How and why Aussie investors use the BOND ETF
The name’s… the SPDR BOND ETF. BOND invests in Australian bonds which are investment grade and denominated in Australian dollars with maturities more than one year.
As at the end of last month, the BOND ETF had $45.82 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 BOND ETF is 0.24%. The issuer, SPDR, takes this out automatically.
What this fee means is, if you invested, say, $2,000 in the BOND ETF for a full year you could expect to pay management fees of around $4.80. 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 BOND Product Disclosure Statement (PDS) because it has the complete and updated information on all fees.
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Getting to know the IJP ETF
The iShares IJP ETF provides investors with exposure to around 85% of the Japanese stock market. This is a low-cost way to access a specific market through a single fund.
At the end of April 2020, IJP’s FUM stood at $282.88 million. With IJP’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 IJP’s fees too high?
iShares charge a yearly management fee of 0.47% for the IJP ETF. Meaning, with $2,000 invested for 12 months you can expect to pay a base management fee of around $9.40.
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.
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