iShares is becoming increasingly aggressive in its Australian ETF launches, adding another arrow to its quiver.
The iShares 20 Plus Year U.S. Treasury Bond (AUD Hedged ETF) will track the ICE U.S. Treasury 20+ Years Bond Index, hedged into Aussie dollars. And offer an Australian dollar hedged version of TLT. TLT has US$68 billion in assets, making it the third largest bond ETF in the world. It is also regularly the world’s most traded bond ETF on any given day.
Ultra long duration bond ETFs have risen in popularity the past 12 months. Investors have been attracted to the high yields they offer relative to equities, and the fact they can be used to front run interest rate cuts from the Fed. Making things better for investors is the convexity profile on offer. To rough over the maths and cut short the detail, this refers to the fact that bond prices can rise faster than they can fall at these interest rate levels.
There is appetite for this type of product in Australia. The ASX-listed BetaShares U.S. Treasury Bond 20+ Year ETF – Currency Hedged (GGOV), which tracks a virtually identical index, currently has A$260M. Trading volumes and assets have risen over the past 12 months, in keeping with other markets.
The big question mark here is what will happen with fees. BetaShares charges 0.22% for GGOV, which is ballpark for a US dollar bond ETF in Australia. But one suspects iShares will go in lower than this. It will be interesting to see what BetaShares does here.