Apparently some people have cash and want slightly more than zero return. So here are some options for cash-like investments with mildly more than zero return. The goal here is a high degree of moneyness - very stable value - with some return. For this article I'm measuring stability as the year-to-date high minus year-to-date low as a percentage of current price. For return I'll give the current yield.
First is Vanguard Short-Term Bond ETF (NYSEARCA:BSV). As usual for Vanguard, the selling point is low expense fee at just 0.1%. The vast majority of the fund (74%) is comprised of Treasuries maturing in 2014 and 2015. This gives it the highest credit quality of the funds in this article. Looking further down the portfolio listing shows some holdings in GSE bonds. Below the top hundred holdings are a very wide spread of bonds from every major U.S. company plus several foreign sovereigns. The current yield is a mighty 0.84% (number 2 of the options here) and ties for highest variance of the group at 1.2% this year.
Next, iShares 1-3 Year Credit Bond ETF (NYSEARCA:CSJ). CSJ has the highest yield of this group at 0.93%, produced by the lowest credit ratings of this group with a high concentration in BBB and A. The Credit Bond fund has no government bonds. The portfolio is a wide mix of financials and industrials. The holdings are 37% foreign, higher than most in this category. CSJ's expenses are in the middle of the bunch at 0.2%. CSJ was hit fairly hard by the taper-talk, losing about 1% in late June, though some has been recovered.
Any discussion of bonds must include PIMCO - so I include PIMCO Enhanced Short Maturity Strategy (NYSEARCA:MINT). Yield is in the middle of this group at 0.6%. Of the funds in this article, MINT has the highest expenses at 0.35%. The price has been very stable - even with taper talk - with a variation of 0.4%. The largest holding is actually cash at 7%, while Treasuries are a distant second with 17% of funds. Next the portfolio holds a variety of short maturity financials, industrials and commercial paper. Notably, MINT holds about 17% in securitized products; and 10% of the fund is in long dated (20+ year) mortgage backed securities.
Another option is a floating rate fund like iShares Floating Rate Bond (NYSEARCA:FLOT). A sufficiently diversified portfolio of floating rate bonds should act like cash. If the portfolio were purely free floating, net asset value would, theoretically, have no variance (minus defaults). In practice caps and floors on some floating bonds, plus market preferences for fixed versus floating can bid up (or down) underlying bonds. Despite these, FLOT is quite stable varying less than 0.5% this year. Expenses are at 0.2% per year and yields are what you might expect - currently 0.44%, down from earlier in the year. Like MINT, the largest holding is cash, 3.4% in the BlackRock money market funds. The rest of the portfolio is almost entirely financials, primarily large domestic and foreign banks, particularly JP Morgan, plus a scattering of large industrials as well. Credit ratings on these holdings are mostly in the A range. The fund started in 2012 and was small with low volume until June this year. In June, assets under management increased significantly, and daily trading volume increased by about a factor of five. This created some initial volatility, but should provide better liquidity in the future.
PIMCO Enhanced Short Maturity Strategy and iShares Floating Rate Bond are most 'cash' like in that values are the most stable. Of the two I prefer the floating rate - expenses are lower and returns will increase with any rise in interest rates. Additionally, having long-dated MBS in a short maturity fund adds more idiosyncratic risk than I want in my 'cash'. The Vanguard Short-Term Bond ETF and , iShares 1-3 Year Credit Bond ETF are somewhat less cash-like due to higher variance but come with a corresponding higher return. Of the two I prefer the Vanguard fund due to lower credit risk (I don't believe Boehner will actually make the U.S. default).
Disclosure: I am long FLOT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.