ZUSD ETF report

ETF Securities ZUSD ETF (ASX:ZUSD)

The ETFS ZUSD ETF provides investors with exposure to the performance of the US dollar – specifically interest-bearing US dollar cash deposits.

This free report is issued by Best ETFs Australia, a division of The Rask Group Pty Ltd. It is not a recommendation. Speak to a financial professional before relying on this information and please read our Financial Services Guide (FSG).

ZUSD ETF Fast Facts

US dollar sector

Yield/income strategy

Issuer: ETF Securities


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ETF Securities ZUSD ETF (ASX:ZUSD) key information

Ticker code: ZUSD Exchange: ASX Yearly fee: See ETF list
Geography: USA Sector: US dollar Distribution frequency: Quarterly
DRP: Full or partial Domicile: Australia Issuer: ETF Securities
Registry: Computershare ISIN code: AU00000ZUSD9 IRESS code: ZUSD

ZUSD: Track Record Warning

When an ETF does not have a sufficiently long track record -- typically, we consider this to be at least 3 years -- the ETF is could be at a higher risk of being closed down (if it doesn't grow), and the historical performance and returns (if any) cannot be relied upon.

Some of the risks associated with an ETF that has a short or no track record include:

  • Performance - When a fund, ETF or investment firm does not have a track record, it is often difficult to know what to expect from the investment. This is not the case with all ETFs that are new, especially if the ETF follows a highly liquid benchmark that has been in existence for five years or more. However, we apply the track record warning as a reminder to investors that it's important to think long and hard about how this ETF will perform, and its role in a portfolio. Please note: at Best ETFs Australia we do not accept 'backtests' as a legitimate form of performance.
  • Funds under management (FUM) - Although some of the largest ETF providers have established marketing departments and distribution teams, and joint ventures between distribution experts and boutique fund managers are now more common, new funds often fail to get enough money invested into them in the first 1-3 years to make them very profitable for the issuer. One obvious reason for this is most funds management and ETF ratings agencies (like us), who provide the ratings on fund managers for financial advisers, demand a three-year track record. We will accept a shorter-term track record (i.e. under three years), but it must meet a range of criteria before we will consider it a worthwhile fund/ETF.
  • Buy-sell spread - The buy-sell spread, shown on our ETF listings page and in fund/ETF factsheet and quarterly reports, tells you how much it 'costs' to get your money in-and-out of a fund. Basically, it's an estimate of what it costs the fund manager to take your money and invest in whatever is inside the fund/ETF. Obviously, the lower/smaller the spread is the better it is for you. New ETFs/funds can have difficulty lowering the buy-sell spread to a reasonable level until they reach scale (e.g. having FUM more than $100 million).

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US dollar sector

Best ETFs Australia has a sector for US Dollar ETFs and ETFs which invest in cash accounts or deposits in the United States. This sector includes ETFs which provide exposure to the Australian dollar to US dollar exchange rate.

Meaning, ETFs in this sector bucket would move in the same direction to the "Aussie dollar", commonly displayed on the evening news.

For example, if the "Aussie dollar", as quoted in the news, fell 1%, ETFs in our US Dollar sector would fall 1%.

Investors can use ETFs in this sector to get exposure to the exchange rate. Keep in mind the ETF is unlikely to exactly match the movements in the currency pair over longer periods (3-6 months or more) because:

  • ETFs in this sector often take investors' money and put it in a bank account, which earns interest (which adds to the return of the ETF)
  • ETFs have fees and costs (which subtract from the return of the ETF)

What exactly does US dollar invest in?

The ZUSD ETF invests in US dollar bank deposits with maturities ranging from overnight to three months. Deposits are held with one or more authorised deposit taking institutions and earn a variable rate of interest spread across a range of maturities to enhance yield. Investors in ZUSD would expect to benefit from rising US dollar interest rates and from an appreciation of the US dollar against the Australian dollar.

Sector risks

Predicting the direction of currency markets happens to be one of the most difficult markets to forecast.

