Schwab plans money-market-like ETFs

Trio of funds to be launched amid fee waivers and regulation
AUG 27, 2013
By  JKEPHART
Charles Schwab Investment Management plans to launch a trio of money-market-like exchange-traded funds as fee waivers and regulation weigh on traditional money market funds. Schwab, the fifth-largest money fund manager, will roll out two-month, nine-month and 12-month target duration ETFs, pending approval from the Securities and Exchange Commission. The Schwab TargetDuration two-month ETF, for example, will have a maximum duration of 60 days. The Schwab TargetDuration 12-month will have a maximum duration of one year. The shorter maturities should make the ETFs less vulnerable to a rise in interest rates, a top concern for investors after the hair-raising experience that bond funds suffered in the second quarter. The ETFs will also be able to invest more broadly than money market funds, which should offer slightly higher yields, while still striving to maintain a relatively stable net asset value. Money market funds were restricted to a weighted average duration of no more than 60 days and forced to invest in higher-rated credits by the SEC in 2010, after the Reserve Primary Fund broke the buck in 2008 during the financial crisis. Schwab's ETFs will be similar to the $4 billion Pimco Enhanced Short Maturity ETF (MINT) and the $26 million FlexShares Ready Access Variable Income Fund (RAVI), which yield 88 basis points and 59 basis points, respectively. The average money market fund yields just 0.01% today, according to money market research firm iMoneyNet. The low yields that money market funds offer have caused companies that manage them to waive some of the fees tied to them, to ensure that investors aren't investing in a losing proposition. Since 2008, for example, Schwab has waived more than $2 billion in money market fund fees. More regulation is likely on the way for money market funds, too. The SEC has proposed two potential changes. One would direct prime institutional money market funds to disclose their daily net asset value rather than the stable $1 NAV that is the norm. The other proposal would limit withdrawals and charge withdrawal fees during times of market stress.

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