We learned from mutual fund news website ignites.com that BlackRock has filed to launch a new "enhanced cash" fund and an ultra-short bond fund -- BlackRock Ultra-Short Obligations Fund and BlackRock Short Obligations Fund. (See the SEC filing here.) While it's been a number of months since we've seen new entrants in the space beyond money funds, there have been a flurry over the last several years. (See our April 2011 MFI article, "Comeback? Enhanced Cash Returns", and previous Crane Data News updates on the "enhanced cash" or "money fund plus" market: "JPMorgan Rolls Out Ultra-Short Money Mkt Fund, Enhanced Cash Fund" (10/1/10), "Fidelity Launches Conservative Income Bond Fund; New Enhanced Cash" (3/14/11), "Oppenheimer Short Duration Fund Launches; Dreyfus Closes Enhanced" (4/26/11), "Guggenheim Launches Enhanced Ultra-Short Bond ETF, Latest Cash+" (6/3/11) and "Putnam Enters MMF-Plus Space, Launches Short Duration Income Fund" (11/3/11).
The objective of the BlackRock Ultra-Short Obligations Fund "is to seek current income consistent with preservation of capital" and its expense ratio will be 0.25% (after a 0.17% waiver). Ultra-Short Obligations Fund invests in a broad range of U.S. dollar-denominated money market instruments, including government, U.S. and foreign bank and commercial obligations and repurchase agreements. In addition, the Fund may also invest in mortgage- and asset-backed securities, short-term obligations issued by or on behalf of states ... and derivative securities such as beneficial interests in municipal trust certificates, and partnership trusts. Securities purchased by the Fund (or the issuers of such securities) will carry a rating in the highest two rating categories, A-2, P-2 or F2 or better by Standard & Poor's Ratings Services, Moody's Investors Service, Inc., or Fitch Ratings, respectively, or the equivalent by another nationally recognized statistical rating organization, or if such investments are unrated, determined to be of comparable quality by BlackRock, at the time of investment. The Fund invests in a portfolio of securities maturing in 397 days or less from the date of purchase (with certain exceptions) and will maintain a dollar-weighted average maturity of 90 days or less. The Fund may invest in variable and floating rate instruments and when-issued and delayed delivery securities." The PMs will be Thomas Kolimago and Eric Hiatt. Both funds will have $5 million minimum investments.
The objective of the BlackRock Short Obligations Fund "is to seek current income consistent with preservation of capital" and its expense ratio will be 0.30% (after a 0.15% waiver). The prospectus says, "Under normal market conditions, Short Obligations Fund will invest in U.S. dollar denominated investment grade fixed and floating rate debt securities maturing in three years or less (with certain exceptions) and will maintain a dollar-weighted average maturity of 180 days or less and a dollar-weighted average life of 365 days or less.... [T]he Fund may invest in corporate securities, mortgage- and asset-backed securities, and money market instruments, including government, U.S. and foreign bank and commercial obligations ... and derivative securities such as beneficial interests in municipal trust certificates, and partnership trusts, and repurchase agreements. Investment grade securities purchased by the Fund (or the issuers of such securities) will carry a rating of BBB-, or equivalent, or higher by at least one nationally recognized statistical rating organization ("NRSRO") and short-term investments will carry a rating in the highest two rating categories of at least one NRSRO (e.g., A-2 or higher by Standard & Poor's Ratings Services or P-2 or higher by Moody's Investors Service, Inc.), or if such investments are unrated, determined to be of comparable quality by BlackRock, at the time of investment. The Fund may invest in variable and floating rate instruments and when-issued and delayed delivery securities." The PMs will be Michael Evan and Richard Mejzak.
Website ignites comments in its August 2 story, "BlackRock Preps Ultra-Shorts as Rates Cripple Money Funds, "Ultra-short funds may appeal to investors seeking more than money funds' abysmally low 0.06% average yield, says Peter Crane, CEO and president of Crane Data. The funds may also serve as a kind of "hedging strategy" for firms, he says, in case the SEC does pass rules that dramatically alter the current structure of money market funds."
They quote Crane, "It's surprising that there haven’t been more ultra-short or enhanced cash launches. If money funds get uglier, everything around them is going to get better looking."
Ignites adds, "Fidelity, Putnam and OppenheimerFunds are among the firms that have added new ultra-short funds to their product lineups since early 2011. The Fidelity Conservative Income Bond fund has gathered $1.6 billion in assets since launching in March 2011, while the Oppenheimer Short Duration fund , rolled out in April 2011, now has $209 million and the Putnam Short Duration Income fund, on the market since October 2011, has $181 million, according to Morningstar data. As a whole, ultra-short bond funds stand at $40.7 billion in assets, as compared to about $26 billion at the end of 2007. Their year-to-date inflows are $2.6 billion."