Martin Lee @ Sg
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DB Australia Money Market ETF

Deutsche Bank db x-trackers has listed on SGX the world’s first Australia Money Market ETF linked to the overnight AUD cash rate based on the DB Australia Overnight Money Market Total Return Index. The Index is published by Deutsche Bank AG, acting through its London Branch, in AUD and had a base value of 100 on 1 July 1998.

australian money market etfThe Index reflects the daily rolled deposit earning the Interbank Overnight Cash Rate (“IOCR”), which is the short-term money market reference rate for transactions denominated in AUD in Australia published daily by the Reserve Bank of Australia (the “RBA”). The IOCR is the interbank overnight weighted average rate at which trades are arranged between market participants and reflects the actual AUD overnight funding rates transacted by market participants.

The money market rate published by the Reserve Bank of Australia (RBA) is currently at 4.25%.

The performance of the ETF, based on the historical return of the index minus fees, would have ranked in the top 10% of Australian cash funds in the last 5 years (source: Morningstar)

The Australia Money Market ETF can be traded in AUD, SGD, or USD and has an annual all in fee of just 0.20%.

Note that whichever currency ETF you buy, you will still maintain an exposure to the Australian dollar as that is the currency of the underlying asset. Of course, if your funding source is in SGD, buying the SGD version would make sense as it will reduce your currency conversion cost (assuming you trade often).

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7 comments
Ryan says 9 years ago

Hi.

Just a query, besides the annual management fee and the buy in 0.05% spread and exchange rate risk and the risk of DB defaulting on this ETFs….

Is this ETF considered a clear-cut interest earning product?

Thanks for ur guidance!

Reply
    lioninvestor says 9 years ago

    hi Ryan,

    Yes, but don’t forget to factor in your brokerage costs as well. This will add about another 0.6% to your cost.

    Reply
Ryan says 9 years ago

hi,

i have the same queries like toby(above), but in addition of that,
the spreads for the ETFs is awfully wide, why is that so?
– i understand for the 5SG$, it should have a spread big enough for the exchange rate. But why does such a big spread exist for 5AU$?

Buy 185.29AUD, SELL 185.39. (The spread is almost 0.05%)

And, is it a FACT that the value of the ETF will rise 4.45%p.a overnight? Which means if it is priced @ 185.29AUD tonight,
tomorrow it will be at (4.45%/365) more, like 185.31AUD?

Still, the spread will mean that at least the first few days of holding this ETF will go to paying the spread. Am i right to say that?

Reply
    lioninvestor says 9 years ago

    Hi Ryan,

    I think a spread of 0.05% is reasonable. If you look at most stocks, the min spread is 1 cents, which can be 0.5% (or more) of the price.

    If more investors start buying/selling this ETF, then the spread might become smaller.

    The overnight rate might change daily so the change in daily price will also depend on the prevailing rate.

    Reply
toby says 9 years ago

hi,

so this index is almost like a deposit? i mean the cash rate seems higher than most AUD fixed deposit rates offered here so doesn’t that make it slightly more attractive especially it could be more liquid (barring spreads on the exchange)?

thnks,
toby

Reply
sean says 9 years ago

hi

Thanks for the info. Please enlighten how I can buy this Aust ETF in Singapore using US$. Will the US$ be first converted to S$ then to A$ ?

thanks
Sean

Reply
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