NEW YORK ( TheStreet) -- Since the financial crisis, investors have been fleeing money-market funds. Assets in the funds total $2.6 trillion, down from $3.8 trillion in 2008, according to the Investment Company Institute. Puny interest rates have caused the exodus. According to Crane Data, the average money market yields 0.05%.
To outpace money markets, the PIMCO fund holds some securities with longer maturities. While money-market portfolios must have average maturities of 60 days, the ETF has some securities with maturities of more than five years. An actively managed portfolio, the PIMCO fund can seek to outdo its benchmark by shifting duration. Recently portfolio manager Jerome Schneider has kept his duration longer than the benchmark figure. PIMCO says the Federal Reserve will continue keeping rates low, reducing the danger that rates might spike. With rates staying muted, the PIMCO strategy has worked lately. During the past year, the fund returned 2.36%, outdoing the average ultrashort bond fund by a percentage point, according to Morningstar. Schneider has freedom to range widely, sometimes looking offshore to buy securities from emerging markets and throughout the developed world. The fund has 3% of assets in the emerging markets and 6% in the U.K. So far shareholders have faced only limited volatility. The ETF began trading in late 2009 with an initial share price of $100.00. In 2010, the price dipped to $99.96 and then began an upward trend. The shares recently traded at $101.49. Investors who seek a steadier parking place than the PIMCO ETF could consider Guggenheim Enhanced Short Duration Bond ETF GSY , which yields 0.47% and has a duration of 0.33. Over the past 52 weeks, the share price fluctuated from a low of $49.54 to high of $50.18.
For a high-quality choice, consider RidgeWorth U.S. Government Securities Ultra-Short Bond SIGVX , a mutual fund that yields 0.85% and has a duration of 0.81 years. The fund focuses on government mortgage securities. Those yield a bit more than Treasuries. About 40% of assets are in adjustable-rate mortgages. If interest rates rise, the yields on the securities would also climb, protecting shareholders against losses. During the turmoil of 2008, the average ultrashort fund lost money, but RidgeWorth sailed through the crisis and returned 3.5% for the year. During the past five years, the fund returned 2.7% annually. "We did not lose money during the financial crisis because we are very conservative about the credit risk we take," says portfolio manager Chad Stephens. Charles Schwab recently filed to offer an actively managed short-duration ETF, and more companies are likely to follow. With money-market yields stuck at puny levels, investors will continue seeking safe alternatives. This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.Follow @StanLuxenberg
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