Due to ultra-low interest rates, investors with assets in cash are seeking alternatives that offer better returns.
One option they can consider is investing in “cash-like” ETFs, say National Bank analysts Pat Chiefalo, Daniel Straus and Ling Zhang. They say they offer many of the advantages associated with cash, which include:
Liquidity: ETFs can be sold in the market at any time during the trading day, with no penalty for early withdrawal or lock-up period, as in some cash alternatives such as GICs.
Yield: As cash earns a level of interest, these ETFs pay an interest rate that may be slightly higher than a cash deposit account, in the form of monthly distributions.
Low duration risk: ETFs that pay out floating-rate distributions or that have low portfolio duration help minimize interest rate risk.
Minimal counterparty risk: ETFs offering very high investment grade exposure have a risk level comparable to that which investors face on cash deposits in excess of the $100,000 amount protected by CDIC insurance.