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Money Market Debate Puts Focus on Short-Duration ETFs


The Investment Company Institute is staunchly against SEC reforms to float the net asset value on money markets but believes a type of “gates and fees” could pose as a better solution. In either case, short-term bond exchange traded funds stand to gain a competitive advantage.

“Let’s check the count against floating NAVs,” ICI President and CEO Paul Stevens said, according to ICI. “They don’t address regulators’ goals. They eliminate key benefits to investors. They harm the economy. They increase systemic risk. And they carry immense costs and operational complications.”

“Simply put, forcing funds to float their NAVs doesn’t address the problem that most preoccupies many regulators—how to avert heavy redemptions out of money market funds,” Stevens added. [Short-Duration ETFs Could Capitalize on Money Market Fund Reforms]

His concerns are also voiced by many groups, individuals, businesses, state and local governments, and nonprofit organizations that are against a changing $1.00 value of money market funds. [Short-Duration ETFs Can Substitute for Money Market Funds]

“Since 2009, hundreds of entities from the private and public sectors across the economy have expressed their opposition to floating NAVs and other ill-considered proposals,” Stevens said. If money markets had a floating NAV, “corporate America could see a significant reduction in the supply of short-term credit,” and “the pool of capital that state and local governments use for financing vital needs will shrink or dry up.”

On the other hand, Stevens is in favor of implementing a type of redemption fee on money market funds during times of duress as a way to dissuade a “run on the banks” event, similar to what happened during the 2008 financial crisis.

“Liquidity fees and gates precisely address the core problem that regulators express greatest concern about: heavy redemption pressures in periods of market turmoil,” Stevens said.

Nevertheless, any changes to the status quo in the money markets would be a huge boon for the growing fixed-income ETF market, notably short-duration bond funds as a cash alternative. Ultra-short-duration bond ETFs include:

  • PIMCO Enhanced Short Maturity ETF (MINT) : 0.57% 30-day SEC yield; 0.95 year effective duration.
  • Guggenheim Enhanced Short Duration Bond (GSY) : 0.37 year duration; 1.11% 30-day SEC yield.
  • iShares Short Treasury Bond (SHV) : effective duration 0.39 years; 0.02% 30-day SEC yield.
  • SPDR Barclays 1-3 Month T-Bill (BIL) : effective duration 0.14 years; -0.09% 30-day SEC yield.

For more information on the money market, 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.