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Ultra-Short-Term ETF Alternatives for Money Market Changes


Ahead of regulatory changes in the money market funds, Fidelity Investments is converting a few of its money funds. Investors who are wary about regulatory repercussions can also turn to ultra-short-duration bond exchange traded funds as cash alternatives.

Fidelity is reshuffling three prime funds to government funds that invest in cash, government securities or repurchase agreements collateralized by government securities, and plans to merge six of its money market funds into existing funds, reports Daisy Maxey for the Wall Street Journal.

The changes are coming ahead of new regulations the Securities and Exchange Commission approved that will take effect in October 2016, which require institutional prime funds and institutional municipal money market funds to allow a floating net asset value, essentially breaking the buck or stable $1 share price many have known.

Retail and government money market funds, though, can still maintain the stable $1 share price. However, boards of non-government money market funds are allowed to enact liquidity fees on asset withdrawals and to suspend redemptions during volatile conditions in an attempt to obviate a run on the fund.

“Many investors have told us that they want access to money-market mutual funds with a stable net asset value that will not be subject to liquidity fees or redemption gates, which would restrict their use of the funds,” Fidelity said in the article.

Additionally, observers are concerned that changes to money market funds could diminish yields, which will be particularly noticeable once rates begin to rise. Roger Merritt, managing director at Fitch Ratings, argues that shifts from a prime fund to a government fund will reduce yields.

Consequently, some investors are turning to alternative options to park their cash. Matthew Tuttle, chief executive at Tuttle Tactical Management, said his firm is planning to invest in some conservative, cash alternative ETFs for better yields.

For example, the PIMCO Enhanced Short Maturity ETF (MINT) has a 0.7% 30-day SEC yield and a 0.38 year duration. The Guggenheim Enhanced Short Duration Bond (GSY) has a 1.31% 30-day SEC yield and a 0.25 year effective duration. The SPDR SSgA Ultra Short Term Bond ETF (ULST) has a 0.38% 30-day SEC yield and a 0.19 year duration. The iShares Short Maturity Bond ETF(NEAR) has a 1.10% 30-day SEC yield and a 0.60 year duration. [ETF Spotlight: Ultra-Short-Term Bonds]

Additionally, short-duration Treasury bond ETFs are also showing rising rates. For instance, the iShares Short Treasury Bond ETF (SHV) has a 0.36 year duration and a 0.18% 30-day SEC yield. [New Money Market Fund Rules, a Boon for Ultra-Short-Term ETFs]

For more information on cash alternatives, 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.