The Rise Of MINT-Like ETFs

August 30, 2012


By floating its NAV and falling in line with other mutual funds, funds like MINT have significantly more leeway with respect to allowed holdings and are able to dial up or dial down credit and interest rate exposure as seen fit.

While any fund literature on money market products will explicitly state that the funds aren’t in any way insured and can lose principal, the implicit expectation many investors have had is that loss of principal can’t or won’t happen.

Well, it can happen and it did happen, and the takeaway isn’t to panic or cry foul, but to recognize that in times of great distress, even the safest, super-short-term debt instruments have risk.

It’s best not to forget that.

Real Risks And Better Yields

In that sense, MINT’s structure serves as a constant reminder to its investors that its holdings are neither static nor risk free.

The floating NAV of MINT and the similarly designed ETFs that will soon come to market—while reducing the ability to know with certainty that 100 percent of invested capital will be preserved—should reflect the current market perception of the value of the fund’s holdings.

But crucially, it also allows for the opportunity in today’s zero-interest-rate environment to actually earn some yield in an ultra-short duration fund.

The question comes down to how sure you need to be about getting back principal.

If it’s of paramount importance to you, then money market funds are still the safer bet. But if you’re willing to handle a bit more uncertainty, MINT and its soon-to-be-launched competitors are worth a closer look.


At the time the article was written, the author had no positions in the securities mentioned. Contact Gene Koyfman at[email protected] Follow Gene on Twiiter @GeneKoyfman.


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