(Bloomberg) — A new exchange-traded fund trying to carve out a slice of the $6.3 trillion sitting in traditional money market funds is launching Wednesday.
According to a press release, the Texas Capital Markets Government Money Market ETF begins trading under the ticker symbol MMKT. While other short-dated bond ETFs exist, MMKT is the first to follow so-called Rule 2a-7 — a provision of a 1940s Securities and Exchange Commission law that regulates money market funds.
MMKT's portfolio will have the characteristics of a traditional money market fund and will be governed by the same SEC provision, there is one key difference: MMKT will not maintain a stable net asset value of $1.
“Money markets have been unchallenged since ETFs began,” said Edward Rosenberg, head of ETF and fund management for Texas Capital. “Money market funds are viewed as cash equivalents, and no other ETF has that designation.”
For investors wondering why they might want a less stable capital preservation vehicle, the Dallas-based lender — which launched its first ETF last year — says there has been growing acceptance of the values of floating rate for government money market and prime funds. MMKT also offers institutional investors more intraday liquidity than a traditional money market account, according to the bank.
Assets in money market funds have skyrocketed over the past several years, in large part to an aggressive Federal Reserve hiking cycle that has left short-term rates north of 5%. Investors flocked to those relatively high yields, boosting money market funds to an all-time high of $6.3 trillion this month. As the central bank has since embarked on a rate-cutting campaign, Texas Capital sees an opportunity to capitalize on still-strong demand for cash.
“It's a little fancier than just your Treasury bond ETF, and an interesting marketing spin,” said Todd Sohn, an ETF strategist at Strategas.
MMKT, which carries an annual expense ratio of 20 basis points, must invest 99.5% of its assets in cash or short-dated government securities. The maturities of its holdings can be as short as overnight, in the form of repurchase agreements, or as long as 13 months, under SEC filings.
This is a key difference with existing cash-like ETFs. Take the $34 Billion SPDR Bloomberg 1-3 Month T-Bill ETF (ticker BIL) – while virtually all of the fund's holdings are in the short-dated government paper, BIL's prospectus it only mandates that at least 80% of its assets be in these properties. It carries an expense ratio of 0.14%.