Should You Buy Russell Australian Select Corporate Bond ETF At This Share Price?

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What happened to the RCB share price?

Russell Australian Select Corporate Bond ETF [ASX RCB] has hardly moved in the last three years.

When people buy bonds, they are looking to diversify their portfolios and they want to receive a fixed income.

I am the emerging market analyst at Port Philip Publishing. I specialise in recommending emerging market stocks to my clients. I have to say, the reason behind selecting a bond exchange-traded fund (ETF) such as RCB more or less escapes me.

Even the ASX200 outperforms

When I look at the return for RCB, the ETF has hardly moved in the last three years. In fact, it has reduced in value slightly since July 2012. In comparison, the SPDR S&P/ASX 200 ETF [ASX:STW] has managed to produce more than 30% in the same period.

Stock indexes in most markets tend to inflate overtime due to economic growth and inflation in the economy. In addition, stock indexes such as STW are not a risky assets. Apart from a slight long term negative correlation between the RCB and STW, I don’t see much appeal in RCB.

What should you do with RCB shares now?

I still believe stocks offer the best rate of return for investors over the long term, especially emerging market equities. It is true that the stock market can be very volatile sometimes, such as in recent weeks. However, it is the best asset class for long term wealth building.

Obviously, if you put half of your money in bonds and half of your money in stocks, you would be successful in creating a smoother trend. But it is by no means the profit-maximising choice for investors.

Ken Wangdong
Emerging Market Analyst, New Frontier Investor

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