investors a return (before fees and expenses) that tracks the performance of the Solactive Australian Bank Credit Index, a published index, by holding a portfolio of Bonds and Hybrid Securities that may comprise all or a representation of the securities comprising the Index, or other eligible assets as determined by the Responsible Entity.

BANK is an index-based ETF that invests in a diversified portfolio of Australian banking debt across the full capital structure excluding shares. It comprises fixed and floating-rate bonds, senior and subordinated debt (Tier 2 Capital), and hybrid securities (Additional Tier 1 Capital).

•  The Australian banks are some of the highest-quality financial institutions in the world. While most Australians access bank securities through shares and term deposits, they may be missing out on the broader capital structure investable universe.
• Investing in securities such as senior bank bonds, subordinated debt and hybrids may present an attractive yield for investors whilst not taking excessive duration or credit risk. While BANK may have some concentration risk as it only holds credit securities issued by Australian banks, it is well diversified across the capital structure.
• BANK provides a first-to-market diversified solution enabling investors to combine three different fixed income security types dedicated to Australian banks into one index-based tradable product at a cost-effective rate.

What are Senior Bonds ?

Senior bonds take priority over most other fixed income securities within a bank’s capital structure, and therefore take precedence in the event that the issuer is wound up or forced into liquidation. Because senior bonds offer lower credit risk due to their seniority in the capital structure, they typically pay lower rates of interest than subordinated bonds and hybrids. 

What are Subordinated Bonds ?

Subordinated bonds are bonds which the holder’s claim to the issuers assets ranks behind senior bond holders but before hybrid holders within a bank’s capital structure in the event that the issuer is wound up or forced into liquidation. Subordinated bonds have higher credit risk than senior bonds due to their ranking in the capital structure, and therefore pay higher rates of interest than senior bonds.

What are Hybrids?

‘Hybrid’ is a generic term used to describe a security that combines elements of debt securities and equity securities. They include subordinated notes, convertible preference shares, capital notes issued by banks, insurance companies, and other companies.

Typically, hybrids promise to pay a rate of return (fixed or floating) until a defined date in the future, similar to debt securities. However, they also have equity-like features meaning they can potentially provide a higher rate of return compared to other regular debt securities, due to the higher inherent risk associated with their equity-like features.

These features may include reduced certainty as to the timing and amount of income generated from holding the security, the potential for the security to be converted into equity, early redemption by the issuer at a time not beneficial to the holder, and the holder being lowerranked than other creditors in the event of insolvency.

A bank’s capital structure refers to the mix of equity and debt on its balance sheet. In the event of bankruptcy, the capital structure dictates the order of payment and who gets priority. Bondholders, as creditors, have priority over shareholders and are paid first, ensuring they recover their investment before any residual value is distributed to shareholders. Conversely, when losses occur, equity absorbs them first, protecting bondholders. This hierarchy means bondholders have a higher claim on the bank’s assets.

• BANK tracks the Solactive Australian Bank Credit Index.
• The index provides exposure to AUD-denominated Australian senior and subordinated bonds and hybrids issued by APRA-regulated Authorised Deposit-Taking Institutions.
• To qualify for inclusion corporate bonds must be rated at least investment grade.
• Bonds and hybrids must have at least $500 million outstanding in value, and have a minimum of one year to call/maturity at each rebalance.
• The Index weighs the fixed income security components using a 40/30/30 portfolio weighting allocation between senior bonds, subordinated bonds and hybrids.
  The Index is rebalanced monthly.

•  As a core portfolio holding to diversity an investor’s fixed income pillar.
• To provide attractive regular income from trusted Australian banks.
• To delegate decisions on allocations such as fixed vs. floating, senior vs. subordinated, and corporate vs. hybrid using a rules-based approach.

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Global X Management (AUS) Limited (“Global X”) (Australian Financial Services Licence Number 466778, ACN 150 433 828) is the product issuer. Offers of interests in any retail product will only be made in, or accompanied by, a Product Disclosure Statement (PDS). In respect of each retail product, Global X has prepared a target market determination (TMD). Each PDS and TMD is available at www.globalxetfs.com.au. The information on this website is general in nature only and does not take into account your personal objectives, financial situations or needs. Before acting on any information, you should consider the appropriateness of the information having regard to your objectives, financial situation or needs and consider seeking independent financial, legal, tax and other relevant advice having regard to your particular circumstances. Any investment decision should only be made after obtaining and considering the relevant PDS and TMD. Investments in any product issued by Global X are subject to investment risk, including possible delays in repayment and loss of income and principal invested. The value or return of an investment will fluctuate and an investor may lose some or all of their investment. Past performance is not a reliable indicator of future performance.