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Picking The Right Money Market ETF

Thu, Jan 28, 4:16 PM ET, by Michael Johnston

As interest in ETF investing has surged in recent years, issuers have rushed to expand their product lines into every corner of the investable universe. The first generation of ETF products consisted mostly of equity funds designed to track well-known benchmarks, and while the vast majority of ETF assets remains in these “plain vanilla” funds, innovation in the industry has brought countless asset classes and investment strategies within the reach of all levels of investors. After initially using ETFs alongside stocks and mutual funds, many investors have now embraced all-ETF portfolios, utilizing a range products to accomplish investment objectives. ETFdb Pro members can access our line of all-ETF model portfolios, including both long-term buy-and-hold allocations and shorter-term themed strategies (if you’re not an ETFdb Pro member yet, sign up for a free trial or read more here).

As investors expand the role ETFs play in their portfolios, several money market ETFs have popped up and become quite popular. These funds offer investors a way to put cash to work in a variety of low risk, short-term securities, including commercial paper, repurchase agreements, Treasury bills, and certificates of deposit. The advantages to money market ETFs are numerous: they generally offer higher interest rates than bank CDs and charge far lower expense ratios than money market mutual funds. Moreover, they make regular monthly interest payments and provide a level of diversification that most investors would be unable to achieve on their own.

Investors looking for a money market ETF have plenty of options. The funds profiled below are similar in many ways, but also feature some key differences in expenses, duration, and diversity of holdings. For more head-to-head comparisons of ETF options, sign up for our free ETF newsletter.

Money Market ETFs
TickerIssuerExpense RatioSEC 30 Day YieldDuration52-Week Return
USYWisdomTree0.25%0.02%0.380.44%
ULQClaymore0.27%n/a0.29-0.08%
SHViShares0.15%0.14%0.27-0.15%
BILState Street0.13%-0.08%0.100.04%
MINTPIMCO0.35%0.65%0.81n/a
PVIPowerShares0.25%0.19%7 day reset-0.08%
VRDState Street0.20%0.12%7 day resetn/a

WisdomTree U.S. Short-Term Government Income Fund (USY)

This actively-managed ETF invests in a portfolio of short-term government securities including U.S. Treasuries, securities issued by government sponsored enterprises (such as Federal Home Loan Bank, Fannie Mae, and Freddie Mac), and government-sponsored corporate bonds as well as repurchase agreements backed by government securities. As of January 2010, about 53% of USY’s assets were government bonds, with the remainder of holdings including corporate bonds (28%), repurchase agreements (15%), and Treasury Bills (5%). USY seeks to maintain an average portfolio maturity of six months or less.

Claymore U.S. Capital Markets Micro-Term Fixes Income ETF (ULQ)

This ETF tracks an index that includes micro-term (i.e., those with a redemption date of less than one year) U.S. Treasury fixed income securities, micro-term U.S. federal agency and other government sponsored entities fixed income securities, micro-term investment grade U.S. corporate fixed income securities, commercial paper, bankers acceptances, large time deposits, and U.S. federal agency discount notes.

iShares Barclays Short Treasury Bond Fund (SHV)

The index underlying this ETF is designed to measure the performance of public obligations of the U.S. Treasury that have a remaining maturity between one and 12 months. SHV is one of the cheapest money market ETF options, but offers less diversification in its holdings by investing primarily in Treasuries.

SPDR Barclays Capital 1-3 Month T-Bill ETF (BIL)

This ETF is designed to replicate the performance of an index that includes all publicly issued zero-coupon U.S. Treasury Bills that have a remaining maturity of less than 3 months and more than 1 month, are rated investment grade, and have $250 million or more of outstanding face value. In addition, the securities must be denominated in U.S. dollars and must be fixed rate and non convertible. With an expense ratio of just 13 basis points, BIL is the cheapest money market-like ETF option.

PIMCO Enhanced Short Maturity Strategy Fund (MINT)

This ETF isn’t technically a money market fund, but may be interesting option for investors looking to park cash in a low risk vehicle. MINT is an actively-managed ETF that seeks greater income and total return potential than money market funds, and may be appropriate for non-immediate cash allocations. MINT invests in short duration investment grade debt securities, including government debt and mortgage-related securities.

PowerShares VRDO Tax-Free Weekly Portfolio (PVI)

This ETF also isn’t really a money market fund, but presents another short-term, low risk option. Variable rate demand obligations (VRDOs) are actually long-term floating-rate bonds. But investors have the option to put VRDOs back to an investment dealer whenever the yield is reset, which is typically on a monthly basis. Generally, interest from VRDOs is exempt from federal income taxes, and often is exempt from state and local income taxes for residents of the issuing state.

SPDR S&P VRDO Municipal Bond ETF (VRD)

This ETF is similar in many respects to PVI, offering investors exposure to VRDOs through an ETF structure. The assets held by VRD also have a seven-day reset feature, giving these long-term debt instruments characteristics commonly found in short-term money market vehicles. See a closer look at VRDO ETF investing in this feature.

International Money Market ETF Options

Global 1-Month Deposit Rates
Euro0.3%
Japan0.0%
New Zealand2.7%
China-0.7%
Brazil6.3%
India5.5%
South Africa6.8%
Emerging Currency Basket3.0%
Source: WisdomTree.com as of 1/22/2010

In addition to the ETFs profiled above that offer exposure to money markets in the U.S., there are now a handful of ETFs that are designed to deliver returns reflective of money market rates in various countries available to foreign investors. International money market rates, particularly those in emerging markets, can often be considerably higher than domestic returns.

These funds are also subject to currency risk, meaning that they will generally lose value when the dollar appreciates and gain when the greenback weakens. ETFs offering exposure to international money market rates include:

  • WisdomTree Dreyfus Euro Fund (EU)
  • WisdomTree Dreyfus Japanese Yen Fund (JYF)
  • WisdomTree Dreyfus New Zealand Dollar Fund (BNZ)
  • WisdomTree Dreyfus Chinese Yuan Fund (CYB)
  • WisdomTree Dreyfus Brazilian Real Fund (BZF)
  • WisdomTree Dreyfus Indian Rupee Fund (ICN)
  • WisdomTree Dreyfus South African Rand Fund (SZR)
  • WisdomTree Dreyfus Emerging Currency Fund (CEW)

Disclosure: No positions at time of writing.


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SDI Glossary: "CD" Definition
SDI Glossary: "ETFs" Definition
SDI Glossary: "iShares" Definition
SDI Glossary: "Money" Definition
SDI Glossary: "Option" Definition
SDI Glossary: "Short" Definition
SDI Glossary: "Treasury Bills" Definition
SDI Glossary: "Yield" Definition
This Article's Word Cloud:   Dreyfus   ETFs   Fund   This   Treasury   VRDOs   WisdomTree   also   assets   bonds   debt   designed   feature   federal   fixed   from   funds   government   grade   have   including   income   index   interest   investment   investors   less   long   many   market   maturity   micro   money   months   more   offer   option   portfolios   rate   rates   repurchase   reset   risk   securities   short   sponsored   term   than   that   their

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