Money market exchange-traded funds (ETFs) are popular investment vehicles for those seeking stability and a modest return. These ETFs channel investments into short-term, low-risk, interest-bearing securities. Think of assets like Treasury bills, investment-grade corporate bonds, and commercial paper – all designed to offer safety and liquidity. In times of economic uncertainty, Money Market Etfs become particularly attractive as a means to preserve capital while still generating income. For investors looking for a secure place to park their funds, money market ETFs serve as a compelling alternative to traditional savings accounts, often providing a slightly higher yield with minimal volatility and easy access to your money.
The year 2023 witnessed a significant surge in the appeal of money market funds. This was largely driven by the Federal Reserve’s series of interest rate hikes. These hikes made fixed-income securities, the core holdings of money market ETFs, considerably more attractive compared to keeping cash in bank accounts where savings rates were slower to adjust upwards. Adding to this trend, concerns about the stability of regional banks following several high-profile bank failures further fueled the shift towards money market ETFs. Investors, wary of potential bank runs at smaller institutions, sought refuge in these perceived safer investment options.
Key Benefits of Money Market ETFs
- Capital Preservation: Money market ETFs prioritize the preservation of your initial investment, making them a conservative choice.
- Income Generation: They provide a steady stream of income through interest earned on their holdings.
- Low Risk: Investing in short-term, high-quality debt instruments minimizes risk compared to broader stock or bond markets.
- High Liquidity: Money market ETFs offer easy access to your funds, similar to a savings account.
- Diversification: ETFs inherently provide diversification across a range of money market instruments.
To help investors navigate this landscape, we’ve identified some of the top-performing money market ETFs. Focusing on the highest returns over the past year, and excluding leveraged, inverse ETFs, and those with under $50 million in assets, we present three leading funds. For performance benchmarking, the S&P U.S. Ultra Short Treasury Bill & Bond Index serves as a useful point of comparison. All data presented is current as of December 15th.
PGIM Ultra Short Bond ETF (PULS)
- 1-Year Performance: 6.23%
- Expense Ratio: 0.15%
- Annual Dividend Yield: 5.07%
- 30-Day Average Daily Volume: 1,133,438
- Assets Under Management: $5.81 billion
- Inception Date: April 5, 2018
- Issuer: Prudential
The PGIM Ultra Short Bond ETF (PULS) is designed to mirror the performance of the ICE 0-1 Year US Corporate & Government Index. This benchmark is composed of investment-grade fixed-income securities with a target effective duration of one year or less and a weighted average maturity under three years. PULS strategically allocates its assets, with over 20% in a mix of cash, corporate bonds, and asset-backed securities. Among its notable holdings are bonds from Citigroup Inc. (C), RTX Corporation (RTX), and The Williams Companies, Inc. (WMB). PULS is favored for its very low expense ratio and substantial asset base, indicating strong investor confidence and liquidity.
Neos Enhanced Income Cash Alternative ETF (CSHI)
- 1-Year Performance: 6.16%
- Expense Ratio: 0.38%
- Annual Dividend Yield: 6.07%
- 30-Day Average Daily Volume: 74,716
- Assets Under Management: $265.60 million
- Inception Date: Aug. 29, 2022
- Issuer: Neos Investments LLC
The Neos Enhanced Income Cash Alternative ETF (CSHI) distinguishes itself with a focus on generating monthly income. It achieves this by investing primarily in 1-3 month Treasury Bills, supplemented by a U.S. large-cap put option strategy. To further optimize returns, CSHI may utilize financial instruments like forwards, options, futures contracts, or swap agreements linked to these short-term bills. CSHI’s portfolio is relatively concentrated, with its top four holdings representing nearly 60% of its total assets, and maturities predominantly positioned in early 2024. Investors are drawn to CSHI for its attractive dividend yield and innovative approach to income generation within the money market space.
Invesco Ultra Short Duration ETF (GSY)
- 1-Year Performance: 5.92%
- Expense Ratio: 0.22%
- Annual Dividend Yield: 4.6%
- 30-Day Average Daily Volume: 683,699
- Assets Under Management: $1.83 billion
- Inception Date: Feb. 12, 2008
- Issuer: Invesco
The Invesco Ultra Short Duration ETF (GSY) aims to outperform the Barclays Capital 1-3 Month U.S. Treasury Bill Index. It pursues this objective through a diversified portfolio of investment-grade securities, maintaining an average duration of less than one year. GSY strategically holds around 15% of its assets in cash, while also incorporating a Japanese Treasury discount bill and corporate bonds from reputable companies such as Marathon Oil Corporation (MRO), Mercedes-Benz Group AG (MBGAF), and NextEra Energy, Inc. (NEE). With a longer track record than CSHI and a substantial asset base, GSY provides investors with a well-established option in the ultra-short duration money market ETF category.
Disclaimer: The information provided in this article is for informational purposes only and should not be considered investment advice. Please consult with a financial advisor before making any investment decisions.
Disclaimer: As of the writing date, the author does not have positions in the aforementioned securities.
