Fast Yield Grabs With ETFs Pose Risks, Fitch Says (MINT)

Fast Yield Grabs With ETFs Pose Risks, Fitch Says (MINT) Fitch Ratings is out with a note today highlighting the popularity of and risks associated with short-term fixed-income ETFs. The ratings agency notes short-term fixed-income exchange-traded products market themselves as alternatives to traditional money market funds. "While the additional yield could attract investors that target certain and specific expected return with their cash investments, we believe the attendant risks of these vehicles should be understood, thoroughly analyzed, and not be confused with conservatively managed MMFs. The higher yields from alternative short-term cash management vehicles entail additional credit, interest rate, and liquidity risks that must be considered by investors," Fitch said in the note. The ratings agency highlighted the case of the PIMCO Enhanced Short Maturity Strategy ETF MINT. MINT debuted in late 2009 and since that time has managed to become the king of the short-term fixed-income ETF block with over $1.5 billion in assets under management. "The objective of MINT is the maximum current income consistent with preservation of capital and daily liquidity, identical to that of MMFs. The fund has reached $1.5 billion in the 2.5 years since its inception in November 2009. MINT currently offers a 0.96% 30-day yield versus an average 0.03% yield delivered by taxable MMFs, according to iMoneyNet. That's a sizable difference, and one that underscores the allure for investors in traditional money market funds," Fitch said, While MINT might appear to be a conservative instrument, Fitch notes almost a third of the fund's holdings would not be eligible for inclusion in money market funds. MINT is home to to 551 holdings including a small amount that have junk ratings. "Additionally, ETF investors are highly dependent on secondary market activities for their liquidity, which could be constrained during times of market stress and when investors may need their cash the most. A reliance on secondary market liquidity for these "near-cash" investments may prove too volatile relative to some investor expectations and risk appetites," Fitch concluded.