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db X-trackers, the exchange-traded funds (ETF) platform of Deutsche Bank’s Asset & Wealth Management unit, has cross-listed its Aussie dollar cash ETF on the London Stock Exchange, providing European investors with liquid, easily traded access to Australian money market rates.
With existing listings on the Hong Kong and Singapore stock exchanges and around £20 million in assets, the db x-trackers II Australian Dollar Cash UCITS ETF (XCSD) is benchmarked to the Deutsche Bank Australia Overnight Money Market Total Return Index.
This index reflects the performance of a daily rolled deposit earning the short-term money market reference rate for transactions denominated in Australian dollar (AUD) in Australia published daily by the Reserve Bank of Australia (RBA).
The reference rate currently yields 3% on an annualised basis, placing it as an outlier in comparison with money market rates in other developed markets. The equivalent UK rate, for example, the Sterling Overnight Index Average (SONIA), is currently 0.43% and the US equivalent, the Federal funds rate, is 0.09%.
The juicy yield on offer is likely to attract investors searching for income in the current low-rate environment. Plus, as the fund is denominated in Australian dollars, it may also appeal to investors looking to diversify their currency exposure, or who want to take a view on the movement of the Australian dollar.
A word of warning though – the Australian dollar was recently described as being “incredibly overvalued” by RBA board member John Edwards, a view corroborated by HSBC, which singled out the currency as the most overvalued in the world, based on data from the OECD’s measure of purchasing power parity, The Economist’s Big Mac Index and the Current Real Effective Exchange Rate. (The triple-leveraged London-listed ETFS 3x Short AUD Long USD ETC (SAU3) from ETF Securities could appeal to investors wishing to bet against the Aussie dollar versus the US dollar.)
Commenting on the new listing, Manooj Mistry, Head of Exchange-Traded Products, EMEA, at Deutsche Bank, said: “The Australian dollar has been characterised as a commodity currency, with a track record in recent years of persistently strengthening against other major G10 currencies. Investors can use our Australian dollar cash ETF to easily take exposure to the currency, or simply as an alternative to the currently extremely low interest rates associated with European and UK money markets.”
The fund trades in sterling (GBP) and comes with a total expense ratio (TER) of 0.20% pa. It is fully UCITS compliant and registered for distribution in a number of other European countries.