Key takeaways:

• Having launched five years earlier, the BetaShares Australian High Interest Cash ETF is more than four times the size of the iShares Core Cash ETF

• AAA has outperformed BILL since inception, and over the last one, three, and five-year timelines

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A month ago we profiled two of the most popular ASX-listed ETFs catering to uranium stocks, which included the BetaShares Global Uranium ETF (ASX: URNM) and the Global X Uranium ETF (ASX: ATOM).

On this occasion, we’re shifting our attention to another segment that has seen steady capital inflows over recent months – cash. With central banks across the world hiking interest rates, including the Reserve Bank of Australia, some investors have turned to cash ETFs for access to steady, low-risk returns.

Locally, the two most prominent cash ETFs are the BetaShares Australian High Interest Cash ETF (ASX: AAA) and the iShares Core Cash ETF (ASX: BILL). Let’s take a look under the hood as to how these two products stack up against one another.

Fund Objective

The BetaShares Australian High Interest Cash ETF aims to provide exposure to Australian cash deposits, with attractive monthly income distributions that exceed the 30-day Bank Bill Swap Rate (BBSW), after fees and expenses. 

All assets in AAA are invested in deposit accounts held with selected banks in Australia, designed to pay at rates deemed competitive with ‘at call’ bank deposits and term deposits.

It is important to note that the BetaShares AAA ETF does not receive the benefit of any government guarantee, while there are risks associated with variable interest rates on the Fund’s bank deposits and credit risk generally associated with bank deposits. 

Meanwhile, the iShares Core Cash ETF employs a passive investment strategy that aims to provide investors with the performance, before fees and expenses, of the S&P/ASX Bank Bill Index, an index composed of Australian bank bills.

The BILL ETF offers the ability to achieve capital preservation and regular monthly income with a diversified portfolio of high-quality short-term money market instruments. The Fund is truly liquid and only holds investments in instruments that can be sold on a same-day basis.

Fund Profiles and Holdings

AAA was launched back in March 2012, and since then, it has established itself as the benchmark fund for investing in cash, growing to $3.34 billion in funds under management (FUM).

BILL listed on the ASX in June 2017, and because it has not been around as long as its more established peer, it has a smaller presence in the ETF market, with total FUM recently reported at $734.2 million.

Across all market participants, the total volume of trades in AAA throughout October was around two-and-a-half times that of BILL, with industry trade numbers coming in at 9,349 and 3,619 respectively.

Furthermore, the BetaShares Australian High Interest Cash ETF also attracted significantly higher fund inflows, recording a monthly gain of $52.1 million, compared with $15.1 million for the iShares Core Cash ETF. Both funds recorded even larger net inflows when focusing strictly on inflows derived via CHESS-sponsored brokerage activity.

As both funds target investment in cash securities, neither ETF holds any other assets.

At the time of writing, current deposit accounts for AAA include National Australia Bank, Bendigo and Adelaide Bank Limited, Bank of Queensland, Rabobank, Bank of Tokyo-Mitsubishi UFJ, JP Morgan Chase Bank, and Citibank NA.

In the case of the iShares BILL ETF, it currently holds 55 individual cash products, with all but one holding accounting for less than 3% of the fund’s overall assets. The largest holding in the fund is the RBC Money Market 11am (RY) cash product, which accounts for 26.08% of FUM.

Performance and Distributions

When looking at returns, both funds should be assessed in the context of broader dynamics of the cash market over recent years. This includes the period where interest rates were cut throughout the pandemic to rock-bottom levels.

Nonetheless, at the end of October 2023, AAA had delivered annualised returns of 3.79%, 1.69%, and 1.55% over one-year, three-year, and five-year timelines respectively. Returns are after fund management costs, assume reinvestment of any distributions, and do not take into account tax paid as an investor in the Fund.

In comparison, BILL has yielded lower returns, with its one-year performance coming in at 3.74%. Its three and five-year returns at the end of October 2023 were 1.49% per annum and 1.33% per annum respectively.

Since inception, AAA has also outperformed BILL, returning 2.33% p.a. compared with 1.45% p.a.

As always, past performance is not indicative of future performance. Furthermore, results do not provide any guarantee that future returns will be of the same magnitude, or that returns will be positive. Changes to interest rates have a direct impact on returns, and investors should consider the broader landscape for monetary policy when deciding whether to invest in cash ETFs.

Nonetheless, both ETFs are favoured for their regular income payments. The BetaShares Australian High Interest Cash ETF and the iShares Core Cash ETF pay distributions on a monthly basis.

Although cash ETFs like AAA and BILL may provide much higher levels of certainty around distributions compared with other ETFs, the amount and timing of distributions will vary from period to period, and there may even be periods where no distributions are made.

Fees

There is a modest difference in management fees associated with the two products.

On this front, BILL edges out its rival, charging a lower management fee of 0.07% per annum, as opposed to 0.18% per annum for AAA. This fee is charged against the Net Asset Value (NAV) of each fund, per annum. Between the two funds, the difference corresponds with $11 per year in management fees on a balance of $10,000 invested in each product.

Management fees are calculated and accrued daily and reflected in the daily Net Asset Value per Unit, before being deducted from the fund’s assets monthly in arrears, after the end of the relevant month.

In terms of other costs, BetaShares estimates that recoverable expenses, indirect costs, and transaction costs are 0.00% per annum of the Fund’s NAV. There are no performance fees associated with the ETF.

Based on information provided by Blackrock, the iShares Core Cash ETF also has no transaction costs, performance fees, or the like. Its management fee is inclusive of any indirect costs.

Nonetheless, this list is not exhaustive, and there may be other fees that apply. Please refer to the relevant Product Disclosure Statements for up-to-date details on costs and expenses, which may be deducted from the fund’s assets as and when they are incurred. 

Summary

Cash ETFs have gained popularity as interest rates increase, at the same time lifting the risk-free rate of return. The BetaShares Australian High Interest Cash ETF is more established than the iShares Core Cash ETF, both by years of operation, and fund size, with AAA boasting FUM more than four times that of BILL.

Meanwhile, despite a higher management cost, BetaShares’ AAA ETF has outperformed iShares BILL across every major timeline, whether it be one, three, or five-year timeframes, and even since inception. Both funds pay unitholders a monthly distribution, albeit they track different benchmarks and derive their income from portfolios of holdings that differ vastly.

• ASX:BILL

  • Benchmark: S&P/ASX Bank Bill Index

  • Net Assets: $734.2 million

  • Performance since inception (p.a.): 1.45%

  • Distributions: Monthly

  • Management Fees (p.a.): 0.07%

    
    

• ASX:AAA

  •  Benchmark: Bank Bill Swap rate 1 Month

  • Net Assets: $3.34 billion

  • Performance since inception (p.a.): 2.33%

  • Distributions: Monthly

  • Management Fees (p.a.): 0.18%