Exploring Australian Fixed Income Investments: Detailed Guide on Duration and Returns

Introduction

Investing in fixed income securities from established Australian companies provides a steady income stream and predictable returns. Duration is a crucial metric in fixed income investments, representing the weighted average time until all cash flows (interest and principal repayments) are received. It helps investors gauge a bond’s price sensitivity to interest rate changes. Here, we explore 20 notable Australian companies, detailing their historical performance, how an initial investment could achieve a $100,000 profit, and their respective income durations.

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Please note that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly on our website, blogs , newsletters.

1. Commonwealth Bank of Australia (CBA)

• Sector:Financial Services  
• Historical Returns:Approximately 6% per annum  
• Duration:5 years  

Commonwealth Bank of Australia (CBA) is one of the nation’s largest banks, offering various fixed income products, such as bonds and term deposits. An investment of $1,666,667 would be required to achieve a $100,000 profit over one year at a 6% return.

A duration of 5 years indicates moderate sensitivity to interest rate changes. If interest rates rise by 1%, the bond’s price will fall by approximately 5%. This duration provides a balance between risk and reward, making CBA bonds suitable for investors seeking stable returns with some interest rate risk.

2. Telstra Corporation Limited (TLS)

• Sector:Telecommunications  
• Historical Returns:Around 5% per annum  
• Duration:6 years  

Telstra, Australia’s leading telecommunications provider, issues corporate bonds that appeal to conservative investors. An initial investment of $2,000,000 would be necessary to achieve a $100,000 profit at a 5% return.

The 6-year duration signifies higher sensitivity to interest rate fluctuations. Telstra bonds provide a steady income stream, but investors must be mindful of interest rate risk.

3. Woolworths Group Limited (WOW)

• Sector:Consumer Staples  
• Historical Returns:Approximately 4.5% per annum  
• Duration:4.5 years  

Woolworths, a major retail chain, offers bonds with a duration of 4.5 years, indicating moderate interest rate sensitivity. To generate $100,000 in profit, an investor would need to invest around $2,222,222 at a 4.5% return.

The 4.5-year duration offers a balance between yield and interest rate risk, making Woolworths bonds suitable for investors looking for stable returns with manageable risk exposure.

4. BHP Group Limited (BHP)

• Sector:Mining and Resources  
• Historical Returns:Around 5.5% per annum  
• Duration:5.8 years  

BHP, a leading global resources company, issues corporate bonds with a duration of 5.8 years. An initial investment of $1,818,182 would be required to achieve a $100,000 profit at a 5.5% return.

The 5.8-year duration suggests significant sensitivity to interest rate movements. Investors in BHP bonds can expect attractive returns, but must be prepared for potential price volatility in response to interest rate changes.

5. Australia and New Zealand Banking Group (ANZ)

• Sector:Financial Services  
• Historical Returns:Approximately 5.8% per annum  
• Duration:5.2 years  

ANZ offers a range of fixed income securities with a duration of 5.2 years. An investment of $1,724,138 would be needed to achieve a $100,000 profit at a 5.8% return.

The 5.2-year duration provides a good balance of return and interest rate risk, making ANZ bonds appealing to investors seeking moderate risk and stable income.

6. Westpac Banking Corporation (WBC)

• Sector:Financial Services  
• Historical Returns:Around 5.6% per annum  
• Duration:5.5 years  

Westpac provides various fixed income investment opportunities with a duration of 5.5 years. An initial investment of $1,785,714 would yield a $100,000 profit at a 5.6% return.

With a 5.5-year duration, Westpac bonds offer reasonable returns with moderate interest rate risk, suitable for investors looking for steady income and some level of security.

7. Rio Tinto Limited (RIO)

• Sector:Mining and Resources  
• Historical Returns:Approximately 5.2% per annum  
• Duration:6 years  

Rio Tinto issues corporate bonds with a duration of 6 years. An initial investment of $1,923,077 would be necessary to achieve a $100,000 profit at a 5.2% return.

The 6-year duration means greater price sensitivity to interest rate changes, but it also offers potential for higher returns, attracting investors who are comfortable with higher interest rate risk.

8. National Australia Bank (NAB)

• Sector:Financial Services  
• Historical Returns:Around 5.4% per annum  
• Duration:5.4 years  

NAB offers a range of fixed income products with a duration of 5.4 years. An investment of $1,851,852 would be needed for a $100,000 profit at a 5.4% return.

The 5.4-year duration balances interest rate risk and return, making NAB bonds a solid choice for investors seeking stable income with moderate risk.

9. Santos Limited (STO)

• Sector:Energy  
• Historical Returns:Approximately 5% per annum  
• Duration:5.5 years  

Santos, a leading energy company, issues corporate bonds with a duration of 5.5 years. An investment of $2,000,000 would be required for a $100,000 profit at a 5% return.

With a duration of 5.5 years, Santos bonds provide steady returns but are sensitive to interest rate changes, appealing to investors comfortable with moderate risk levels.

10. Transurban Group (TCL)

• Sector:Infrastructure  
• Historical Returns:Around 4.8% per annum  
• Duration:6.2 years  

Transurban, a leader in toll road management, offers bonds with a duration of 6.2 years. To generate $100,000 in profit, an investment of $2,083,333 would be necessary at a 4.8% return.

