Money Market Regulations Could be a Boon for ETFs

The changing regulatory environment for money market funds is prompting some investors to consider exchange traded funds as alternatives to traditional money market vehicles, a theme that can benefit funds such as the SPDR Barclays 1-3 Month T-Bill (NYSEArca: BIL) going forward.

These funds are seen as liquid cash alternatives that would never let an investor lose money – money market funds typically maintain a net asset value or per share value of $1. These funds hold investment-grade short-term government bonds that matures between 30 and 90 days. But if rates go negative, some are concerned that a low rate environment could “break the buck.”

Since the 2008 financial crisis when the share price of one fund dipped below a dollar and triggered widespread financial panic, these money market funds now follow more stringent regulatory rules, like taking on less credit risk or holding more cash to meet redemptions.

“BIL seeks to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the Bloomberg Barclays 1-3 Month U.S. Treasury Bill Index. As such, it’s among the ETFs that share the MMF objective of providing liquidity to capital through short duration high quality investments,” according to State Street Global Advisors (SSgA).