Investing your money to get portfolio exposure to the Fixed interest – Australia sector has never been easier thanks to ETFs such as the iShares Government Inflation ETF (ASX: ILB). However, no matter how easy it seems to be, we think it’s still important to do your own ETF review.
1. What is the iShares ILB used for?
The iShares ILB ETF provides investors with exposure to the performance of a segment of the Australian bond market comprised of inflation-linked fixed income securities.
2. Has it reached scale (FUM)?
The ILB ETF had $131.53 million of money invested when we last pulled the monthly numbers. Given ILB’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. ILB ETF fees explained
With a yearly management fee of 0.18% charged by iShares, if you invested $2,000 in the ILB ETF for a full year you could expect to pay management fees of around $3.60. 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 ILB ETF, the most recent average monthly buy-sell spread we gathered (April 2020) was 0.62%. Remember, the lower (or ‘tighter’) the buy-sell spread, the better. This buy-sell spread was above the average ETF spread of 0.51%, which means the ILB ETF has more slippage than the average ETF (that’s a bad thing).
What to do now
Before testing the water with both feet or diving straight into buying the ILB ETF, please read the ETF’s Product Disclosure Statement (PDS). Also, be sure to take a look at our iShares ILB 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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