Charles Schwab plans to launch an actively managed government money market ETF this spring, joining two other asset managers that recently entered the space.
The Schwab Government Money Market ETF (SGVT), to launch May 28 assuming regulatory approval, aims to seek current income consistent with capital preservation while maintaining liquidity, according to a March 14 filing with the Securities and Exchange Commission.
It will invest at least 99.5% of its total assets in cash, U.S. government securities, including Treasury bills and notes and repurchase agreements that are collateralized fully by cash or U.S. government securities.
Typically, at least 80% of the fund’s net assets, including borrowings for investment purposes, will be invested solely in U.S. government securities. Share prices may deviate from net asset value.
Fund expenses weren't included in the filing, which came a few weeks after BlackRock launched two money market ETFs, the iShares Prime Money Market ETF (PMMF) and iShares Government Money Market ETF (GMMF).
Texas Capital launched its money market ETF, the Texas Capital Government Money Market ETF (MMKT) last year. At the time, Texas Capital called the ETF the first of its kind, holding liquid, short-term U.S. government debt instruments and cash equivalents for investors seeking to manage credit risk and preserve capital.
"Money market ETFs didn’t exist until Texas Capital launched MMKT in September last year. Since then, BlackRock launched two money market ETFs and now Charles Schwab is joining the fray," Bryan Armour, Morningstar's director of passive strategies research for North America and editor of Morningstar ETFInvestor, told ThinkAdvisor via email Friday.
"This remains a nascent area of the ETF market. Money-market strategies — 3 total — attracted $200 million thus far in their short lives," he said. "Schwab’s entry in some way validates this new trend, but traditional money-market managers remain skeptical. ETFs can’t maintain a $1 per share price and they have a T+1 settlement (trading day plus one business day), which undermines some of the advantages of traditional money market funds."
Sumit Roy, senior ETF analyst at ETF.com, told ThinkAdvisor by email that money market ETFs "follow the more stringent regulations of money market funds, which might give investors a greater sense of safety. But in practice, they offer nearly identical exposure to ultra-short Treasury ETFs that have existed for years. And since they don’t maintain a stable $1 NAV like traditional money funds, they actually lose one of the core benefits of the category. So while the wrapper is different, the substance isn’t all that revolutionary."
Roy expects to see more entrants in the space. "As rates stay elevated and cash becomes an attractive asset class again, firms are racing to offer next-gen vehicles that combine safety, yield, and all the benefits of the ETF structure," he said.
Credit: Diego M. Radzinschi/ALM
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