2 Ultra-Low Risk ETFs That Yield Over 3.5%

These ETFs invest in high-interest savings accounts and are as safe as it gets.

| More on:
Glass piggy bank

Image source: Getty Images

Not many assets were safe in 2022. Thanks to high inflation and rising interest rates, both stocks and bonds fell in tandem. Unless most of your portfolio was held in cash, chances are you’re experiencing some unrealized losses like the rest of us.

The problem with holding too much cash is that it doesn’t do anything. Cash doesn’t grow. In fact, it loses value to inflation as time goes on. However, it is the only “risk-free” asset out there. If you’re dead-set on minimizing the effects of a market crash, nothing beats the protection of cash.

However, there are some exchange-traded funds, or ETFs, out there that invest your cash in high-interest savings accounts (HISA), which is as low risk as it gets. With the recent Bank of Canada interest rate hike of 0.75%, both of these ETFs now yield over 3.5% each.

Purpose High Interest Savings ETF

The Purpose High Interest Savings ETF (TSX:PSA) is a great way to hold cash in a Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) while still earning regular interest income. When you buy shares of PSA, the fund manager invests your capital in HISAs with Schedule 1 Canadian banks, which is as safe as it gets.

Every month, investors who hold PSA earn interest income. Currently, the annual gross yield of the fund stands at 3.7% thanks to rising interest rates. This is a fantastic return considering how low risk the fund is. PSA is virtually immune to market risk and will not drop in value during a correction.

The ETF currently costs a management expense ratio (MER) of 0.15%, or $15 annually, for a $10,000 investment. Keeping fees low is important, as they are deducted from your overall gross yield. The net yield of the fund can be approximated by gross yield minus MER, which comes out to around 3.6%.

Horizons High Interest Savings ETF

Horizons High Interest Savings ETF (TSX:CASH) works similarly to PSA — the ETF also deposits investor capital into HISAs with Schedule 1 Canadian banks. Compared to PSA, the gross yield of CASH is slightly higher at 3.8%. This is higher than many bond funds, without the interest rate risk. As interest rates increase, expect the yield to rise accordingly.

CASH is slightly less popular than PSA, with assets under management (AUM) of $357 million versus $2.5 billion, respectively. However, both are more than liquid enough, with a small bid-ask spread. This helps keep transaction costs low, which is critical for low-yielding products. The more you save on trades, the more money ends up in your pocket.

In terms of fees, the ETF currently has a management expense ratio of 0.13%. This reduces the net yield of CASH down to just 3.7%, which is always a plus for low-yielding ETFs. Keep in mind that this can change as the fund manager incurs management expenses, taxes, etc. A good way to keep track is to check up on the expense ratio every quarter.

The Foolish takeaway

If you’re worried about a market crash, either PSA or CASH can be a great way to hold cash for a buying opportunity while earning interest. If you’re worried about further interest rate hikes, both ETFs can be great substitutes for some portion of a bond allocation. Either way, these ETFs are as “risk-free” as investing gets while still earning a small return.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Tony Dong has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Investing


CNR Stock: Should You Buy Today?

Canadian National Railway has been hit in recent quarters, as economic growth has slowed, with CNR stock declining 10% in…

Read more »

Family relationship with bond and care
Dividend Stocks

TFSA Investors: 3 Cheap Canadian Stocks for Retirees

These three Canadian stocks are super cheap for retirees looking for a great buy that will last the test of…

Read more »

calculate and analyze stock
Dividend Stocks

CPP Disability Benefits: Here’s How Much You Could Get

Not everybody can get CPP disability benefits. If you want some passive income, consider investing in Royal Bank of Canada…

Read more »

growing plant shoots on stacked coins
Dividend Stocks

Boosting Your Monthly Income: TSX Stocks That Deliver

Dividend investing can boost regular or active incomes, especially select TSX stocks that pay monthly dividends.

Read more »

consider the options
Tech Stocks

Better Buy (2024 Edition): Shopify or Nvidia Stock?

Shopify (TSX:SHOP) isn't the only red-hot tech stock in town that could add to recent gains.

Read more »

Bad apple with good apples

5 Stocks You Can Confidently Invest $500 in Right Now

These stocks could significantly grow your investment over the next decade.

Read more »

Illustration of bull and bear
Tech Stocks

A Bull Market Is Coming: 3 Growth Stocks That Could Thrive

Given their high growth prospects and cheaper valuation, these three growth stocks would be an excellent buy as the market…

Read more »

Golden crown on a red velvet background
Energy Stocks

Enbridge Stock: This Dividend Aristocrat Could Gain in 2024

Enbridge (TSX:ENB) stock is looking like a great buy as management expects it to grow in 2024.

Read more »