Barron's on Money Funds, Ultra ETFs
Last weekend's Barron's featured the brief, "Money-Market Funds Are Back. But There Are Now Other Options for Your Cash." They comment, "In our turbulent times, money-market funds have returned from the dead, along with a number of liquid, short-term, near-cash alternatives. As of Nov. 2, money funds were yielding an average 2.9% [now 3.37%], and that is likely to keep rising as the Federal Reserve continues to raise interest rates. Their real competition, in investment convenience, security, and liquidity, isn't bank accounts, but rather ultrashort-term bond exchange-traded funds." The piece states, "The largest, the $25 billion SPDR Bloomberg 1-3 Month T-Bill (BIL), invests in the safest Treasury bills. But that ETF pays a slightly lower SEC or official 'standardized' yield, 2.7%, than many retail money funds today. With the huge demand for T-bills this year, they now yield 0.25 to 0.30 percentage points below some of the overnight repos that money funds will invest in. If you're willing to take some credit risk, ultrashort ETFs are interesting. The $7 billion iShares Ultra Short-Term Bond (ICSH) is actively managed like a money fund, can invest in various kinds of high-quality debt, and yields 3.5%. Still, if it were a money fund, it would have broken the buck in March 2020, during the pandemic liquidity crisis, and this year, it's down a tiny 0.1%. That's the trade-off."
