While the majority of exchange-traded products are used for long-term investments that can potentially pay off big over time, not all funds are created with this large payout in mind. Enter money market ETFs; this breed of funds has caught the attention of countless investors who are looking to preserve capital and, luckily, there are a number of options to choose from. Below we outline two strong representations of the money market category that have been battling for investor attention since inception: Barclays Short Treasury Bond Fund (SHV, A-) and the Enhanced Short Maturity Strategy Fund (MINT, A+) [Download How To Pick The Right ETF Every Time].
Meet the Competitors
Money market funds offer investors a way to put cash to work in a variety of low risk, short-term securities, including commercial paper, repurchase agreements, Treasury bills, and certificates of deposit. Holding between $4.8 billion and $3.42 billion in total assets under management each, these funds are the largest money market funds currently on the market. SHV holds a mix of US Treasury securities that have a remaining maturity between one and 12 months. MINT isn’t technically a money market fund, but may be an interesting option for investors looking to park cash in a low risk vehicle. This ETF is an actively-managed ETF that seeks greater income and total return potential than money market funds, and may be appropriate for non-immediate cash allocations [also see Head-To-Head: Alternative Energy ETF Surprises].
The advantages to money market ETFs are numerous: they generally offer higher interest rates than bank CDs and charge far lower expense ratios than money market mutual funds. Moreover, they make regular monthly interest payments and provide a level of diversification that most investors would be unable to achieve on their own. These funds are great for highly volatile times, like what investors saw in 2011 [try our Free ETF Head-To-Head Comparison Tool].
The Bottom Line
Money market ETFs can serve as viable core holdings in a long-term portfolio for those looking to tame overall volatility. As such, these ETFs might attract cautious investors who are looking to preserve capital over the long-haul, while more risk-averse investors with a bullish economic outlook will likely find this asset class unappealing. Money market ETFs can also be used as defensive tools in times of economic uncertainty when investors are looking to put their money to work while evading stock market volatility [also see Emerging Market ETFs: Biggest Winners & Losers YTD].
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Disclosure: No positions at time of writing.