ETFs would “force the markets to generate better liquidity in the underlying short term debt instruments, and, if this is a costly thing, to make both types of spread — bid/ask and mid-point spreads over treasuries — wider,” Harvard Business School Professor Ken Froot said in the Forbes article.
The average money-market fund now yields 0.03%, reports Sarah Max for Barron’s.
“People were either in money-market funds or bond funds,” Tony Davidow, portfolio strategist at Guggenheim Investments, said in the Barron’s article. “But with rates lower and lower, there is interest for this.”
Current actively managed short-term bond ETF alternatives to money market funds include:
- Guggenheim Enhanced Ultra-Short Bond ETF (NYSEArca: GSY): 0.27% expense ratio; 0.42% yield.
- PIMCO Enhanced Short Maturity Strategy Fund ETF (NYSEArca: MINT): 0.35% expense ratio; 1.02% yield.
Short-term Treasury bond ETF options include:
- iShares Barclays Short Treasury Bond Fund ETF (NYSEArca: SHV): 0.15% expense ratio; 0.03% yield.
- SPDR Barclays Capital 1-3 Month T-Bill ETF (NYSEArca: BIL): 0.13% expense ratio; 0% yield.
ETF providers are also trying to get a leg up on the potential regulation in money market funds, filing with the SEC for new ultra-short duration funds:
- FlexShares Ready Access Variable Income Fund (NYSEArca: RAVI) would hold at least 65% of its portfolio in a non-diversified portfolio of fixed income instruments, like bonds, debt securities and other debt issued by the U.S., corporations and banks.
- Legg Mason Western Asset Ultra-Short Duration ETF will be an actively managed fund that holds U.S. dollar-denominated, investment grade fixed income securities, such as corporate debt, bank obligations, commercial paper, asset backed and mortgage backed securities, structured securities and instruments and securities issued by the U.S. government. [ETFs Capitalize on Money Funds’ Uncertain Outlook]
- Franklin Templeton Short Duration Government ETF will hold short duration fixed income securities, issued by the U.S. government.
- Federated Active Ultrashort Fixed Income ETF is an actively managed fund that will try to outperform the 3-month LIBOR by holding fixed and floating rate fixed income instruments, including investment-grade and non-investment grade corporate bonds and U.S. debt.
- iShares Ultrashort Bond Fund will include at least 80% of its portfolio in investment grade securities, such as corporate and government bonds, agency securities, instruments of non-U.S. issuers, privately issued securities, asset-backed and mortgage-backed securities, muni bonds, money market instruments and investment companies, rated a minimum of BBB- or higher
For more information on the money markets, visit our money markets category.
Max Chen contributed to this article.