The Securities and Exchange Commission is set to announce a two-part plan to stabilize money market funds, The Wall Street Journal reported Tuesday. If approved, the proposals could hurt the performance of money market funds and make short-duration exchange traded funds a more attractive options for investors.
“The SEC’s aim is to minimize any losses for shareholders in the event of another financial panic,” the WSJ reported. Executives in the mutual fund business say the rules could lower returns for investors.
“The proposal, which is set to draw stiff opposition from financial groups and could create internal tensions at the SEC, would affect both fund firms and investors,” the newspaper said. “Firms would have to set aside capital reserves using one of three new methods. Investors who wish to sell all of their holdings at once would be able to get only about 95% of their money back immediately, with the remaining 5% returned to them after 30 days.”
If the rules end up going on the books, it could be a boon for short-duration ETFs such as PIMCO Enhanced Short Maturity Strategy (NYSEArca: MINT). [PIMCO’s Active ETF]
The PIMCO offering is an actively managed ETF designed as an alternative to money market funds. It holds about $1.5 billion in assets. [ETF Chart of the Day: PIMCO Enhanced Short Maturity Strategy]
“Stricter money market fund rules have artificially pushed down yields in short, high-quality debts, homogenizing money market funds,” Morningstar analyst Samuel Lee writes in a profile of the ETF. “There’s value just beyond money markets’ credit-quality and duration limits, and the actively managed PIMCO Enhanced Short Maturity Strategy exploits the gap. However, unlike money market funds, MINT doesn’t guarantee a fixed price level nor does it benefit from an implicit government backstop.”