Is MINT Growing Up?

March 18, 2011

Who guessed Pimco’s 'MINT' would gather $1 billion in just over a year? Not me.

It’s true, the Pimco Enhanced Short Maturity Strategy Fund (NYSEArca: MINT) crossed the $1 billion threshold for the first time this week.

I counted myself as one of the skeptics, along with Dave Nadig, our director of research here at IndexUniverse, who openly wondered who would pay 35 basis points and, possibly, commissions, just to get access to the closest thing in the ETF world to an old-fashioned money market fund.

Truth be told, Dave started turning the corner late last spring, when investors flooded to MINT as the stock market reeled from fallout related to Greece’s debt problems as well as the “flash crash” on May 6.

Assets rose to almost $800 million at that time, lifting Pimco’s total ETF assets to more than $1 billion—effectively giving it a ticket into the big leagues in the world of ETFs. But MINT faded after that, as the Federal Reserve’s quantitative easing program lured investors back into stocks. MINT’s decline in assets fueled my doubts.

But now it’s roaring back. Was I wrong? Quite possibly.

For one, we’re talking about Pimco. Traders in the ETF space who are enthusiastic that the ETF universe now has a real active money-market-type instrument talk about trusting the Pimco brand. “It takes a big name to pull this off,” they say, “and Pimco is the biggest bond fund manager in the world.” There’s no better Street credibility than that.

The other thing is that MINT isn’t the only ETF idea that’s working for Pimco. Last spring, MINT’s surging assets made up about half of the firm’s total assets. But now the $1.18 billion in MINT as of March 17 is about 40 percent of the Newport Beach, Calif.-based firm's total ETF assets of $2.82 billion.

A lot has changed in the world of ETFs over the past several months. The whole industry has crossed the $1 trillion threshold in total assets, and the money pouring into exchange-traded products is showing few signs of slowing down.

In other words, it’s high time for an ETF solution to an age-old need to park assets in a safe place for a reasonable return. What used to be the “out of SPY and into cash” risk-off trade is now becoming an “out of SPY and into MINT” trade for those investors who are pretty much already converted to the advantages of investing with ETFs.

And the data on returns back up the idea that perhaps MINT is actually a better mousetrap than a money market fund or your margin account’s cash sweep.

For the 35 basis points investors pay Pimco for MINT, they got an SEC yield of 0.83 percent as of yesterday. I know that doesn’t sound like much, but look at some of the competition. The Vanguard Prime Money Market Fund (VMMXX), to take one example, may cost just 23 basis points, but had an SEC yield of 0.08 percent.

At least you’re not underwater with MINT, which achieves that advantage with an effective maturity of almost a year, versus an average maturity of 57 days for the Vanguard fund’s holdings. Lest I get ahead of myself, VMMXX had $109.2 billion in assets at the end of February, according to Vanguard’s website. Again, MINT had $1.18 billion as of yesterday’s close.

That said, has MINT turned a corner? Time will tell, but I’m watching a lot more closely now.

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