Could 2020 be the year to invest in ETFs such as the BetaShares AMP Capital Dynamic Markets Fund (Hedge Fund) ETF (ASX: DMKT) and iShares Core S&P/ASX 200 ETF (ASX: IOZ)?
How and why Aussie investors use the DMKT ETF
The AMP Capital DMKT Fund is an actively managed hedge fund, with the aim of returning 4.5% p.a. above inflation, on a rolling 5-year basis. What that means is DMKT may use rebalancing in combination with active investment strategies to outperform the market over time.
As at the end of last month, the DMKT ETF had $7.56 million of money invested. Since its 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. 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 rule of thumb, especially if the ETF issuer/provider is committed to growing the ETF’s FUM to the point where it becomes profitable.
Fees & costs
The yearly management fee on the DMKT ETF is 0.5%. The issuer, BetaShares, takes this out automatically.
What this fee means is, if you invested, say, $2,000 in the DMKT ETF for a full year you could expect to pay management fees of around $10.00. This fee is different from the fee you pay to your brokerage provider (e.g. CommSec, NabTrade, SelfWealth, etc.) to buy or sell the ETF. Importantly, you should also be mindful of the ‘spread‘ for the ETF.
Is the ETF too expensive?
The easiest way to know if the ETF is too costly is to compare it with other ETFs in the same sector, and against the industry average. The average management fee (MER) across all of the ETFs covered by Best ETFs Australia is 0.54%, which is around $10.80 per $2,000 invested. Small changes in fees can make a big difference after 10 or 20 years. To understand all of the fees, you should read the DMKT Product Disclosure Statement (PDS), available on the ETF issuer’s website, because it has the complete and up-to-date information.
Did you know you access our free investment report? View the free DMKT ETF report.
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Getting to know the IOZ ETF
The iShares IOZ ETF provides exposure to the largest 200 Australian shares, based on market capitalisation. This is a low-cost way to access top Australian companies through a single fund.
At the end of April 2020, IOZ’s FUM stood at $1884.8 million. With IOZ’s FUM over $100 million, we say the ETF has met our minimum criteria for the total amount invested. However, in reality, a very sustainable ETF in the Index sector should be able to scale well beyond that amount.
Are IOZ’s fees too high?
iShares charge a yearly management fee of 0.09% for the IOZ ETF. Meaning, with $2,000 invested for 12 months you can expect to pay a base management fee of around $1.80.
The management fee is above the average for all ETFs on our radar, but keep in mind the ETF may be able to justify it.
We’ve got a full DMKT ETF review available on our website right now. Click here to access our comprehensive investment report.
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