Global X’s Australia Bank Credit ETF (ASX: BANK) has gathered $95 million in assets under management since launching just a year ago, making it one of the fastest-growing products in the exchange-traded fund (ETF) provider’s line-up.
“BANK has been one of our fastest-growing ETFs,” said Marc Jocum, investment strategy and research manager at Global X. “It has already amassed $95 million in assets under management, driven predominantly by strong investor inflows.”
The ETF, which invests across senior bonds, subordinated debt and hybrids issued by Australian banks, has returned 5.2 per cent since inception and is offering a current running yield of 5.5 per cent.
Advisers from both private wealth firms and independent practices have been the primary source of flows, Jocum told InvestorDaily, with many seeking to simplify portfolio construction for clients who previously held individual bank hybrids.
“[Hybrids] often present challenges around liquidity and reinvestment when these securities mature,” he said. “BANK simplifies this by offering monthly income while outsourcing the rolling and rebalancing process through a single, diversified ETF structure.”
While the RBA delivered two rate cuts this year, in February and May, the ETF’s performance held steady thanks to its blend of fixed and floating rate exposures.
“BANK’s 20 per cent allocation to fixed-rate bonds provided a buffer, offering some capital appreciation as rates declined,” Jocum said. “BANK also takes less interest rate risk than traditional broad fixed income exposures, which can help cushion the overall volatility of the portfolio.”
While corporate credit spreads have remained tight for much of the past year, Jocum said there was “some widening in the most recent quarter as investor sentiment shifted to risk-off amid macroeconomic uncertainty and state budget concerns”.
Still, he noted, “investors continued to benefit from the yield premium offered by different tiers of the capital stack”, with subordinated bonds yielding around 1.9 per cent over cash and hybrids delivering spreads of roughly 3.6 per cent.
“That income differential remains a key driver of investor appetite, particularly given the securities are issued by well-trusted APRA-regulated banks,” Jocum said.
Hybrids in retreat
A structural shift is underway in the local income landscape with more than $40 billion worth of hybrid securities expected to be phased out by 2032 due to regulatory changes, which could leave a gap for retail and institutional investors relying on hybrid income.
“BANK provides a diversified solution by investing across senior bonds, subordinated bonds and hybrids, reducing reliance on any single layer of the capital stack,” Jocum said.
“As hybrids gradually roll off, the portfolio’s exposure to senior and subordinated securities will naturally grow.
With markets pricing in at least two more RBA rate cuts this year and a cash rate approaching 3 per cent by mid-2026, Jocum said the direction of yields is “clearly heading lower” – prompting investors to shift idle cash into income-producing assets to maintain cash flow and preserve real returns.
“Australian banks remain among the best-capitalised in the world,” he said. “For investors seeking income with greater transparency and liquidity than private or unlisted credit strategies, bank credit continues to offer an attractive and accessible solution.”
Regarding the broader popularity of fixed income ETFs, Jocum explained that they have doubled their share of the market in the past decade, and Global X expects that growth to continue as investors diversify away from cash-heavy portfolios.
“Fixed income ETFs have grown from 5 per cent of the ETF market a decade ago to 12 per cent today,” Jocum said. “I expect further growth and more innovation to happen in this asset class.”
Looking forward, Jocum added that as term deposits and cash yields face downward pressure and especially with Australian banks being among the most expensive banks in the world, “we expect demand to shift toward diversified income solutions like BANK”.
“We also anticipate continued flows as investors look for alternatives to traditional single bank hybrids, which are gradually being wound down,” Jocum said.
Last month, touching on APRA’s decision to phase out Additional Tier 1 (AT1) securities, PIMCO said the regulatory shift is a catalyst for investors to diversify beyond domestic hybrids.
The phasing out of hybrids should be viewed “as a catalyst for investors to explore global fixed income opportunities”, PIMCO said.
“When replacing hybrids, we believe that investors can maintain around 75 per cent of their capital in daily liquid vehicles focused on multi-sector credit and core bonds, while allocating up to 25 per cent to semi-liquid diversified private credit to enhance yields,” it said.
“A diversified approach that extends beyond corporate credit risk to include additional risk factors such as interest rates, yield curve exposures and securitised credit can deliver a superior risk-return profile compared to Australian hybrids.”
