Cash ETFs not well understood by investors

20-Jul-2017

By Daniel Paperny

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Cash-based exchange-traded fund (ETF) products had historically not been well understood by Australian investors, who would be well placed to turn towards defensive-themed ETFs ahead of a looming hike in interest rates, according to ETF Securities Australia.

In an interview with financialobserver, ETF Securities Australia head Kris Walesby said while cash ETFs were heavily used by fund managers and institutional clients in the United States and Europe, Australian investors needed more education on the benefits of those products for their portfolios, given a concerning lack of understanding of cash as an asset in its own right.

Walesby said for financial planners and brokers, cash-based ETFs helped with the management of cash and meant they were less beholden to big brand cash managers.

“My experience in Australia is that cash product ETFs haven’t really been understood correctly [and] many people think that cash is just a parking ground serving no purpose while you make a decision about your future allocations to assets,” he said.

“ETFs are a good way to add to the ability to manage the whole cash management process because you’ll find that some of these cash ETFs are actually enhanced cash, they’ve got cash management tools within the ETF, which allows for a higher return.

“But the main thing is more that a lot of people outside the institutional arena forget that cash is actually an asset class in its own right and therefore you need to have ETFs that allow you to have that exposure.”

The comments follow the introduction of new defensive-themed ETFs by BetaShares, BlackRock, VanEck and UBS over the past month as the range of cash ETFs in Australia continues to expand.

ETF Securities Australia associate director and business development manager Kanish Chugh echoed Walesby’s sentiments, saying cash-based ETFs were previously the domain of a single product issuer in Australia and it was only a matter of time before others responded accordingly.

“The other providers are looking at different ways to manage your cash – it doesn’t need to be the traditional blend which one of the providers has done or just [consistent with] the current trends that we’re seeing in these products [in Australia], but there’s room for more unique ways of managing cash,” Chugh said.

“Now UBS, iShares and BetaShares have obviously revolutionised it and brought in a different version of what they would classify as fixed income and cash, and I think it’s a space that will only continue to grow.”

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