Best Income ETFs

GOLD WINNERS ISHARES AND VANGUARD

Investing in quality fixed-interest securities reduces volatility and risk

O ur two winners, iShares Core Composite Bond and Vanguard Australian

Fixed Interest Index, both invest in quality AAA and AA Australian government and semi-government bonds.

They follow the same index, the Bloomberg AusBond Composite 0+Year, with roughly 73% in AAA-rated securities, 20% in AA bonds and around 7% in A and BBB bonds.

Both ETFs charge the same investment management fee of 0.20%pa.

While returns from government bonds have been lacklustre over the past year, investors hold fixed-interest securities to diver- sify their risk in times of falling sharemarkets. The ideal investment time horizon for both ETFs is a medium term of between three and five years.

The success of the second placegetter, BetaShares Australian High Interest Cash, with $1.2 billion under manage- ment, is largely due to the fact that it has returned 25% more than the cash rate of 1.5% by investing in high-interest bank deposit accounts.

The annual fee is 0.18%, a cheaper rate than for cash management accounts. Unlike term deposits, there is no locked-in investment period, or potential break fees, or forfeiting of interest if you withdraw funds before the term matures.

Bank term deposits, up to $250,000, are guaranteed by the federal government but there is no guarantee for cash held in an ETF.