We learned from mutual fund news publisher ignites that Charles Schwab has filed to launch a series of "enhanced cash" ETFs. The pending Schwab Target Duration ETFs include Schwab TargetDuration 2-Month ETF, Schwab TargetDuration 9-Month ETF, and Schwab TargetDuration 12-Month ETF. The ETF's Investment adviser will be Charles Schwab Investment Management, Inc. and the portfolio manager for all three funds will be Linda Klingman, Managing Director and Head of Taxable Money Market Strategies. No ticker symbols or expense ratios are available yet. (See our last couple mentions of ultra-short bond funds, "More MFs Liquidate: Calvert, Hartford Exit; Bad Timing for Bond Funds (June 27, 2013)" and "Vanguard on Bond Fund Challenges; Good Alternative to Money Funds? (April 25, 2013).")
Schwab TargetDuration 2-Month ETF has its investment objective, "The fund seeks current income consistent with preservation of capital and daily liquidity." Its filing says, "To pursue its goal, it is the fund's policy, under normal circumstances, to invest at least 90% of its net assets in a portfolio of investment grade short-term fixed income securities issued by U.S. and foreign issuers and other short-term investments. The fund will notify its shareholders at least 60 days before changing this policy. The fixed income securities in which the fund may invest include corporate and commercial debt instruments; privately-issued securities; mortgage-backed and asset-backed securities; variable- and floating-rate debt securities; repurchase agreements; money market instruments, including certificates of deposit, commercial paper and asset-backed commercial paper; obligations issued by the U.S. government and its agencies and instrumentalities ... and bank notes and similar demand deposits."
It continues, "The fund may also invest in other investment companies, including other exchange traded funds.... The fund may also invest its assets in money market funds (including funds that are managed by the investment adviser or one of its affiliates), cash and cash equivalents, and other investment grade short-term securities. All of these investments will be denominated in U.S. dollars.... All debt securities purchased by the fund will be rated A- or higher.... `Under normal circumstances, the fund will generally maintain a portfolio duration of less than two months. Duration measures the price sensitivity of a security to interest rate changes."
The Schwab TargetDuration 9-Month ETF has as its investment objective, "The fund seeks a high level of current income consistent with preservation of capital." Its filing says, "Under normal circumstances, the fund will generally maintain a portfolio duration of less than nine months. Duration measures the price sensitivity of a security to interest rate changes. The longer the duration, the more sensitive the portfolio will be to a change in interest rates. As the value of a security changes over time, so will its duration, which in turn will affect the portfolio’s duration. The portfolio manager may adjust the fund's duration within the stated limit based on current and anticipated changes in interest rates. Additionally, under normal circumstances, the fund generally expects to maintain a portfolio maturity (which is the weighted average maturity of all the securities held in the portfolio) of less than eighteen months (1.5 years)."
Finally, Schwab TargetDuration 12-Month ETF has as its investment objective, "The fund seeks maximum current income consistent with preservation of capital." It says, "Under normal circumstances, the fund will generally maintain a portfolio duration of less than twelve months (1 year).... Additionally, under normal circumstances, the fund generally expects to maintain a portfolio maturity (which is the weighted average maturity of all the securities held in the portfolio) of less than twenty-four months (2 years)."
In other news, the Federal Reserve Bank of New York issued a statement entitled, "Statement Regarding Reverse Repurchase Agreements." It says, "As noted in the October 19, 2009, Statement Regarding Reverse Repurchase Agreements, the Federal Reserve Bank of New York has been working internally and with market participants on operational aspects of triparty reverse repurchase agreements to ensure that this tool will be ready to support any reserve draining operations that the Federal Open Market Committee might direct. Beginning this week, the New York Fed intends to conduct another series of small-value reverse repurchase (RRP) transactions using Treasury and MBS collateral. All operations will be open to all eligible reverse repo counterparties."
They add, "Like the earlier operational readiness exercises, this work is a matter of prudent advance planning by the Federal Reserve. The operations have been designed to have no material impact on the availability of reserves or on market rates. Specifically, the aggregate amount of outstanding reverse repo transactions will be very small relative to the level of excess reserves, and the transactions will be conducted at current market rates. These operations do not represent a change in the stance of monetary policy, and no inference should be drawn about the timing of any change in the stance of monetary policy in the future. The results of these operations will be posted on the public website of the Federal Reserve Bank of New York, together with the results for other temporary open market operations. The outstanding amounts of reverse repos are reported as a factor absorbing reserves in Table 1 in the Federal Reserve's H.4.1 statistical release and as liability items in Tables 8 and 9 of that release."
