Don’t you wonder if now is the time to start analysing the iShares J.P.Morgan USD Emerging Markets Bond (AUD Hedged) ETF (ASX: IHEB) and Russell Investments Australian Responsible Investment ETF (ASX: RARI)? These Exchange-Traded Funds (ETFs) aim to provide exposure to the Fixed interest – International and Australian shares sectors, respectively.
Is the IHEB ETF a good investment? Here’s where you start…
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.
According to our most recent data, the IHEB ETF had $29.5 million of money invested. Given its funds under management (also known as FUM or ‘market cap’) is less than $100 million, you should consider if this ETF is still too small and is sustainable for the ETF issuer. 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 general rule, especially if the ETF issuer/provider is reputable and committed to growing the ETF’s FUM through effective marketing strategies and distribution to financial advisers.
Fees to consider
According to our numbers, the annual management fee on the IHEB ETF is 0.51%. The issuer, iShares, collects this fee automatically.
Meaning, if you invested $2,000 in the IHEB ETF for a full year you could expect to pay management fees of around $10.20. This fee is different from the fee you pay to your brokerage provider (e.g. CommSec, NabTrade, SelfWealth, etc.), which is the fee to buy or sell the ETF. In addition to a management fee charged by the issuer, be mindful to check the ‘spread‘ for the ETF.
A fee comparision
Fees aren’t the only key consideration for ETF investors, but it’s an easy thing to do. To understand if the ETF you’re looking at is too costly, compare it with other ETFs from the same sector, and against the industry average. For example, the average management fee (MER) across all of the ETFs covered by the Best ETFs Australia team was 0.51%, which is $10.20 per $2,000 invested. Keep in mind that small changes in the fees paid can make a big difference after 10 or 20 years. You should read the IHEB Product Disclosure Statement (PDS), available on the ETF issuer’s website, because it will detail the fees, tax implications and the latest information.
Get our team’s IHEB ETF review, available free when you click this link: access the free investment report.
A quick take of the RARI ETF
The Russell Investments RARI ETF invests in companies that demonstrate positive environmental, social and governance (ESG) characteristics. RARI also negatively screens out companies that have significant involvement in activities that are deemed inconsistent with responsible investment considerations.
With our numbers for July 2020, RARI’s FUM stood at $208.85 million. Since the RARI’s FUM is over $100 million, our investing team would say the ETF has met our minimum criteria for the total amount invested, otherwise known as FUM. A very sustainable ETF in the Index sector should be able to scale well and become profitable for the ETF issuer.
Are the fees for the RARI ETF bad?
Russell Investments, the ETF issuer, charges a yearly management fee of 0.45% for the RARI ETF. Meaning, if you invested $2,000 for a full 12-month period you could expect to pay a base management fee of around $9.00.
The management fee is above the average for all ETFs on our list of ASX ETFs, but keep in mind the ETF may be able to justify the higher price tag.
Did you know: you can get our full ETF review of RARI by clicking here?