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Monday, December 3, 2012

The Money Fund Famine Spurs a Short-Term Bond ETF Feast

News summary by MFWire's editors

With money market fund reform back on the table, short-term bond ETFs are suddenly trendy.

It's not hard to see why if regulators impose a floating NAV on money funds, those funds will become essentially short-term bond funds without the return. Or so ETFTrends reasons in a quick survey of the short-term bond ETF field, which points out four funds that investors may consider if money fund regulations goes through: SPDR Barclays 1-3 Month T Bill [profile], iShares Barclays Short Treasury Bond [profile], Guggenheim Enhanced Short Duration Bond [profile], and the $2.2 billion king of the hill, Pimco Enhanced Short Maturity Strategy [profile].

But the ETFTrends piece is piggybacking on a Financial Times story by Joe Morris that ran last Thursday, focused on Schwab's [profile] decision to launch an active short-term bond ETF, its first active ETF. Morris sees the firm's recent SEC filing for the fund's launch to be "the latest sign that US fund managers see ETFs as the heirs to money market funds."

Morris notes that the filing came in the same week that Walt Bettinger endorsed a floating NAV as a compromise on money funds.

Schwab's launch of this new short-term fund is yet another sign of the "heavy gloom gripping the money fund industry," Morris writes. Along with the threat of regulators upending the business, low rates mean that companies have to waive fees in order to hold the NAV at $1 -- waivers which cost Schwab $445 million through September and over $1 billion in 2010 and 2011, according to the FT.

Morris' story has plenty of intel on who's joining the rush to active short-term and who's not -- he says Fidelity and J.P. Morgan are "conspicuous in their absence from the field." JPM has filed for active short-term bond funds "but does not seem to be interested in following through," Morris writes, citing George Gatch's lack of confidence in active ETFs, as elucidated in a Reuters interview last year. 

Edited by: Chris Cumming

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