Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
"...BlackRock expanded the way investors can manage their cash with the launch of two money market ETFs, including the industry’s first prime money market etf. The iShares Money Market ETFs - the iShares Prime Money Market etf (NYSE: PMMF) and the iShares Government Money Market etf (NYSE: GMMF) - combine the quality and liquidity of regulated money market funds with the transparency and efficiency of the etf structure."
These are active etfs with ERs 0.20%, comparable to several ultra-ST bond funds.
ETFs are more accessible than great m-mkt products from Fido and Vanguard.
Institutional-prime m-mkt funds already have floating NAVs. These ETFs will operate under similar rules and may be even less volatile that ultra-ST funds (OEFs, ETFs).
BTW, m-mkt OEF ERs are too high except for Fido-Institutional and Vanguard. These ETFs will drive those lower.
ETFs do not work as well as MM funds for me for trading because I have to sell ETFs first before I am allowed to buy what I want to buy. E.g., Usually what I want to buy is trending up (fast) and even a few seconds delay in executing my buy order amounts to paying higher prices. If I buy first and sell after, I know how much to sell. MM fund trade ticket is simpler. More often than not I am buying close to the market Close when I am under time pressure and I must reduce number of steps. Etc.
I am mildly interested in a lower cost prime money market. As of right now the share price of PMMF is not unchanged. It is slightly up … Does this account not have a stable share price? Is it really just another bond fund trying to market itself as a money market fund?
An OEF MMF declares divs daily, so its price doesn't increase over a month. At the end of each month it pays out those divs. If you liquidate in the middle of a month, you get all the divs you've accumulated up to that point.
ETFs and many bond OEFs declare monthly (or even quarterly). When a fund goes ex-div, its price drops and then gradually builds as the interest earned is added to the value of each share.
Is the price of an ETF MMF stable? Sort of. The price incorporates the accrued interest, whereas in the OEF MMF that accrued interest is kept off to the side. Either way, the price of the principal is steady.
I am mildly interested in a lower cost prime money market. As of right now the share price of PMMF is not unchanged. It is slightly up … Does this account not have a stable share price? Is it really just another bond fund trying to market itself as a money market fund?
There were m-mkt reforms in 2014/2016 that introduced liquidity fees, gates (redemption suspension), and floating-NAVs for some institutional m-mkt funds. So, the notion of $1 NAV for m-mkt funds was no longer universal.
Among these, gates proved to be more problematic. Who wants a m-mkt fund with check-writing that may suddenly impose gates. Gates weren't triggered, but the fear of gates hurt those m-mkt funds with them.
In came reforms of 2023 that eliminated gates but possible retained liquidity fees.
So, now we have m-mkt funds with $1 NAV that may impose liquidity fees AND m-mkt funds with floating-NAV that can also impose liquidity fees.
M-mkt funds have to operate under Rule 2a-7 that don't apply to ultra-ST bond funds.
If the share price moves does that not make it an ultra short term bond fund,,, not a money market fund that is characterized by a stable share price?
When people speak of volatile NAVs, they are usually thinking of the value of the underlying assets fluctuating, not the effect of accruing interest. And it is the accruing interest, not fluctuating asset values that causes the NAV to rise.
Does the NAV change? Yes. Is it stable? Depends on how you view it. The value of an investment, day by day, is identical whether you invest in an OEF MMF or an ETF MMF.
---
Suppose you buy 100 shares of a MM fund worth $100 yielding 3.6%/year (a penny a day). At the start, your shares represent underlying assets of $100.
Consider first an OEF MMF:
After 1 day, the fund declares a dividend of 1¢ but doesn't pay it to you yet. Your shares represent $100 in original assets and you're also owed your 1¢ div.
After 2 days, the fund declares a div of 1¢. (2¢ cumulative). Your shares represent $100 in original assets and you're also owed your 2¢ div. ... After 30 days, the fund declares a div of 1¢. (30¢ cumulative). Your shares represent $100 in original assets and you're also owed your 30¢ div.
