McCall’s Call: Cash, Or Cashlike ETFs?

October 26, 2011

If you must, should it be cash you hold, or cash-equivalent ETFs?


As more investors become frustrated and unsettled by all the uncertainty and volatility in financial markets, they’re thinking about taking money out of the market and moving to cash positions.

Matthew D. McCallI’ll say this: I’m generally not a fan of trying to time the market and move into cash and back into equities when the time is right.

But the stock market could really go in either direction in a big way in the coming months, depending on whether European policymakers come up with a credible plan to backstop both Greece and the banks that owns too much Greek debt.

In other words, the market is likely to remain volatile for the foreseeable future, which means there’s a case for keeping at least some money in cash.

All of our clients at Penn Financial Group have at least some exposure to cash or cash-equivalent investments. It protects capital in the near term and gives us capital to put to work when the outcome of the European story becomes clearer.

With the average U.S. money market and savings account rate at 0.14 percent according to, it’s not surprising that some investors are looking for alternatives to plain-vanilla deposits.

The ETF market gives investors a number of viable options that you can get out of without hassle or charges. But tread with caution, as expense ratios on some of them can eat up what paltry returns they serve up.

Same-As-Cash ETFs

First on my list is the SPDR Barclays Capital 1-3 Month T-Bill ETF (NYSEArca: BIL), which is composed of all publicly issued zero-coupon U.S. Treasury bills with maturities between one and three months.

The T-Bills must also be considered investment grade, nonconvertible and have a face value of at least $250 million. The current 30-day SEC yield on BIL is 0.11 percent. The expense ratio is 0.13 percent.

The ETF is basically the same as cash with very minimal movement over the last two years. BIL has remained within a trading range of 4 cents, or 0.09 percent.

BIL’s expense ratio relative to the yield gives me pause. It may be stable, but it’s basically a pay-to-not-get-paid proposition.

Ditto regarding the iShares Barclays Short Treasury Bond ETF (NYSEArca: SHV), which is similar to BIL, except the range of maturities allowed is wider for SHV.

The ETF holds U.S. Treasury obligations with maturities ranging from one to 12 months. Also, the face value of each issue it owns must be at least $250 million. Similar to BIL, the holdings must be denominated in U.S. dollars and are nonconvertible.

The volatility is almost identical to BIL with the trading range coming in at 0.10 percent as the ETF typically moves a penny or two each day.

The ETF has an expense ratio of 0.15 percent and the 30-day SEC yield is 0.01 percent, which means it’s a less attractive proposition than BIL.


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