A New ETF That's An Alternative To Cash

Some exchange-traded funds provide investors with an alternative to money markets and other low-yielding cash instruments. The newest addition to that field is the PowerShares Exchange-Traded Fund Trust II CLTL, which debuted Thursday.

This PowerShares treasury collateral portfolio follows the ICE U.S. Treasury Short Bond Index.

CLTL's Index

“The Index measures the performance of US Treasury Obligations with a maximum remaining term to maturity of 12 months. The Fund is not a money market fund and does not attempt to maintain a stable net asset value (NAV),” according to Invesco PowerShares, the fourth-largest U.S. ETF issuer.

All of CLTL's 74 holdings have maturities that do not exceed one year. The holdings in the new ETF are rated AA by Standard & Poor's and Aaa by Moody's.

Catalysts And Politics

CLTL competes against established ETFs — such as the iShares Barclays Short Treasury Bond Fnd SHV, which tracks the same index as the new PowerShares offering. With new money market rules on the horizon, there could be an increasing market for ETFs such as CLTL and SHV.

In an effort to avoid “another debacle in money market funds after the financial downturn, the Securities and Exchange Commission is expected to implement a round of new rules that could change the way the $2.7 trillion money market works, which could potentially trigger billions in outflows from these traditionally safe investments and opening up opportunities in cash-alternatives like ultra-short-duration bond ETFs, like CLTL,” reported ETF Trends.

CLTL charges just 0.08 percent per year, or $8 on a $10,000 investment. That is significantly less expensive than the 0.15 percent per year charged by the rival SHV.