Zenith rates NSW Waratah Annuity Bonds – Series 12 RECOMMENDED

NSW Waratah Annuity Bonds – Series 12 (WAB) is designed to provide a regular, annuity style income stream over a defined term via a debenture issued by the NSW Treasury Corporation (TCorp) which is effectively guaranteed by the NSW Government. WAB has the characteristics of an amortising inflation linked bond or a fixed term annuity with indexed payments and zero residual value. As such, it provides investors with low volatility returns from a high quality credit source with indexation to protect income in real terms.

Zenith’s View

WAB represents an effective way for smaller investors to access protection against inflation outside the more mainstream avenues of fixed term indexed annuities or an inflation linked bond fund. Traditionally, access to direct inflation linked bonds and/or amortising bonds has been the domain of large scale institutional investors. Accordingly, opportunities to effectively access these types of investments particularly when issued by high credit quality institutions, has been rare. WAB brings both facets into a single package; indexation quarterly to CPI which is ratcheted so payments cannot fall and amortisation of principal which has the effect of boosting payments. The impact to the timing of cash flows is likely to create a superior total return (IRR) when compared to a nominal bond of the same duration and credit quality based on current interest rates. The term to maturity for WAB is 9 years.

WAB is best used to secure the defensive portion of a portfolio and to hedge against inflation over the long term. It should be noted however that we believe WAB should be treated as a way to supplement income and used as part of a holistic approach to retirement planning rather than a singular solution. Zenith rates the NSW Waratah Annuity Bonds – Series 12 (APIR: ZIP0676XX) RECOMMENDED

NOTE: NSW Waratah Annuity Bonds – Series 11 is now closed for investment. In accordance with our research policy, Zenith has withdrawn the rating on this product.