Money Market Reform May Shift Cash to Short-Duration ETFs

ETF Trends

Potential money market fund reforms could deter investors, triggering consolidation in the money market, and push others to alternative options, like short-duration bond exchange traded funds.

According to a Moody’s Investors Service, we will likely witness a “reshaping of the industry,” with providers forced to consolidate or exit the business, reports Joe Morris for Ignites. [Money Market Reform Could Drive Hundreds of Billions to Short-Duration Bond ETFs]

“Any shift from the [constant net asset value] fund’s ability to deliver its ‘all-in-one’ benefits will result in funds moving to a proliferation of products with differing risk characteristics to meet the multiple needs of the liquidity investor,” the Moody’s report said. “These products will include bank deposits, separately managed accounts, short-duration bond funds, cash-plus funds and cash exchange-traded funds.”

The Securities and Exchange Commission has been working on a proposal to float the net asset value for institutional prime funds. Reform talks have gained momentum after SEC Chairman Mary Jo White took over after former-SEC Chairman Mary Schapiro’s failed attempts to enact reforms last year. [Money Market Fund Reform and Short-Duration Bond ETFs]

“The transition from a homogeneous [constant net asset value] product will also force investors to adapt their cash allocations to align with their liquidity preferences and risk tolerance,” Moody’s added. “Whether MMF investors have the requisite skills to differentiate between a variety of heterogeneous investment offerings remains a question.”

Moody’s believes that larger providers will be better suited to utilize their scale to throw their weight around the market.

Meanwhile, fixed-income ETFs could take a piece of the $2.6 trillion money market. Specifically, Investors can take a look at short-duration bond ETFs options, including:

  • PIMCO Enhanced Short Maturity Strategy (MINT) : effective duration 0.96 years; 0.57% 30-day SEC yield
  • SPDR Barclays 1-3 Month T-Bill (BIL) : modified adjusted duration 0.13 years; -0.09% 30-day SEC yield
  • iShares Barclays Short Treasury Bond (SHV) : effective duration 0.40 years; 0.00% 30-day SEC yield
  • Guggenheim Enhanced Short Duration Bond (GSY) : average duration 0.37 years; 1.02% 30-day SEC yield

For more information on the money funds, visit our money markets category.

Max Chen contributed to this article.

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