The 6.2-year duration indicates significant interest rate sensitivity, offering higher returns but with higher risk. These bonds are suitable for investors seeking long-term income with a higher tolerance for interest rate fluctuations.

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Please note that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly on our website, blogs , newsletters.

11. Amcor Limited (AMC)

• Sector:Packaging  
• Historical Returns:Approximately 4.7% per annum  
• Duration:5 years  

Amcor provides fixed income securities with a duration of 5 years. For a $100,000 profit, an initial investment of $2,127,660 would be needed at a 4.7% return.

The 5-year duration of Amcor bonds strikes a balance between return and interest rate risk, making them suitable for conservative investors seeking stable income.

12. Qantas Airways Limited (QAN)

• Sector:Aviation  
• Historical Returns:Around 4.9% per annum  
• Duration:6 years  

Qantas issues bonds with a duration of 6 years, offering solid returns but higher sensitivity to interest rates. An initial investment of $2,040,816 would yield a $100,000 profit at a 4.9% return.

With a 6-year duration, Qantas bonds are more sensitive to interest rate changes, offering higher returns for investors willing to accept greater risk.

13. Origin Energy Limited (ORG)

• Sector:Energy  
• Historical Returns:Approximately 5.1% per annum  
• Duration:5.7 years  

Origin Energy’s bonds have a duration of 5.7 years. An investment of $1,960,784 would be required to achieve a $100,000 profit at a 5.1% return.

The 5.7-year duration reflects moderate interest rate sensitivity, offering a good balance of return and risk for investors seeking stable income.

14. Scentre Group (SCG)

• Sector:Real Estate  
• Historical Returns:Around 4.6% per annum  
• Duration:5.3 years  

Scentre Group, a prominent property company, offers bonds with a duration of 5.3 years. To generate $100,000 in profit, an investment of $2,173,913 would be necessary at a 4.6% return.

The 5.3-year duration indicates moderate interest rate sensitivity, making Scentre Group bonds a solid choice for investors seeking stable returns with manageable risk.

15. AGL Energy Limited (AGL)

• Sector: Utilities  
• Historical Returns: Approximately 4.7% per annum  
• Duration:5 years  

AGL issues bonds with a duration of 5 years. For a $100,000 profit, an initial investment of $2,127,660 would be required at a 4.7% return.

With a duration of 5 years, AGL bonds offer a balance between return and interest rate risk, making them suitable for investors seeking stable income with low risk.

16. Sydney Airport Holdings (SYD)

• Sector: Infrastructure  
• Historical Returns: Around 4.8% per annum  
• Duration:6.1 years  

Sydney Airport’s bonds, with a duration of 6.1 years, offer reliable returns. An initial investment of $2,083,333 would yield a $100,000 profit at a 4.8% return.

The 6.1-year duration indicates higher interest rate sensitivity, offering attractive returns for investors willing to accept greater risk.

17. APA Group (APA)

• Sector:Utilities  
• Historical Returns:Approximately 4.9% per annum  
• Duration:5.8 years  

APA Group provides fixed income securities with a duration of 5.8 years. An investment of $2,040,816 would be required for a $100,000 profit at a 4.9% return.

The 5.8-year duration of APA bonds reflects moderate interest rate sensitivity, offering good returns for investors seeking steady income.

18. Medibank Private Limited (MPL)

• Sector:Health Insurance  
• Historical Returns:Around 4.5% per annum  
• Duration:5 years  

Medibank offers bonds with a duration of 5 years, appealing to risk-averse investors. For a $100,000 profit, an investment of $2,222,222 would be necessary at a 4.5% return.

With a duration of 5 years, Medibank bonds provide a stable income stream with low interest rate risk, making them suitable for conservative investors.

19. Coles Group Limited (COL)

• Sector:Consumer Staples  
• Historical Returns:Approximately 4.4% per annum  
• Duration:5 years  

Coles issues bonds with a duration of 5 years, providing predictable returns. To achieve a $100,000 profit, an initial investment of $2,272,727 would be needed at a 4.4% return.

The 5-year duration of Coles bonds balances return and interest rate risk, appealing to investors seeking stable income with low risk.

20. Insurance Australia Group (IAG)

• Sector:Insurance  
• Historical Returns:Around 4.6% per annum  
• Duration:5.3 years  

IAG offers fixed income securities with a duration of 5.3 years, a solid choice for conservative investors. An initial investment of $2,173,913 would yield a $100,000 profit at a 4.6% return.

The 5.3-year duration of IAG bonds reflects moderate interest rate sensitivity, offering stable returns for investors seeking predictable income with manageable risk.

The Bottom Line

Investing in fixed income securities from these prominent Australian companies offers a diverse range of opportunities for stable returns. Understanding the historical returns and duration of these securities helps investors make informed decisions, manage interest rate risk, and achieve their financial goals. By diversifying across sectors and adjusting investment strategies according to duration and market conditions, investors can optimize their fixed income portfolios for long-term success.

Resource:https://www.starinvestment.com.au/fixed-income-investments-australia-duration-returns/