Couldn’t the price fall if/when interest rates decrease?
I realize that in such a scenario the price may fall below NAV, but potential buyers may not care until the price falls low enough for the yield to be attractive. In this way, it seems as if they could trade similar to a long bond. If so they could hardly be considered cash alternatives. Your help in understanding this, please.
These types of high-interest savings ETFs are backed by deposits with Canadian banks in cash accounts. In theory, the price of these ETFs can fall below NAV, however, with ETFs like these, which are physically backed by the underlying asset (in this case, deposits with banks), if the price falls below NAV, arbitrageurs can buy the ETFs at a discount, and sell the physical assets at the higher prices, thereby profiting the difference. This is why most ETFs trade close to their NAVs.
This is different from a bond in that bonds have two main variables that impact their price; the interest payment on the bond and the central bank interest rate. Whereas high-interest savings ETFs are cash plus an interest rate, versus bonds which are a financial product of cash.