Key Highlights

  • The fund holds almost entirely Australian government inflation-linked bonds, with bonds at 99.95% of the portfolio.
  • The management fee is 0.18%, and the listed annual Yield is 1.59%.
  • The fund holds 12 issuers and securities, with the top ten making up nearly all of the portfolio.
  • Turnover is reported at 21%.

iShares Government Inflation ETF (ASX:ILB) tracks the Bloomberg AusBond Government Inflation 0+ Year Index, which covers Australian government bonds whose payments are linked to inflation, most commonly the Consumer Price Index. The units were listed at $127.61, and the management fee is 0.18%. The fund is designed for investors who want part of their fixed-income holdings to move with inflation, rather than being fixed in nominal terms.

Ticker

ASX:ILB

Listed price

$127.61

Management fee

0.18%

Listed annual yield

1.59%

Benchmark

Bloomberg AusBond Govt Infl 0+Y TR AUD

Holdings

12 companies

How the portfolio is built

Bonds make up 99.95% of the fund, with a small cash component. Australia accounts for the entire portfolio. The largest holdings are Commonwealth inflation-linked bonds, including issues at 2.5%, 2% and 0.75% coupons, each contributing around 18% to 24% of the fund.

The fund holds 12 issuers and securities, and almost all of the portfolio sits in the top ten. Turnover of 21% reflects periodic adjustments to the index.

Income and costs

The listed annual yield is 1.59%, which is lower than nominal bond funds. That is expected, because a large part of the return from inflation-linked bonds comes through the inflation adjustment to the principal rather than through coupon income.

The management fee of 0.18% is moderate for a government bond product.

Risks to weigh

Inflation-linked bonds still respond to real interest rates, so their prices can fall when real yields rise, even if inflation is high. The yield can also be low or negative in real terms during some periods. Because the fund holds few issuers, changes in the outlook for a small number of securities can affect it noticeably. Investors should weigh its inflation protection against the lower income and rate sensitivity.

Final Word

The iShares Government Inflation ETF offers exposure to Australian government bonds that adjust for inflation. Its income is lower than nominal bond funds, and its price will respond to real interest rates, which makes it a different kind of holding from a standard bond fund.