Is it time to put the ACDC and IAF ETFs on your long-term watchlist?

Are you sitting back and thinking it could be time to start analysing the ETF Securities Battery Tech & Lithium ETF (ASX: ACDC) and iShares Core Composite Bond ETF (ASX: IAF)?

Why investors choose the ACDC ETF

The ETFS ACDC ETF provides investors with passive exposure to the performance of companies involved in battery technology and lithium mining. ACDC adopts an equal weight strategy, meaning that it weights the shares within the portfolio equally – this is different from traditional index fund ETFs which invest more in the largest companies (as determined by market capitalisation).

As at the end of last month, the ACDC ETF had $18.02 million of money invested. Since its funds under management (FUM) or ‘market cap’ figure of less than $100 million, it’s important to consider if this ETF is still too small. At Best ETFs we say an ETF with more than $100 million invested is typically more sustainable than one with less than $100 million (at least). However, there are exceptions to this rule of thumb, especially if the ETF issuer/provider is committed to growing the ETF’s FUM to the point where it becomes profitable.

Fees & costs

The yearly management fee on the ACDC ETF is 0.82%. The issuer, ETF Securities, takes this out automatically.

What this fee means is, if you invested, say, $2,000 in the ACDC ETF for a full year you could expect to pay management fees of around $16.40. These fees would be automatically deducted from your investment. This does not include any performance fees, and it’s different from the fee you pay to your brokerage provider (e.g. CommSec, NabTrade, SelfWealth, etc.) to buy or sell the ETF. Importantly, you should also be mindful of the ‘spread‘ for the ETF.

Is the ETF too expensive?

The easiest way to know if the ETF is too costly is to compare it with other ETFs in the same sector, and against the industry average. The average management fee (MER) across all of the ETFs covered by Best ETFs Australia is 0.54%, which is around $10.80 per $2,000 invested. Keep in mind, small changes in fees can make a big difference after 10 or 20 years. What’s more, you should read the ACDC Product Disclosure Statement (PDS) because it has the complete and updated information on all fees.

Make sure you check out our ACDC ETF report, available free when you clock here: access the free investment report.

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A look at the IAF ETF

The iShares IAF ETF provides Australian investors with exposure to a portfolio of Australian investment-grade fixed income securities, which includes treasury bonds, corporate bonds and cash.

At the end of April 2020, IAF’s FUM stood at $1114.27 million. With IAF’s FUM over $100 million, we say the ETF has met our minimum criteria for the total amount invested. However, in reality, a very sustainable ETF in the Index sector should be able to scale well beyond that amount.

Are IAF’s fees too high?

iShares charge a yearly management fee of 0.15% for the IAF ETF. Meaning, with $2,000 invested for 12 months you can expect to pay a base management fee of around $3.00.

The management fee is above the average for all ETFs on our radar, but keep in mind the ETF may be able to justify it.

If you like what you’re reading, access our full review of the IAF ETF by clicking here.

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Disclaimer: Any information contained in this article is limited to general financial advice/information only. The information should not be relied upon because it has not taken into account your specific needs, goals or objectives. Please, consult a licenced and trusted financial adviser before acting on the information. Past performance is no guarantee of future performance. Nothing in this article should be considered a guarantee. Investing is risky and can result in capital loss. By reading this website, you acknowledge this warning and agree to our terms & conditions available here. This article is authorised by Owen Raszkiewicz of The Rask Group Pty Ltd.

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