Key Highlights

Three Exchange-traded funds offer broad exposure to corporate bonds on the ASX: iShares Core Corporate Bond ETF (ASX:ICOR), Betashares Australian Investment Grade Corporate Bond ETF (ASX:CRED) and Vanguard Australian Corp Fixed Interest Index ETF (ASX:VACF). Corporate bonds pay more than Government Bonds to compensate for Credit risk, and the three funds differ in size, issuer count and geographic reach.

Measure

ASX:ICOR

ASX:CRED

ASX:VACF

Listed price

$93.99

$22.51

$51.01

Fund size

$527 million

$1.88 billion

Not shown

Management fee

0.15%

0.25%

0.20%

Listed annual yield

4.59%

5.59%

3.98%

Holdings

469

67

575

Australian exposure

53.41%

65.14%

50.39%

Portfolio focus

ASX:ICOR tracks the Bloomberg AusBond Credit 0+ Year Index with a large issuer base and low concentration, with the top ten making up 8.15%. ASX:CRED tracks an investment grade corporate index with 67 issuers, of which the top ten make up 21.38%. ASX:VACF tracks the Bloomberg AusBond Credit index with 575 issuers and a top ten weight of 7.71%.

The difference in issuer count matters. ASX:VACF and ASX:ICOR spread credit risk over many names, while ASX:CRED holds fewer issuers, so each one carries more weight.

Yield and cost trade-offs

ASX:CRED has the highest listed yield at 5.59% and the highest fee at 0.25%. ASX:ICOR yields 4.59% for a 0.15% fee, while ASX:VACF yields 3.98% for 0.20%. The spread between the three yields reflects differences in their credit quality and the composition of their indices.

Investors comparing the funds should look at yield and fee together. A higher yield can be offset by a higher fee and by any additional credit risk taken to earn it.

Risks to weigh

All three are exposed to rising interest rates and to widening credit spreads. ASX:CRED's smaller issuer count means a single downgrade or default could have a larger effect on the fund. ASX:VACF and ASX:ICOR have higher exposure to offshore issuers, which brings currency and foreign credit conditions into play.

The listing for ASX:ICOR showed an unusually wide bid and offer range on the day, which suggests that orders may need care. Liquidity can vary across corporate bond funds, particularly in stressed markets.

Final Word

The three corporate bond funds offer similar purposes but different trade-offs. ASX:CRED pays the highest listed yield with fewer issuers and a higher fee, ASX:ICOR gives a broader spread at a mid-range fee, and ASX:VACF offers the widest issuer base at a lower yield.