You're paid the 30¢ in divs that were declared but not yet paid. You reinvest at $1/share and you now own 100.30 shares @$1/share.
Compare that with an ETF MMF:
After 1 day, your shares represent $100 in original assets plus 1¢ in interest. After 2 days, your shares represent $100 in original assets plus 2¢ in interest. ... After 30 days, your shares represent $100 in original assets plus 30¢ in interest.
You're paid the 30¢ in interest. Your shares now represent $100, period. You reinvest your divs at $1/share and you now own 100.30 shares @$1/share.
Comments
@yogibearbull Thanks for posting!
Institutional-prime m-mkt funds already have floating NAVs. These ETFs will operate under similar rules and may be even less volatile that ultra-ST funds (OEFs, ETFs).
BTW, m-mkt OEF ERs are too high except for Fido-Institutional and Vanguard. These ETFs will drive those lower.
@Derf,
ETFs do not work as well as MM funds for me for trading because I have to sell ETFs first before I am allowed to buy what I want to buy. E.g., Usually what I want to buy is trending up (fast) and even a few seconds delay in executing my buy order amounts to paying higher prices. If I buy first and sell after, I know how much to sell. MM fund trade ticket is simpler. More often than not I am buying close to the market Close when I am under time pressure and I must reduce number of steps. Etc.
https://www.etftrends.com/money-market-etfs-opportunity-attract-mutual-fund-assets/
An OEF MMF declares divs daily, so its price doesn't increase over a month. At the end of each month it pays out those divs. If you liquidate in the middle of a month, you get all the divs you've accumulated up to that point.
ETFs and many bond OEFs declare monthly (or even quarterly). When a fund goes ex-div, its price drops and then gradually builds as the interest earned is added to the value of each share.
Is the price of an ETF MMF stable? Sort of. The price incorporates the accrued interest, whereas in the OEF MMF that accrued interest is kept off to the side. Either way, the price of the principal is steady.
In terms of portfolios, these MMFs do comply with Rule 2a-7.
https://www.ishares.com/us/literature/product-brief/mmf-etf-product-brief.pdf
Among these, gates proved to be more problematic. Who wants a m-mkt fund with check-writing that may suddenly impose gates. Gates weren't triggered, but the fear of gates hurt those m-mkt funds with them.
In came reforms of 2023 that eliminated gates but possible retained liquidity fees.
So, now we have m-mkt funds with $1 NAV that may impose liquidity fees AND m-mkt funds with floating-NAV that can also impose liquidity fees.
M-mkt funds have to operate under Rule 2a-7 that don't apply to ultra-ST bond funds.
Does the NAV change? Yes. Is it stable? Depends on how you view it. The value of an investment, day by day, is identical whether you invest in an OEF MMF or an ETF MMF.
---
Suppose you buy 100 shares of a MM fund worth $100 yielding 3.6%/year (a penny a day). At the start, your shares represent underlying assets of $100.
Consider first an OEF MMF:
After 1 day, the fund declares a dividend of 1¢ but doesn't pay it to you yet. Your shares represent $100 in original assets and you're also owed your 1¢ div.
After 2 days, the fund declares a div of 1¢. (2¢ cumulative). Your shares represent $100 in original assets and you're also owed your 2¢ div.
...
After 30 days, the fund declares a div of 1¢. (30¢ cumulative). Your shares represent $100 in original assets and you're also owed your 30¢ div.
You're paid the 30¢ in divs that were declared but not yet paid.
You reinvest at $1/share and you now own 100.30 shares @$1/share.
Compare that with an ETF MMF:
After 1 day, your shares represent $100 in original assets plus 1¢ in interest.
After 2 days, your shares represent $100 in original assets plus 2¢ in interest.
...
After 30 days, your shares represent $100 in original assets plus 30¢ in interest.
You're paid the 30¢ in interest. Your shares now represent $100, period.
You reinvest your divs at $1/share and you now own 100.30 shares @$1/share.