It’s tough for investors to earn income with money market funds, but there is an exchange traded fund that stands out. In this low-interest rate environment, the PIMCO Enhanced Short Maturity Strategy (NYSEArca: MINT) offers those investors with sums too big for an FDIC account an alternative, with moderate risk.

“Just as money market funds were designed to get around 1970s-era interest-rate caps on bank accounts, MINT is a clever bit of regulatory arbitrage designed to capture money fleeing tighter money-market regulation,” Samuel Lee for Morningstar wrote in a recent article. [Active ETFs Seen as Taking Off in 2012]

The investment world is in a state of transition as far as money market funds, as the Securities and Exchange Commission recently introduced a two-part plan to stabilize this market. Once approved, money market funds’ performance would be compromised but short-term duration ETFs would benefit. [Money Market Rules May Boost Short Duration ETFs]

The SEC wants to lower money market fund risk but the chance for greater return will also be minimized. MINT would dodge most of the proposed regulation, with the potential to earn higher returns. Lee adds that MINT’s mandate rests just beyond the duration and quality limits set for money market funds and below the mandates of most short bond funds. [ETF Chart of the Day: MINT]

A run-down of possible risks associated with investing in MINT:

  • The low-yield environment is a potential warning sign for investors because those that target returns are taking on more risk with cash type investments. Thus, prices get driven higher and bets are not always compensated.
  • MINT is an actively managed fund that is run by a manager’s ability. But the fund isn’t a one-man show; its performance in large part reflects the quality of PIMCO’s committee-generated macroeconomic forecasts. Some say this fund could be more of a bet on PIMCO’s progress.
  • So far, PIMCO’s track record indicates that MINT can earn enough alpha to make up for high fees. The moderate risk involved is worth the compensation as long as yields remain low.

PIMCO Enhanced Short Maturity Strategy

Tisha Guerrero contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. 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.