Here are some of the general risks for currency ETFs or funds that provide foreign currency exposure listed on the ASX:

  • Currency risk - the value of your investment could fall considerably if the Australian dollar appreciates (i.e. goes up) against another currency.
  • Geopolitical risk - the value of your investment in a currency ETF could be significantly influenced by factors outside of your control, including political, regulatory, interest rate and inflation risks, to name a few. Each of these externalities is likely to influence the relative value of the Australian dollar.
  • Counterparty risk - to operate currency ETFs effectively, ETF issuers will rely on contracts with third-parties such as the custodian, local or foreign banks and market makers. These parties could fail to perform as expected.
  • Benchmark risk - With fees, costs, spreads and interest earned, there's a chance a currency ETF's price will deviate from the benchmark exchange rate over time. In the short term, this 'tracking error risk' may appear to be minimal but over time it could compound into noticeably negative underperformance. This risk is minimised if you take a shorter-term view of the currency.

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What you need to know about ETF Securities

ETF Securities is Australia's second-oldest ETF business. Founded by Graham Tuckwell in 2003, ETF Securities has grown to become one of the leaders in the Australian ETF market.

ETF Securities launched the first gold ETF in Australia back in 2003. Ten years later, in 2013, ETF Securities sold its European and US businesses to WisdomTree, making its founder Graham Tuckwell one of the richest people in Australia. The new ETFS Capital continues to manage around $1 billion and counting.

Potential allocation for ZUSD

This ETF might be used as part of a 'tactical' or 'satellite' allocation in a diversified long-term portfolio because of its unique strategy, costs, risk-reward profile and the expectation of long-term returns.

What is The Core-Satellite Approach?

A core-satellite approach puts investments into two 'buckets' depending on the expected risk and returns.

Bucket 1: Core Investments

The 'core' is the larger part of an investment portfolio and could be reserved for more conservative investments. For example, this might include diversified, low-cost and easy to understand funds, bonds, shares or ETFs.

If you're new to investing, the core is a good place to start.

Core ETFs might include:

  • Australian shares (index strategies)
  • Australian bonds and global bonds
  • Cash

Bucket 2: Satellite/Tactical Investments

The 'satellite' or tactical bucket is the smaller part of a portfolio (e.g. 0% to 30% of your entire portfolio). In this section, investors might decide to take more risk, invest in unique or unproven strategies, buy fast-growing individual shares, etc.

Tactical strategies could be higher risk, higher cost and more complicated strategies that are used in the hope of outperforming the averages (e.g. ASX 200, S&P 500, etc.).

Tactical ETFs might include:

  • Australian shares (rules-based strategies)
  • Global shares (rules-based strategies)
  • Commodity ETFs
  • Currency ETFs
  • Cash ETFs
  • Hedge funds

Typically, what is ZUSD used for?

The ZUSD ETF could be used by investors to get exposure to a yield that is typically higher than Australian cash alternatives, as US dollar interest rates have historically been above Australian dollar interest rates. ZUSD could also be used as a hedge since investors often seek haven in the ‘greenback’ in times of uncertainty. Additionally, investors could use ZUSD to profit from a view that the US dollar will strengthen relative to the Australian dollar, or to hedge against US dollar currency risk for those who primarily invest in ASX shares that earn revenue in Australian dollars.

How do I invest in the Enhanced USD Cash ETF ETF?

The easiest way to buy an ETF is through your online share brokerage account. Just search for the ticker code and buy it. The following podcast explains how to buy shares and ETFs for the first time.

Meaning, you can follow the exact same process for ETFs as you do for shares -- both can be purchased in one account.

Australian Investing 101

Don't have a brokerage account for ETFs?

Read our tutorial on understanding how share brokerage accounts work.

Is ZUSD a good ETF?

We believe that knowing whether or not to invest in an ETF requires a lot of research, even for an ETF like this one. ETFs are long-term investments, so it's important to do the right amount of research into the ETF before you invest, and consider how it fits with your risk profile, strategy and the other investments in your portfolio.

Where you can go to find more research on this ETF:

Reports like this one on the Best ETFs Australia website were built to help you understand ETFs and to provide free access to news and research across all Australian ETFs, index funds and selected managed funds.

This report is the free version of our ETF reserach and it contains general information and should not be considered as a recommendation or personal financial advice. If you want to receive personal financial advice and have someone tailor the ETF research to you, you should speak to a financial adviser.

If you don't want to pay a financial adviser, here's what you can do:

  • Before doing anything, you should always read the ETF's Product Disclosure Statement (PDS), which should be available on the ETF provider/issuer's website. The PDS explains some of the risks, the fees and other important information.

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Disclaimer: Any information contained in this report 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 with 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, having read our Financial Services Guide (FSG) 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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