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Floating Money Market NAV Makes Short-Duration ETFs Attractive


A floating net asset value on money market funds could cause operational and accounting issues that would deter money fund investors and potentially divert money toward short-duration bond exchange traded funds as an alternative.

According to a U.S. Chamber of Commerce Center for Capital Markets Competitiveness (CCMC) report, operational complexity, systems alternatives and business process changes to support a floating NAV in the money market fund fund industry threatens the viability of the funds for most investors. [Scrutiny Over Money Fund Holdings Helps Short-Duration ETF Outlook]

The “Operational Implications of a Floating NAV across Money Market Fund Industry Key Stakeholders” report reveals that the switch to a floating NAV would force investors to incur an upfront cost of between $1.8 billion and $2 billion. Additionally, new estimated operating costs would add an additional $2 billion to $2.5 billion annually. [Money Market Debate Puts Focus on Short-Duration ETFs]

“While the SEC’s proposed change might seem to be a small change in the large scheme of things, the impact is actually quite dramatic in both cost and operations,” David Hirschmann, president and CEO of CCMC, said in a report. “This proposed change represents a fundamental redesign of the structure and nature of MMFs making them undesirable to institutional investors trying to manage liquidity.”

Institutional Cash Distributors (ICD) also questions the viability of the SEC’s floating NAV idea, arguing that fundamental operational and accounting issues would disrupt the trading process, deter investors from investing in money funds and diminish the availability of affordable short-term financing for many government and corporate bodies.

“Were we to see a floating NAV implemented and the subsequent marginalization of the funds that would ensue, all of these entities would see their borrowing costs increase,” according to the ICD report.

“If the Commission fails to adopt a proposal that preserves the utility of MMMFs, business, cities, and states will be left searching for alternative, less regulated, cash management tools,” Hirschmann added. [PIMCO Short-Duration ETF Tapped as Money-Fund Substitute]

For instance,, any changes in the money markets would support the growing fixed-income ETF market, notably short-duration bond funds as a cash alternative. Some ultra-short-duration bond ETFs include:

  • PIMCO Enhanced Short Maturity ETF (MINT) : 0.58% 30-day SEC yield; 0.99 year effective duration.
  • Guggenheim Enhanced Short Duration Bond (GSY) : 0.37 year duration; 0.93% 30-day SEC yield.
  • iShares Short Treasury Bond ETF (SHV) : effective duration 0.43 years; 0.03% 30-day SEC yield.
  • SPDR Barclays 1-3 Month T-Bill (BIL) : effective duration 0.10 years; -0.07% 30-day SEC yield.

For more information on money market reform, visit our money markets category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.