Short-Duration ETFs Could Capitalize on Money Market Fund Reforms

Ultra short-term fixed-income exchange traded funds could gain a competitive advantage as the Securities and Exchange Commission mulls over money market fund reforms.

Short-term bond ETFs provide an attractive alternative to investors who are seeking a relatively safe and cash-like substitute.

For instance, the actively managed PIMCO Enhanced Short Maturity ETF (NYSEArca: MINT) has a 0.57% 30-day SEC yield and a 0.95 year effective duration – duration is the measure of sensitivity to changes in interest rates. [Short-Duration ETFs Can Substitute for Money Market Funds]

“One, however, must never forget that MINT is not a money market fund. It does not guarantee a fixed price level,” Morningstar ETF analyst Samuel Lee warned in a MFWire article. “It’s also not too big to fail, so don’t expect the government to ride to the rescue should it need rescuing.”

The Guggenheim Enhanced Short Duration Bond (GSY) is an another actively managed short-term bond fund, with an average duration 0.37 years and 1.11% 30-day SEC yield.

Passively managed index-based short-term bond funds include the iShares Short Treasury Bond (SHV), which has an effective duration 0.39 years and 0.02% 30-day SEC yield, and the SPDR Barclays 1-3 Month T-Bill (BIL), which has an effective duration 0.14 years and a -0.09% 30-day SEC yield.

Next page: Money market reform

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