A recent press release explains that, "BNY Mellon Investment Management ... announced the expansion of its Exchange-Traded Funds (ETFs) range with the introduction of the BNY Mellon Ultra Short Income ETF, sub-advised by Dreyfus Cash Investment Strategies (CIS). This active ETF solution, which seeks to address the growing demand for increased yield with less volatility than a short-term bond fund and potentially additional return over money market funds, is expected to commence trading on the New York Stock Exchange (NYSE) on Wednesday, August 11, 2021."
It tells us, "The introduction of the BNY Mellon Ultra Short Income ETF marks the first of several upcoming active ETF solutions from BNY Mellon Investment Management. In the coming months the firm expects to launch three active ETF sustainable solutions sub-advised by Newton Investment Management Limited [including] the BNY Mellon Responsible Horizons Corporate Bond ETF, sub-advised by Insight North America LLC."
John Tobin, CIO of Dreyfus Cash Investment Strategies comments, "Given the current low rate environment, an ultra short bond ETF seeks to address the growing demand for increased yield with less volatility than a short-term bond fund and potentially additional return over money market funds.... The BNY Mellon Ultra Short Income ETF is a natural extension of our existing suite of liquidity solutions, and we're especially excited to bring our ultra short income capabilities to the ETF market."
The release also says, "BNY Mellon introduced in April 2020 its initial suite of eight Index ETFs, including the industry's first true zero-fee ETFs in the largest equity and fixed income ETF categories without fee waivers or other restrictions -- the `BNY Mellon US Large Cap Core Equity ETF and the BNY Mellon Core Bond ETF -- as well as a BNY Mellon High Yield Beta ETF. Since its debut, the initial BNY Mellon-sponsored ETF suite has grown to over $845M in AUM as of June 30, 2021, with spreads and quoted depth proving competitive across each strategy."
Andy Provencher, BNY Mellon Investment Management Head of North American Distribution, adds, "Our mission in entering the ETF marketplace last year was to make our leading investment capabilities accessible to a broader range of clients through the ETF structure.... We have an ambitious product pipeline of active ETFs that we're excited to bring to market over the next several months. Continuing to launch active ETFs strengthens the suite of solutions we're able to offer clients and deepens our relationships by meeting their evolving needs for more low-cost, tax-efficient investment strategies."
In other news, Larry Locke, a Professor & Associate Dean at the University of Mary Hardin-Baylor, gave a presentation at the International Academy of Business & Public Administration Disciplines in Dallas entitled, "Paper Tiger: The Toothless Ban on Money Market Mutual Fund Bailouts. He states, "To claw the financial system back from the brink of disaster in 2008, the US Treasury used the Exchange Stabilization Fund to backstop money market mutual funds and stabilize the short term credit market. Anticipating the bailout's unpopularity, Congress built into the original 2008 legislation a ban on the Treasury doing so ever again. In reality, the ban had no teeth. In the midst of the COVID-19 downturn in the economy, Congress lifted the ban and the Treasury once again used the ESF to backstop MMMFs. The 2008 legislation was a paper tiger and the Treasury's continued support for MMMFs in times of economic crises has exposed the underlying dichotomy of an investment product now essential to the US economy."
Locke and co-presenter Taelyn Shelton explain, "Money market mutual funds are a unique form of mutual fund. While most open-ended registered investment companies sell or redeem shares at the next determined net asset value, MMMFs sell and redeem shares at the fixed price of $1. This, along with high liquidity and credit quality, allows MMMFs to function like bank accounts for individuals and corporate treasurers alike. Unlike most bank accounts, MMMFs are not insured by the FDIC and are subject to the default risk of their underlying investments. Investors nonetheless choose MMMFs for the risk diversification they provide and sometimes for yield advantages."
They continue, "In the middle of the financial crisis of 2008, Congress passed the Emergency Economic Stabilization Act to immediately provide facilities the Treasury could use to stabilize the U.S. financial system. A key pillar of the act was the Troubled Asset Relief Program (TARP), which enabled the Treasury to quickly provide capital to the banking system. A less-publicized element of TARP was the Treasury Money Market Funds Guaranty Program. This program used the Exchange Stability Fund to guarantee the assets of money market mutual funds in order to promote investor confidence and bring money back into a market critical to the economy."
The talk tells us, "Ultimately, none of the money market funds secured by the ESF defaulted and the ESF suffered no losses from the program. In fact, the program earned about $20 billion from interest charged to the institutions who borrowed from the TARP facilities. In spite of this, the TARP was politically unpopular.... Congress attempted to shield itself from TARP's unpopularity by creating a legislative barrier to future bailouts. Section 131 of TARP stated that, after the conclusion of the program, the Secretary of the Treasury was prohibited from using the ESF for the establishment of any future guaranty programs for MMMFs. Today, we see that limit as a paper tiger, no more meaningful than the national debt ceiling."
Locke says, "The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law in March 2020. The CARES Act temporarily removed the ban on the Treasury's use of the ESF to guarantee MMMFs until the end of 2020, once again allowing the Treasury to transfer potential losses incurred by MMMF investors to taxpayers. Congress is allowing the Treasury to do exactly what it banned it from doing 12 years ago, in a relatively similar situation. Why?"
He responds, "A decline in investor confidence in MMMF's is dangerous for the economy. In 2008, Lehman Brothers' bankruptcy caused one money market fund, the Reserve Fund, to close and begin liquidation. The collapse of the Reserve Fund unnerved investors and triggered a run on MMMFs. Investors attempted to withdraw billions of dollars from MMMFs all at the same time. This run on MMMF's crippled the market for commercial paper and other short term investments. In his book, On The Brink, former Treasury Secretary, Henry Paulson, described a call he received from the CEO of General Electric, warning that without cash from MMMF's the company would be unable to make payroll that week."
Locke and Shelton add, "The same risk exists today. Major U.S. companies that employ many thousands of workers continue to rely on MMMF's for their short term cash needs. The government's handling of MMMFs in the midst of the COVID-19 pandemic proves that the former ban was an empty threat. Congress will always backstop MMMFs if the alternative is potential widespread panic. The only question is how the backstop will be funded."
Finally, they comment, "Until MMMF's find a way to spread their own risk through premiums, or other calls on their own assets or the assets of their investment advisors, the government will always be forced to step in to bail them out when events threaten the short term credit market. The global pandemic has exposed the 2008 ban to be a paper tiger, meant to pander to a constituency that does not understand the true role MMMF's play in the U.S. economy. Congress would be better served to face this reality. When the choice comes down to cratering the economy or backstopping MMMFs, Congress is going to backstop MMMFs. The question Congress must resolve is whether they will be supported by their own investors or by the U.S. taxpayer."
