ETFs can be useful vehicles for all sorts of investment needs, including for investors who simply want to park some cash.
In recent months, this “use for cash” story has been playing out strongly in the ETF space, as retail and institutional investors pour assets into ultra-short-dated bond funds.
These ETFs are considered alternative cash management tools because they typically deliver higher income than money market mutual funds. They are also good risk management tools for investors worried about interest rate risk.
And they can even be a type of defensive play if you want to have cash at hand in the event of a market sell-off—these ETFs offer strong daily liquidity, as in quick access to that cash.
MINT Has Doubled In Size
The most popular of these strategies, the PIMCO Enhanced Short Maturity Active ETF (MINT), is almost twice as big today as it was a year ago, with almost $7 billion in total assets. It has seen tremendous growth.
So far this year, MINT has attracted more than $1.3 billion in net creations, making it the largest actively managed ETF.
Other ETFs in this segment benefiting from this demand include the iShares Short Maturity Bond ETF (NEAR), gathering some $255 million year-to-date, and growing to become a $2.5 billion fund—now the market’s third-largest actively managed ETF.
Broad Market, Short-Term Funds
Both MINT and NEAR are broad market, short-term bond funds. They invest in high-quality ultra-short-term U.S.-dollar-denominated bonds issued here and abroad.
According to BlackRock, uncertainty about what impact the Federal Reserve’s “tightening environment” will have on longer-term rates, and the trajectory and pace of those rates, is behind the recent uptick in demand for these funds. The longer dated the fund, the more sensitive it is to interest rate risk.
Investors are not only looking to “enhance income relative to simply holding cash, but they are also looking to manage duration risk,” a spokesperson for the firm said.
In the case of NEAR, the fund offers a diversified fixed-income portfolio with current effective duration of 0.54, and a 30-day yield of 1.42%.
MINT has even shorter effective duration, of 0.38, an equally attractive yield of 1.42% and a yield-to-maturity nearing 2%.
From a total return perspective, these ETFs are trending higher this year, as the chart below shows:
Chart courtesy of StockCharts.com
Contact Cinthia Murphy at [email protected]