Getting exposure to the Fixed interest – Australia sector has never been easier thanks to ASX ETFs like the VanEck Vectors Australian Floating Rate ETF (ASX: FLOT). However, no matter how easy it seems to be, we think it’s still important to do your own ETF review.
How to use the VanEck Vectors Australian Floating Rate ETF
The VanEck FLOT ETF gives investors exposure to a portfolio of Australian dollar-denominated floating rate bonds of investment-grade quality.
FLOT exceeds our minimum market cap (FUM) criteria
As at the end of last month, the FLOT ETF had $263.29 million of money invested. Given FLOT’s total funds under management (FUM) figure is over $100 million, the ETF has met our minimum criteria for the total amount of money invested, otherwise known as FUM. We draw the line at $100 million for ETFs in the Fixed interest – Australia sector because we believe that relative to smaller ETFs, achieving this amount of FUM derisks the ETF.
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3. FLOT ETF fees & costs explained
With a yearly management fee of 0.22% charged by VanEck, if you invested $2,000 in the FLOT ETF for a full year you could expect to pay management fees of around $4.40. This does not include any performance fees earned by the ETF’s manager for doing a good job. 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 FLOT ETF, the most recent average monthly buy-sell spread we gathered (April 2020) was 0.22%. Remember, the lower (or ‘tighter’) the buy-sell spread, the better. This buy-sell spread was below the average ETF spread of 0.51%, so that’s a good thing.
Summary
Before ‘testing the water with both feet’ so to speak, be sure to read the FLOT ETF’s Product Disclosure Statement (PDS), available on the VanEck website, or speak to your financial adviser. Also, be sure to take a look at our VanEck FLOT 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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