Until recently, cash was a neglected segment of the exchange traded funds market but several new offerings in the past month have changed that.
Investment manager BlackRock has launched two cash ETFs, both providing access to money market and short-term fixed income securities.
The iShares Core Cash ETF, which has the ASX code BILL, holds a portfolio of short-term money market instruments. The management fee is seven basis points and the yield to maturity is currently 1.75 per cent.
The iShares Enhanced Cash ETF, which has the ASX code ISEC, has been designed to provide a higher yield by investing in a mix of money market and fixed income securities. The management fee is 12 bps and the yield is currently 2.04 percent.
Jon Howie, the head of iShares, says that in the past investors seeking more competitive rates have been forced to compromise on liquidity or credit quality.
“These two iShares funds aim to solve this problem,” Howie says.
Portfolios are fully transparent and the underlying holdings and maturity profiles are reported daily on BlackRock’s website.
Howie says: “These are institutional-quality ETFs that seek to provide attractive monthly income and at the same time meet daily liquidity and transparency demands, all at the lowest cost available in the market.
“Investors have often needed to compromise on fees, liquidity and credit quality to find cash management solutions.”
Earlier this month UBS Asset management launched the UBS IQ Cash ETF (ASX code: MONY).
The UBS fund is paying monthly income, with a target return in line with the Reserve Bank’s official cash rate. At launch, the fund’s running yield was 1.77 per cent.
It invests in banks deposits and certificates of deposit issued by Australian regulated banks, Australian subsidiaries of foreign banks and branches of foreign banks. Its management fee is 18 bps.
Anne Anderson, UBS head of fixed income, says the ETF is not designed as an alternative to term deposits, which would be expected to pay a higher rate.
“To get a high TD rate investors have to commit their funds for 12 months and to get the best rate you may need to invest $50,000 or more,” Anderson says.
“Our ETF is designed for investors who want simplicity, liquidity and transparency. We list all the securities we hold on the ASX.”
“This has a different function to a term deposit. It could be the cash component of a trading account or an adviser’s client account.”