Re-balance Cycle Reminder All MyPlanIQ’s newsletters are archived here.

For regular SAA and TAA portfolios, the next re-balance will be on Monday, September 24, 2018. You can also find the re-balance calendar for 2017 on ‘Dashboard‘ page once you log in.

As a reminder to expert users: advanced portfolios are still re-balanced based on their original re-balance schedules and they are not the same as those used in Strategic and Tactical Asset Allocation (SAA and TAA) portfolios of a plan.

Please note that we now list the next re-balance date on every portfolio page.

Money Market ETFs?

At MyPlanIQ, we pay serious attention to cash and near term returns. In this newsletter, we explore whether some ultrashort term bond ETFs can be used as money market alternatives. 

The missing cash returns

We have addressed this topic several times in the past. The main complaint we have had is that in the US, many brokerages try to make money off clients’ cash in several ways. There are two main problems with cash returns in a brokerage account. 

  1. Lack of money market mutual funds: in the US, virtually all brokerages offer very few choices of money market funds.Many are very low yielding cash sweep accounts. Currently, one of the best money market fund Vanguard Prime Money Market Fund VMMXX (current yield: 2.07%, expense 0.16%) is only available to clients in Vanguard brokerage. You can’t access to this fund from other brokerage (note, some 401k plans offer this fund even though they are on some other platforms such as Fidelity benefit, but that’s a different story). If you are a Schwab client, you can only invest in its money market funds, ditto Fidelity, TD Ameritrade etc. 
  2. High expense ratios and low returns of many money market funds: we have done various comparison on this subject. Just a quick example: TD Money Market Portfolio has yield 1.3% (a select class is 1.5%), compared with Vanguard prime money market VMMXX’s 2.07%. We encourage readers to find out money market fund yields from your brokerages and compare. 

Of course, we all know that profits from clients’ cash represent some big chunk of the overall profit in a brokerage. That’s why brokerages have every incentive to keep money market fund accessibility limited. 

Ultrashort term bond ETFs

Based on the above discussion, it’s hard to get a good cash return in a given brokerage (unless you switch to Vanguard, say). Furthermore, if you are a foreigner, you are pretty much excluded from US money market mutual funds as they are only available to US citizens. That’s why investors have turned to ETFs, hoping to find some alternatives. 

Unfortunately, in theory, there is no money market ETF as in an ETF, its price is determined by market participants while in money market mutual funds, its price is always guaranteed to be 1.00. Actually to be more precise, the NAV (Net Asset Value) of a money market fund is always guaranteed to be 0.995 < NAV < 1.005, or put it another way, it’s possible that when you put in $1000 to a money market fund and you try to redeem it later on, you are guaranteed to get back no less than $995. So this means a $0.5% fluctuation band. 

Recently, some investors have tried to utilize ultrashort term bond ETFs as money market fund alternatives. Let’s delve into this a little bit more. 

Based on Morningstar, an ultrashort term bond fund is defined as 25% of the three- year average effective duration, or put it another way, the duration should be less than 3/4 or 0.75 year. 

In general, a money market fund’s effective duration should be around 3 months or less. In fact, as a rule of thumb, a money market fund yield should be slightly better than or the same as the yield of the 3 month Treasury Bill. For example, currently, Vanguard VMMXX yields 2.07% while 13 week T Bill yields 2.08%. In the meantime, Vanguard Federal Money Market VMFXX yields 1.92%. 

Here are some of the most popular ‘money market fund’ ETF alternatives (all of them are classified as ultrashort term bond fund based on Morningstar): 

Ultrashort ETFs as money market alternative
Name Expense AUM  Spread Effective Duration SEC Yield
MINT (PIMCO Enhanced Short Maturity Active ETF) 0.35% 9.9 bil 0.01% 0.46 yr 2.42%
ICSH (iShares Ultra Short Term Bond) 0.08% 0.45 bil 0.08% 0.39 yr 2.54%
FLRN (SPDR® Barclays Investment Grd Fl Rt ETF) 0.15% 3.8 bil 0.03% 0.11 yr 2.51%
NEAR (iShares Short Maturity Bond) 0.25% 4.4 bil 0.02% 0.48 yr 2.52%
FLOT (iShares Floating Rate Bond) 0.2% 10.8 bil 0.04% 0.14 yr 2.47%
SHV (iShares Short Treasury Bond) 0.15% 15.4 bil 0.01% 0.4 yr 1.96%
Vanguard Federal Money Market VMFXX 0.11% 97.8 bil NA 47 days 1.92%
Vanguard Prime Money Market VMMXX 0.16% 105 bil NA 47 days 2.07%


