Picking The Right Money Market ETF

by on January 28, 2010 | Updated October 26, 2012

As interest in ETF investing has surged in recent years, issuers have rushed to expand their product lines into every corner of the investable universe. The first generation of ETF products consisted mostly of equity funds designed to track well-known benchmarks, and while the vast majority of ETF assets remains in these “plain vanilla” funds, innovation in the industry has brought countless asset classes and investment strategies within the reach of all levels of investors. As investors expand the role ETFs play in their portfolios, several money market ETFs have popped up and become quite popular [see also Monthly Dividend ETFdb Portfolio]. 

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. 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 [see also Free Report: How To Pick The Right ETF Every Time].

Investors looking for a money market ETF have plenty of options. The funds profiled below are similar in many ways, but also feature some key differences in expenses, duration, and diversity of holdings. For more head-to-head comparisons of ETF options, sign up for our free ETF newsletter.

Money Market ETFs
Ticker Issuer Expense Ratio SEC 30 Day Yield Duration
GSY Gueggenheim 0.27% 0.91% 0.33
RAVI FlexShares 0.25% n/a 0.79
SHV iShares 0.15% 0.13% 1.79
BIL State Street 0.13% -0.02% 0.09
MINT PIMCO 0.35% 0.73% 1.00
PVI PowerShares 0.25% 0.08% 7 day reset
VRD State Street 0.20% 0.11% 7 day reset

Guggenheim Enahnced Ultra-Short Bond ETF (GSY)

This actively-managed ETF looks to outperform the Barclays Capital U.S. 1-3 Month Treasury Bill Index. To do this, GSY invests in a portfolio of investment grade ultra-short term debt securities including, U.S. Treasuries and corporate bonds [see Bond ETFs For Every Objective].

FlexShares Ready Access Variable Income Fund (RAVI)

This actively-managed ETF seeks to deliver maximum current income by investing in an international portfolio of investment grade bonds, including Treasuries, municipal bonds, as well as corporate debt. RAVI is heavily tilted towards U.S. securities and features a duration of generally less than one year, giving it a fairly “low risk” profile.

iShares Barclays Short Treasury Bond Fund (SHV)

This is the most popular money market ETF in terms of assets under management and its underlying index is designed to measure the performance of public obligations of the U.S. Treasury that have a remaining maturity between one and 12 months. SHV is also one of the cheapest money market ETF options, but offers less diversification in its holdings by investing primarily in Treasuries [see 12 High-Yielding Monthly Distribution Bond ETFs].

SPDR Barclays Capital 1-3 Month T-Bill ETF (BIL)

This ETF is designed to replicate the performance of an index that includes all publicly issued zero-coupon U.S. Treasury Bills that have a remaining maturity of less than 3 months and more than 1 month, are rated investment grade, and have $250 million or more of outstanding face value. In addition, the securities must be denominated in U.S. dollars and must be fixed rate and non convertible. With an expense ratio of just 13 basis points, BIL is the cheapest money market ETF on the market [see BIL Fact Sheet].

PIMCO Enhanced Short Maturity Strategy Fund (MINT)

This ETF isn’t technically a money market fund, but may be interesting option for investors looking to park cash in a low risk vehicle. MINT 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. MINT invests in short duration investment grade debt securities, including government debt and mortgage-related securities [see MINT Realtime Rating].

PowerShares VRDO Tax-Free Weekly Portfolio (PVI)

This ETF also isn’t really a money market fund, but presents another short-term, low risk option. Variable rate demand obligations (VRDOs) are actually long-term floating-rate bonds. But investors have the option to put VRDOs back to an investment dealer whenever the yield is reset, which is typically on a monthly basis. Generally, interest from VRDOs is exempt from federal income taxes, and often is exempt from state and local income taxes for residents of the issuing state [see also High Yield ETFdb Portfolio ].

SPDR S&P VRDO Municipal Bond ETF (VRD)

This ETF is similar in many respects to PVI, offering investors exposure to VRDOs through an ETF structure. The assets held by VRD also have a seven-day reset feature, giving these long-term debt instruments characteristics commonly found in short-term money market vehicles. See a closer look at VRDO ETF investing in this feature.

International Money Market ETF Options

Global 1-Month Deposit Rates
Euro 0.1%
Japan 0.0%
New Zealand 2.5%
China 2.5%
Brazil 6.2%
India 7.2%
South Africa 5.2%
Emerging Currency Basket 4.1%
Source: WisdomTree.com as of 10/26/2012

In addition to the ETFs profiled above that offer exposure to money markets in the U.S., there are now a handful of ETFs that are designed to deliver returns reflective of money market rates in various countries available to foreign investors. International money market rates, particularly those in emerging markets, can often be considerably higher than domestic returns [try our Free ETF Country Exposure Tool].

These funds are also subject to currency risk, meaning that they will generally lose value when the U.S. dollar appreciates and gain when the greenback weakens. ETFs offering exposure to international money market rates include:

  • WisdomTree Dreyfus Euro Fund (EU)
  • WisdomTree Dreyfus Japanese Yen Fund (JYF)
  • WisdomTree Dreyfus New Zealand Dollar Fund (BNZ)
  • WisdomTree Dreyfus Chinese Yuan Fund (CYB)
  • WisdomTree Dreyfus Brazilian Real Fund (BZF)
  • WisdomTree Dreyfus Indian Rupee Fund (ICN)
  • WisdomTree Dreyfus South African Rand Fund (SZR)
  • WisdomTree Dreyfus Emerging Currency Fund (CEW)

Disclosure: No positions at time of writing.