With the regulatory spectre looming over the money market fund industry, corporate treasurers and investors have begun shopping around for safe alternatives, like short-term bond exchange traded funds.
After the financial depression of 2008, the Securities and Exchange Commission has looked into preventative measures to keep money markets from imploding. For instance, SEC Chairman Mary Schapiro has been urging the commission to impose a floating net asset value, essentially breaking the buck on the $1-per-share value that current funds follow. [Short-Maturity ETFs Eye Money Fund Reform Gridlock]
As such, investors have looked into the low duration bond ETFs as an alternative to park their cash, according to Zacks Research. The ETF options all include bonds with maturities less than 1 year, low expense ratios and, most importantly, sport very high liquidity. [Will ETFs Replace Money Market Funds?]
The iShares Barclays Short Treasury Bond Fund ETF (NYSEArca: SHV) is the largest of the money market ETF alternatives. SHV tries to reflect the performance of the Barclays Capital U.S. Short Treasury Bond Index. With an effective duration of 0.4 years, the index is relatively immune to interest rate risks as it targets the low end of the yield curve – if interest rates rise 1%, the value of SHV would only go down 0.4%. The ETF has an 0.15% expense ratio and a 0.04% yield.
The SPDR Barclays Capital 1-3 Month T-Bill ETF (NYSEArca: BIL) tries to reflect the performance of the Barclays Capital U.S. 1-3 month Treasury Bill Index, which includes Treasuries with a maturity of 1-3 months. Since all the underlying securities are basically zero-coupon, the ETF has a very low yield. The fund has a duration of 0.11 years, an expense ratio of 0.1345% and a 0% yield.