The Fed’s view on money market funds comes as some issuers are reconfiguring such funds to meet new regulatory standards. 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.
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. [A Look at Money Market ETFs]
Still, ETFs, such as the Guggenheim Enhanced Short Duration Bond (NYSEArca: GSY), are generally considered safe. The $425.2 million GSY juices its yield (and returns) with non-investment grade fare. The ETF holds 15% of its portfolio “in high-yield debt to a portfolio of mostly investment-grade corporate and government bonds that mature in less than a year,” according to Balchunas.
GSY holds 158 securities with an average duration of 0.25 years. The ultra-short-duration bond ETF can be used to weather a rising rate environment. Furthermore, if the consumer prices continue to fall and we end up with persistent deflationary pressures, the purchasing power of the U.S. dollar increases. Consequently, investors can also look at a short-term ETF that act as cash alternatives. [ETF Options to Hedge Against Falling Prices, Low Inflation]
PIMCO Enhanced Short Maturity ETF