In what is fast becoming a slow-motion train-wreck, the bodies continue to pile up in the "enhanced cash" and "ultra-short" bond sectors. The latest casualty is the $50 million Bear Stearns Current Yield Fund (YYY), which announced yesterday that the fund will be liquidated. YYY was the closest thing to a "cash" ETF when it launched earlier this summer, though it lacked the stable NAV and strict quality, maturity and diversity guidelines of a true "money market" fund.
Bloomberg broke this latest news in "JPMorgan Shutters First Actively Managed Exchange-Traded Fund". The article writes about YYY being the first actively-managed ETF and blames its demise on the fund's Bear Stearns connection. We believe, however, that the ETF's placement squarely in "enhanced cash" sector -- Ground Zero for the credit crisis and run on assets -- was the true cause of its "failure to launch". Crane Data estimates that the space between ultra-short bond funds and money market funds has imploded, shrinking from over $350 billion a year ago to under $50 billion today.
As we wrote in yesterday's "Link of the Day", Morningstar recently published an article by Karen Dolan entitled, "Ultrashort-Term Bond Funds Suffer Massive Blow," which says "Unexpected blowup threatens this category's existence." The company cites the severe performance woes of Schwab YieldPlus (SWYPX), Fidelity Ultra-Short Bond (FUSFX), and others, and the liquidations of SSgA Yield Plus and Evergreen Ultrashort Opportunities. We've also recently noted the decision by AMF Ultra Short Mortgage (ASARX) and AMF Ultra Short (AULTX) to "redeem in kind", never a good sign.
Both ultra-short and enhanced cash appear to be in a downward death spiral. The asset declines have been stunning. Morningstar says, "We fully expect that others will follow, considering that returns have continued to suffer."