‘Money market’ ultrashort term bond ETFs returns (as of 8/24/2018):
Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR
MINT (PIMCO Enhanced Short Maturity Active ETF) 1.1% 1.6% 1.7% 3.2%
ICSH (ICSH) 1.4% 1.9% 1.3%  
FLRN (SPDR® Barclays Investment Grd Fl Rt ETF) 1.6% 2.3% 1.9% 1.0%
NEAR (NEAR) 1.3% 1.7% 1.4%  
FLOT (iShares Floating Rate Bond) 1.7% 2.4% 1.6% 1.1%
SHV (iShares Short Treasury Bond) 1.0% 1.3% 0.7% 0.4%
Vanguard Federal Money Market VMFXX 1.04%  1.41%  0.7%  0.44% 
Vanguard Prime Money Market VMMXX 1.17%  1.59% 0.9% 0.55% 


  • The two floating rate bond ETFs (FLRN, FLOT) have the shortest duration which closely match Vanguard money market funds’. However, one should be aware that floating rate bond funds mostly consist of bank loans. They can suffer from a meaningful loss during a bank crisis as evident in 2008 when most floating rate bond funds briefly had a big loss. Thus, one should at least diversify and hold other ultra short term funds to balance out. 
  • The other ETFs in the table all have longer maturity than Vanguard’ money market funds. Thus they are more subject to price fluctuation. For example, in the following table, one can see that MINT lost 0.23% in September 2015 and there were several months when it lost money. On the other hand, VMMXX didn’t lose any money in these period. The following data are courtesy of Morningstar: 
Similarly, NEAR and SHV also lost some money in the past: 
  • The trading spread is another major concern for ETFs: ICSH, the one with the least asset, has the biggest spread 0.08%. That’s not a big one if one holds the fund for a long time (such as a year), but for short term usage, this can certainly have a serious impact — imagine you hold ICSH for less than a month, it will take 0.08% out of your one month yield (about 0.2% in the current 2.5% annualized yield). Furthermore, what will happen if you just hold it just for a few weeks and much shorter than not a month?
  • Finally, the trading commission (if there is any) can be another major disadvantage. If your cash is really to be used within 3 months or so, trading commission and spread can eat into your returns as one can imagine that cash reserved for 1 or less than 3 month use is probably not a large sum and commission can become a larger and meaningful percentage bite for your returns. 

The last point is important: basically, if your cash is needed within 3 months, the above ETFs are really not ideal for this purpose. On the other hand, if you need the capital for a longer period of time such as 6 months or 9 months, the above ETFs can be used. However, in the current rising rate environment, as every month passes by and it’s approaching to the time when it will be redeemed, one should to invest in a real money market fund or a fixed T Bills or CDs to avoid a late stage loss. This thus creates further hassles for investors. 

In conclusions, the so called ‘money market’ ETFs are not real money market mutual fund substitutes. They should be really used as what they are supposedly to be: only for cash they are needed for a longer period than 3 months. Unfortunately, for many average investors, if you have a choice, the best bet for your real short term cash is still a traditional money market fund or even a fixed maturity short term T Bill (such as one month) or broker CDs. On the other hand, if you are totally excluded from traditional money market funds for whatever reasons, you might want to consider using these ETFs for the purpose of a bit longer term holding. 

Market Overview

US stocks finally broke its historical high made in February this year. The current market internals are showing some short term upward momentum. US bonds are in a somewhat neutral trend while international and emerging market stocks are still in a negative trend. As always, we advocate managing one’s risk to a comfortable level in the current over valued and over extended situation. A tactical portfolio should enjoy the ride till the markets tell the otherwise while a strategic portfolio should be looked at more carefully to trim down excessive risk exposure. 

For more detailed asset trend scores, please refer to 360° Market Overview

Now that the Trump administration has been in the office for more than a year, the economy and financial markets are in general still in a good shape. Whether the economy will continue to benefit from the supposedly trickle down of the tax cut, the deregulation, and the promised infrastructure spending remains to be seen.  On the other hand, stocks continued to ascend, regardless of the progress. Looking ahead, however, we remain convinced that markets will experience more volatilities at some point when reality finally sets in. 

In terms of investments, U.S. stock valuation is at a historically high level. It is thus not a good time to take excessive risk. However, we remain optimistic about U.S. economy in the long term and believe much better investment opportunities will arise in the future. 

We again would like to stress for any new investor and new money, the best way to step into this kind of markets is through dollar cost average (DCA), i.e. invest and/or follow a model portfolio in several phases (such as 2 or 3 months) instead of the whole sum at one shot. 

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