Higher interest rates are coming – Active ETFs to stash away your cash
Monday, March 1st, 2010On Feb 18, 2010, the US Fed announced an increase in the short-term discount rate from 0.25% to 0.75%. This is likely just the first of many more gradual increases in interest rates implemented by the Fed as the year unfolds. This would mean cash yields finally coming off rock-bottom levels as a result and providing investors with some degree of compensation for putting their cash in short-term investment. So what options to investors have when looking to stash away their cash?
Michael Johnston of ETFdb, provides a good summary of the different index ETFs that are available to investors looking to park their cash somewhere for a short period of time. There are also a couple of options available to investors in the actively-managed ETFs arena. Active ETFs allow investment managers to use active management to beat their traditional index benchmarks, while at the same time preserving the advantage and benefits of the ETF structure. The two Active ETFs listed below have lower expenses than short-term money market mutual funds but provide the same type of active management to investors in a more accessible, tradable and transparent ETF structure.
1. PowerShares Active Low Duration Fund (PLK: 25.415 -0.33%)
PLK seeks to provide alpha over the Barclay’s Capital 1–3 Year U.S. Treasury Index. Their strategy involves managing portfolio construction and security selection according to market conditions, macro-economic and sector level factors as well as issue specific factors. PLK is expected to have a normal effective duration between 0-3 years and carries an expense ratio of 0.30%. PLK has provided an alpha of about 2.5% over the index since inception, as seen below. However, the liquidity of the ETF is an issue due to low traded volumes and a high bid-ask spread. Find a complete breakdown of PLK here.
2. PIMCO Enhanced Short Maturity Strategy Fund (MINT: 100.26 +0.03%)
MINT invests at least 65% of its assets in short duration, investment grade debt and the average duration of the portfolio will not exceed 1 year. This ETF provides access to PIMCO’s fixed-income strategies which are driven by top-down approaches involving financial and economic outlooks as well as bottom-up approaches involving the identification of undervalued securities. The fund is benchmarked against the Citigroup 3-month Treasury Bill Index and carries an expense ratio of 0.35%. MINT is currently the largest Active ETF on the market, with a market cap of $129.35 million, thanks to the reputation that PIMCO brings as an investment manager. MINT has also beaten the 3 month T-bill benchmark since inception. Find a complete breakdown of MINT here.
Disclosure: No positions in above-mentioned names.
If you haven’t already subscribed to the RSS feed for ActiveETFs | InFocus, do it here!
Written by ETFs Hub
