Investing your money to get portfolio exposure to the Fixed interest – International sector has never been easier thanks to ETFs such as the iShares J.P.Morgan USD Emerging Markets Bond (AUD Hedged) ETF (ASX: IHEB). However, no matter how easy it seems to be, we think it’s still important to do your own ETF review.
1. What is the iShares IHEB used for?
The iShares IHEB ETF provides investors with exposure to the performance of global emerging markets bonds that are US dollar-denominated, hedged back into Australian dollars.
2. Has it reached scale (FUM)?
The IHEB ETF had $29.5 million of money invested when we last pulled the monthly numbers. With a 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. We say an ETF with more than $100 million invested is typically more sustainable than one with less than $100 million (at least) because if an ETF is too small it may not be sustainable for an ETF issuer, such as iShares. 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.
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3. IHEB ETF fees explained
With a yearly management fee of 0.51% charged by iShares, if you invested $2,000 in the IHEB ETF for a full year you could expect to pay management fees of around $10.20. For context, the average management fee (MER) of all ETFs covered by Best ETFs Australia on our complete list of ASX ETFs is 0.54% or around $10.80 per $2,000 invested. Keep in mind, small changes in fees can make a big difference after 10 or 20 years.
In addition to a yearly management fee, there are other costs investors must consider, including brokerage and taxes. A specific cost for ETF and mFund investors to consider is the buy-sell spread, which is the slippage or ‘invisible’ cost paid by an investor when he or she buys or sells the ETF. For the IHEB ETF, the most recent average monthly buy-sell spread we gathered (April 2020) was 2.59%. Remember, the lower (or ‘tighter’) the buy-sell spread, the better. This buy-sell spread was above the average ETF spread of 0.51%, which means the IHEB ETF has more slippage than the average ETF (that’s a bad thing).
What to do now
Before testing the water with both feet or diving straight into buying the IHEB ETF, please read the ETF’s Product Disclosure Statement (PDS). Also, be sure to take a look at our iShares IHEB report. While you’re on our website, use our complete list of ASX ETFs to search for a few different ETFs in the sector and conduct a side-by-side comparison using everything you’ve learned here.
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