Money Market Fund Reform Would be Boon for Short-Duration ETFs

December 26th at 7:00am by Tom Lydon

The multi-trillion dollar money market fund business is facing renewed efforts on regulatory reform, putting investors on edge. Nevertheless, what may be a bane for the money markets could be a boon for short-duration bond exchange traded funds.

“The council is seeking comment on other potential reforms of [money market funds] that meet the objectives of addressing the structural vulnerabilities inherent in [money market funds] and mitigating the risk of runs,” Amias Gerety, deputy assistant secretary for the Financial Stability Oversight Council, said last month, Ignites reports.

“I would certainly expect you are getting a fresh set of eyes [at regulators] on multiple areas and new thoughts coming to the process, and I think that is a healthy thing,” Barbara Novick, vice chairman at BlackRock, said in the article. “In 2012, there was a lot of contention. I would think in 2013 there would be a resolution of money market reform.”

Investors are cautiously watching as the FSOC and the SEC mull over proposals, like floating the net asset value, which would diminish appetite for money funds as safe and liquid money parking spots. [Short-Term Bond ETFs in Focus on Money Fund Reform Talk]

“If reform goes through, then money market funds will likely shrink because investors will not find [them] as useful or appealing,” Joan Ohlbaum Swirsky, of counsel at Stradley Ronon, said in the article. “If funds shrink, then demand for short-term instruments may decline.”

However, investors could just shift their focus to short-term exchange traded funds as an alternative. Short-duration ETFs include PIMCO Enhanced Short Maturity Strategy (NYSEArca: MINT), SPDR Barclays 1-3 Month T-Bill (NYSEArca: BIL), iShares Barclays Short Treasury Bond (NYSEArca: SHV) and Guggenheim Enhanced Short Duration Bond (NYSEArca: GSY). [Are Short-Duration ETFs the ‘Heirs to Money Market Funds?’]

For more information on the money markets, visit our money markets category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.