[Emergency fund] Short-term bond ETF EUR hedged

Hi everyone!

I’m looking for a short-term bond ETF (euro hedged). The reason is that I want to move part of my emergency fund for one ETF like this but I don’t know any.

Any suggestions?

Thank you!

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It’s really difficult to find a positive yielding (taking into account fees as well) € demoniated bond funds:

Most short term € bonds aren’t yielding anything (especially ultra short term) example
iShares EUR Ultrashort Bond ERNE (IE00BCRY6557) (it’s not euro hedged as it’s underlying also is in euro) with a TER: 0.09% and -0,21% Weighted Av YTM (so negative yielding), there are US and GBP ultra short funds on T212 as well but no hedged ones

Even shorter term bonds funds have negative yields:
0-3 y € corp bonds (IE00BC7GZW19) with YTM of -0,09% and TER of 0.2%

Going with hedged funds also decreases performance as hedging costs money, I can’t really find many EUR hedged bond ETFs on T212 but one available is:

iShares Core Global Aggregate Bond EUR hedged, EUNA (IE00BDBRDM35)
TER: 0.10% and avg. weighted YTM of 1,06%

But it isn’t as much as an emergency fund as the maturaties are longer and it has bonds mainly form US, EU, Japan and China.

I don’t think you’ll find a positive yielding short term € hedged or € denomitated ETF on T212, and if you do let me know!

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Thank you so much for sharing @Etypsyno ! I’m just trying to find ways to avoid leaving my emergency funds with no grow at all in my bank account. I’ll take a look into those you mentioned!

What you might be interested in is building a bond ladder with lower risk and higher risk bonds. I understand that it’s not the same as your emergency fund but you’re not getting any yield in the eurozone for very low-risk bonds so this might be intersting for money that you need within 1-4 years. And it might happen that rates return to pre covid levels again so longer term bond funds are riskier in that regard while shorter term bond funds profit from that earlier

Some which might be interseting and are on T212:

Ticker Name
LON:ERND iShares $ Ultrashort Bond UCITS ETF USD (Dist)
LON:ERNS iShares Ultrashort Bond UCITS ETF GBP (Dist)
FRA:VUSC Vanguard USD Corporate 1-3 Year Bond UCITS ETF
LON:AGBP iShares Core Gl Aggregate Bd UCITS ETF GBP Hgd Dis
FRA:EUNA iShares Core Gl Aggregate Bd UCITS ETF EUR Hgd Acc
FRA:VUCP Vanguard USD Corporate Bond UCITS ETF Inc
LON:SJNK SPDR Bloomberg Barclays 0-5YUS Hi YLd Bd UCITS ETF

Top is lower YTM but also lower avg bond duration, whicle bottom are higher yielding bonds. Most of the underlying are denominated in $ (although some of the ETFs are traded in €) and there’re even some GBP ones in there.

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Aren’t some of those denominated in foreign currency like USD and GBP?

If so, there are FX fee expenses, for long term they could less significant, but some ETFs distribute dividends, so it means recurrent FX fees.

I used during some time as a “money market fund” an inflation-linked bond ETF:

ISIN Ticker Name Exchange Currency
IE00B1FZSC47 IUST iShares $ TIPS UCITS ETF USD (Acc) Deutsche Börse Xetra EUR
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yes some of them aren’t hedged and in other currencies (as in the bottom text), it’s mostly a thought thing as almost none of those are suitable for an emergency fund but are more of the bond ladder idea as most short term € bonds barely yield anything.

IUST is stated to have avg YTM of 1.10% but the ‘real yield’ is stated to be -1.26%, but these are inflation-linked so isn’t that number false then?

Yes, I was talking about FX fees mainly on the “Dist” ETFs, FX fees when receiving the dividends and if you reinvest them, paying more FX fees.

