VettaFi Discusses Money Market ETFs
VettaFi writes on "Money Market ETFs: An Opportunity to Attract Mutual Fund Assets." They tell us, "Until recently, only one major sector of the U.S. mutual fund market remained safely untouched. That was the $6.6 trillion money market mutual fund segment (MMF). Two months ago, a team at Texas Capital, led by longtime ETF executive Ed Rosenberg, broke through the barriers and launched the first money market ETF, the Texas Capital Government Money Market Fund (MMKT). Although money market funds are perhaps the most generic and boring investment in the world, $6.6 trillion is a lot of money. Half of MMF assets are held by just 20 funds managed by the biggest investment firms, including BlackRock, Schwab, JPMorgan, and Vanguard, among others. The management fees for just those 20 funds total almost $10 billion annually. Now there is a new competitor to those existing funds." VettaFi explains, "To create a money market ETF, some changes to the mechanics of a traditional MMF had to be made. First, anything trading on an exchange will have a bid/ask spread between buyers and sellers. If the money market ETFs had a $1 NAV, then a penny spread would be equal to 1% cost to buy or sell. This is too high. But if the NAV was $100, a penny would only be a 0.01% spread/cost. Texas Capital went with a $100 NAV, and the bid/ask spread since launch averages 1 to 2 basis points. This is a cost that reduces your overall yield, but it's a very small amount. And since investors in money funds look at dollars, and not number of shares, the share count difference between a $1 NAV and a $100 NAV itself is just math that means nothing." They add, "The second change made to accommodate exchange listing is accounting for interest. Every day, the MMF or money market ETF accumulates interest. With an MMF, the fund managers declare the interest as dividends daily and then pay it out at the end of the month. That way, the accumulating interest does not alter the $1.00 daily NAV. The money market ETF skips the daily declaration and lets the interest slightly increase the NAV every day. At the end of the month, the money market ETF declares the dividend and pays it." See our Crane Data News, "BlackRock Debuts First Euro MM ETF" (12/5/24) , "FT on BlackRock Money Market ETFs" (11/18/24), "BlackRock Files for Money Market ETFs" (11/12/24), and "Texas Capital Launches Govt MM ETF" (9/26/24).
