Barron's: Ultra-Shorts Trail MMFs
Barron's, in Randall Forsyth's "Up and Down Wall Street" column, writes, "Stashing Your Money Under a Mattress Doesn't Look So Bad Compared to Bond Funds." He comments, "The Mattress Fund is the proper benchmark by which all investment should be measured.... You could always stuff cash into the bedding and sleep soundly knowing at least you'd have the same sum when you woke up.... What brought it to mind were the recent returns of some ultrashort-term bond funds that, despite their minimal risk, nonetheless have managed to shrink your investment, even if only by a basis points (or 1/100th of a percentage point)." The piece explains, "[L]osing even a few basis points in an ultrashort exchange-traded fund seems like going to a lot of trouble for less than nothing. Consider the JPMorgan Ultra Short Income ETF (JPST). The $18 billion fund returned negative 0.11% for the past month and negative 0.26% for the past three months, based on its share price, according to Morningstar. Since the beginning of 2021, the return has been barely positive, up 0.10%. That's actually better than some rivals, such as the Pimco Enhanced Short Maturity Active ETF (MINT). It's off 0.15% for the past month, down 0.26% for the past three months, and down 0.03% year to date. The BlackRock Ultra Short-Term Bond ETF (ICSH) fared only a bit better -- or less badly -- slipping 0.07% in the past month and dipping 0.08% for the past three months." Barron's states, "Credit, or blame, goes to the Federal Reserve, whose policy has been to pin short-term interest rates to the floor as part of its emergency monetary policy put into place in March 2020 to counter the economic and financial toll from Covid-19. These ETFs were supposed to eke out a slightly better return than money-market mutual funds, which yield a basis point or two while providing a safe parking place for cash balances. Unlike money-market funds, however, these ultrashort ETFs do fluctuate, even if it's only by a few pennies on shares that trade at prices around $50 or $100 each. But when the ETFs pay only a penny or less per share a month, even tiny dips in the share price can wipe out the income paid in a month." They ask, "What's your alternative? Not much, which was the Fed's aim -- to make holding cash unattractive to push it into riskier bonds to lower long-term interest rates or into stocks to lift asset values. Even if it yields nothing, cash provides 'optionality,' the ability to take advantage of opportunities when they arise without putting the position at risk. That's less than satisfying to savers who remember being able to earn high yields without risk by parking cash in money-market funds. These short-term ETFs, which were supposed to offer a bit more yield without any risk, evidently haven't been able to squeeze enough basis points out of a zero-yield market to beat the metaphorical Mattress Fund."