Returns (26/03/2021)
1 day -0,15%
1 week 2,13%
1 month 4,37%
3 months 2,85%
6 months -1,02%
YTD 2,98%
1 year -1,28%
3 years anualliz. 7,85%
5 years anualliz. 3,01%
10 years anualliz. 5,27%

Source: Morningstar (I used Morningstar ES for language sake, but you could see in other EUR-version)

Where comes from that avg YTM of 1.10%?

From the issuers site (took the uk one so it pops up in english for you):
https://www.ishares.com/uk/individual/en/products/251714/

image

According to their explanation:

Real Yield:

The return from an investment adjusted for the effects of inflation.

Which inflation? Probably the US inflation rate as they mention:

Targeted exposure to US Dollar inflation-linked bonds

The Fund seeks to track the performance of an index composed of US inflation-linked government bonds.

And they have 99.99% USD exposition.

The US inflation rate is higher than Euro Area. And also the ETF is influenced by the USD (for the good and the worse). (When there is inflation, the USD drops but the TIPS rise and if there is QE the phenomenon is greater).

Bottom-line, their metrics seems OK. Because they have a Weighted Avg YTM (as of 25/Mar/2021) 1.10% and Real Yield (as of 25/Mar/2021) -1.26%. The first is a nominal rate of return and the second is a real rate of return (inflation adjusted).

So we see that US inflation is higher than the nominal rates of return. But we are on Europe, not on US. :wink:

In the end, we get the ETF market price returns adjusted to our currency (see my previous post, for EUR-returns). Don’t forget that they are nominal rates of return (no-inflation adjustment).

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Is the general idea for an ‘emergency fund’ to be kept in cash?

I know interest rates are really crap right now, but you can get an ok return on cash if you hunt. I’m not so hot on EUR accounts, but I know Virgin Money do 2% on balances up to 1k GBP, and you can get some 3% regular savers that allow you to take your money out free of charge. Annoyingly takes a bit of work to setup, check and monitor, but helps to build a higher blended rate.

UK only?

(twenty…)

? Look after pennies, and pounds take care of themselves.

Yes its only twenty quid, but that’s just one account. I have 4 accounts in general. A 2% account, two 3% regular savers, and a 0.75% account. Each account took like 10 mins to setup.

Similarly annualise over several accounts for several years and it adds up as free money missed. 20 or 2% on 1000 lost per year is 21.8% lost over 10 years.

Yes GBP only, but I would have thought you may get similar deals across the Eurozone.

I were asking if Virgin Money is only for UK-residents. It seems it is.

In Eurozone and in non-Euro countries we got low inflation rates and interest rates. Zero or even negatives interest rate due to the Central Banks unconventional interest rates. Retail Banks offer negative or close to 0% interest rates on deposits that if we adjust them to include bank fees are negative returns.

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Thanks @RLX , @Dougal1984 , @Etypsyno for the engagement here! I guess I’m going to leave my emergency fund money as it is in the bank in this case. Thanks for all your suggestions!

If you want to have a real emergency fund, the most important factors are liquidity and capital preservation. Capital appreciation is an extra.

  • Liquidity to be able to use the money at short notice.
  • Capital preservation due to potential need to use the money at any time, if you have the money invested on something, there is always the possibility that investment could be losing money and if you liquidate that investment, you could loose some money.

Bottom-line, there are risks investing our emergency fund, liquidity risk and market risk. So the best approach is to be in cash or cash-equivalents (e.g. bank deposits).

If we have 0% or negative interest rate (direct or indirect due to bank fees) and loosing money to inflation for having a bank deposit, think that are the costs for having a emergency fund. There isn’t any free lunch in life.

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I agree. Particularly the liquidity part.

Another thing that came to my mind is that T212 is not like having the money in your bank, liquidating stocks and withdrawing to your bank account takes time, likely a few days or even more if there is a delay and sometimes you really need the money on the same day.

And if we want be picky, there are financial instruments more liquid than others. It could happen that some stocks, trusts, ETFs, ETNs, ETCs have reduced liquidity that could be hard to sell them quickly.

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