Ultra-Short-Term ETF Alternatives for Money Market Changes | ETF Trends

Ahead of regulatory changes in the money market funds, Fidelity Investments is converting a few of its money funds. Investors who are wary about regulatory repercussions can also turn to ultra-short-duration bond exchange traded funds as cash alternatives.

Fidelity is reshuffling three prime funds to government funds that invest in cash, government securities or repurchase agreements collateralized by government securities, and plans to merge six of its money market funds into existing funds, reports Daisy Maxey for the Wall Street Journal.

The changes are coming ahead of new regulations the Securities and Exchange Commission approved that will take effect in October 2016, which require institutional prime funds and institutional municipal money market funds to allow a floating net asset value, essentially breaking the buck or stable $1 share price many have known.

Retail and government money market funds, though, can still maintain the stable $1 share price. However, boards of non-government money market funds are allowed to enact liquidity fees on asset withdrawals and to suspend redemptions during volatile conditions in an attempt to obviate a run on the fund.

“Many investors have told us that they want access to money-market mutual funds with a stable net asset value that will not be subject to liquidity fees or redemption gates, which would restrict their use of the funds,” Fidelity said in the article.

Additionally, observers are concerned that changes to money market funds could diminish yields, which will be particularly noticeable once rates begin to rise. Roger Merritt, managing director at Fitch Ratings, argues that shifts from a prime fund to a government fund will reduce yields.