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Summary

  • I conducted research on ETFs with Ultra-Short Maturities that investors consider to be "money market equivalent" ETFs.
  • I examined the allocation, limitations, and performance of each ETF.
  • Surprisingly, what I found was that RAVI performed the best, and PIMCOs MINT was the biggest underperformer.

In this article, I will be examining actively managed, ultra short-term bond ETFs and assessing which one is the best "money market equivalent" ETF. To get my list of ETFs to research, I conducted a screen using the Fidelity ETF Screener with the following screener criteria. The criteria I selected are all basic inputs that do not need explaining why I included them except for the standard deviation and inception date. I included a low standard deviation so only those ETFs that were the least volatile would be included. The reason I chose to have the inception date for ETFs in the screen before May 2nd 2013, was I wanted to make sure I included a period where rates were rising to see how each of the ETFs performed during that environment.

Screen Criteria

  • Exclude: Leveraged/Inverse ETFs
  • ETF Type: ETF
  • Asset Class: Fixed Income
  • Investment Philosophy: Actively Managed
  • Maturity Objective: Various Maturities & Short-Term
  • Assets: >$50 Million
  • Standard Deviation [1yr]: < 0.50
  • Inception Date: Before 5/2/2013

Screen Results

After running the screen, I found three ETFs passed my test, and are listed in the table below with expense ratio, dividend yield, and effective duration data.

Description

Symbol

Expense Ratio

Assets

Yield

Effective Duration

PIMCO Enhanced Short Maturity Strategy ETF

(NYSEARCA:MINT)

0.35%

$3.83 Billion

0.71%

0.49 years

Guggenheim Enhanced Short Duration ETF

(NYSEARCA:GSY)

0.28%

$712.8 Million

1.13%

0.47 years

FlexShares Ready Access Variable Income ETF

(NYSEARCA:RAVI)

0.25%

$68 Million

0.53%

0.76 years

A couple things I noticed from my list of ETFs were that MINT is by far the largest ETF, and has the highest expense ratio out of the group. Conversely, I noticed RAVI has the lowest expense ratio, but it also has the lowest assets in the group. The final item I noticed was that even though GSY has the shortest effective duration, it has a substantially higher dividend yield than MINT or RAVI. In the following sections, I will be examining the current allocation & portfolio limitations, as well as the performance for each ETF.

Current Allocation & Portfolio Limitations

I went to the websites for MINT, GSY and RAVI to gather data on the current allocations and limitations of each ETF. I compiled all the data into the tables below to see what I could learn from the holdings & limitations of each. What I found was that each ETF owned a wide variety of different types of fixed income instruments, and that each ETF had a large allocation to corporate bonds.

The second table below shows the limitations that each fund has for certain areas of the fixed income market. When research I looked at GSY and RAVI first and when I looked at MINT, in the prospectus it showed the fund had no limitations as GSY and RAVI have.

Current Allocations

MINT

GSY

RAVI

Corporate Bonds

51.00%

29.26%

84.70%

Government/Agency

11.00%

-

1.37%

Muni

-

1.89%

2.87%

Commercial Paper

-

20.55%

1.48%

MBS/ABS

16.00%

-

0.15%

Senior Loans

-

4.64%

-

ETFs

-

12.81%

-

Repurchase Agreements

-

18.54%

-

Securitized

-

9.78%

0.00%

Cash

10.00%

2.53%

5.89%

Other

12.00%

-

3.54%

Portfolio Maximum Limitations

MINT

GSY

RAVI

High Yield Bonds

-

10%

-

Muni

-

25%

-

International Bonds Non-Dollar

-

10%

-

Asset Backed Securities

-

10%

10%

Emerging Markets

-

-

20%

Performance

Time #1: Bottom in Rates to Top

With interest rates set to rise sometime in the not to distant future the first performance comparison I conduction was from May 2nd 2013 until December 31st 2013, which represents the low in rates for 2013, and the peak in 2013. What I found was that out of the three ETFs, RAVI was the only fund to post a positive price return. GSY came in second with a return that was slightly negative, and MINT came in last for performance.

(click to enlarge)

Time #2: Top in Rates to Bottom

The second period I looked at was from December 31st 2013 until August 15th 2014, which was the low so far for treasury yields. What I found was that once again RAVI was clearly the top performing fund out of the group followed by MINT, and GSY in third place.

(click to enlarge)

Time #3: Since RAVI Inception

Finally, I looked at the overall performance since the inception date for RAVI, which was October 11th 2012. What I found was that in the nearly two years of existence RAVI has substantially outperformed MINT and GSY. In addition, over this same period, GSY underperformed RAVI as well.

(click to enlarge)

Closing Thoughts

In closing, I believe that RAVI is a superior choice to MINT for an investor looking for some place to put cash into a "money market equivalent" ETF. The first reason why I believe RAVI is a better choice is that RAVI outperformed MINT in both a rising rate environment, and a falling rate environment, which I believe speaks to the skills of the managers of the fund. In addition, when looking at the overall history of RAVI, it has outperformed MINT by a significant margin. The second reason why I believe RAVI is a better choice is the performance shows that the managers of RAVI are better than those for MINT. With a 0.25% expense ratio, RAVI is 28.57% cheaper than MINT, which has a 0.35% expense ratio, therefore there is no need to pay up for underperformance.

Disclaimer

Source: FlexShares RAVI: Beating PIMCO At Its Own Game