How MINT Hauled In $800 Million

by on June 23, 2010 | ETFs Mentioned:

The last several years have seen a rapid expansion of the ETF universe, with hundreds of new product launches offering exposure to an increasing number of asset classes, investment strategies, and corners of the globe. The initial success of these new products has been all over the board; some have struggled mightily to gain traction with investors while others have racked up impressive asset levels and trading volumes almost immediately.

Predicting which ETFs will be hits with investors can be quite a challenge. A list of the ten most successful ETFs of 2009 included some unlikely products; it wasn’t necessarily a surprise that investors embraced ETFs offering exposure to junior gold miners or VIX futures, but the amount of cash these product raked in was staggering. The fist six months of 2010 have seen a number of new products come flying out of the gates, but perhaps the most intriguing development has been the tremendous surge in assets in the PIMCO Enhanced Short Maturity Strategy Fund (MINT), one of the first actively-managed fixed income ETFs to hit the market.

About seven months after it launched (in November 2009) MINT has total assets of about $850 million, making it one of the fastest-growing ETFs in recent memory. Many of the new ETFs that have achieved early success have offered exposure to somewhat exotic asset classes or investment strategies–AMJ, GDXJ, and VXX are all good examples. Next to these funds, MINT’s investment objectives are remarkably simple, and the exposure offered is anything but exotic.

MINT is essentially a money market fund in an ETF wrapper, seeking “maximum current income, consistent with preservation of capital and daily liquidity.” This fund is actively-managed, meaning that it isn’t linked to any particular benchmark, instead seeking to generate “greater income and total return potential than money market funds.” Predictably, MINT’s holdings consist primarily of short duration investment grade debt securities, including Treasuries, agency debentures, and commercial paper.

Tremendous Surge

When MINT hit the market, there was no shortage of skeptics who wondered if the fund would have difficulties attracting assets. Considering the fund’s investment objectives and underlying holdings, the expense cap of 0.35% presents a significant hurdle just to reach break-even. MINT’s first few months saw a fair amount of interest from investors–assets reached nearly $200 million in March before dropping off in April.

But then a funny thing happened. A wave of risk aversion washed over global equity markets, sending investors racing towards safe haven investment and renewing a focus on capital preservation (see Five Safe Haven ETFs To Ride Out The Storm). MINT saw cash inflows of almost $600 million in May, more than 300% of the assets at the end of the previous month. As worries about a brewing debt crisis in Europe intensified, investors pulled out of risky assets and sought out low-risk vehicles to stow cash until the outlook improved. The SPDR Gold Trust (GLD) saw inflows of more than $4 billion on the month, and a number of other fixed income funds saw spikes in interest as well. That put MINT on the board, as investors embraced ETF that fall at the extreme low end of the risk spectrum as a valuable portfolio tool (see Guide To Money Market ETFs).

Catching Up To Mutual Funds

In hindsight, MINT’s impressive haul perhaps shouldn’t be all that surprising. The amount of cash parked in money market mutual funds–securities that strive to maintain a constant value of $1 per share–is staggering, reaching into the hundreds of billions. For investors looking for a low risk place to park some cash, MINT is a potentially appealing option. And because ETFs can be bought or sold throughout the trading day, investors have the ability to redeploy the capital at any time–an opportunity not afforded to mutual fund investors.

Don’t be surprised if the number of money market-like ETFs surges in coming months, as investors continue to gain comfort with the exchange-traded structure for more than just stock and bond exposure.

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Disclosure: No positions at time of writing.