On Wednesday, the money market fund sector, which has a staggering scale of up to $6.3 trillion, welcomed its first ETF — the Texas Capital Government Money Market ETF, which began trading under the ticker symbol MMKT.
Although there are other short-term bond ETFs already in the market, MMKT is the first ETF to follow the so-called Rule 2a-7. Rule 2a-7 is a legal provision established by the U.S. Securities and Exchange Commission (SEC) in the 1940s, specifically regulating money market funds.
While MMKT's portfolio will have the characteristics of a traditional money market fund and be subject to the same SEC regulations, there is a key difference: MMKT will not maintain a stable net asset value of $1 per share.
Edward Rosenberg, head of ETF and fund management at Texas Capital, said that since the emergence of ETFs, the money market has not been challenged, and money market funds are seen as cash equivalents, with no other ETF having this positioning.
Some investors may question why they chose a tool with lower capital preservation stability, to which Texas Capital responded that the fluctuation of net asset value in government money markets and high-quality funds has been increasingly accepted. MMKT also provides institutional investors with more intraday liquidity than traditional money market accounts.
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Due to the Federal Reserve previously raising the benchmark interest rate to over 5%, the scale of money market funds has surged in recent years. Investors were attracted by the relatively substantial yield, bringing the scale of money market funds to a record $6.3 trillion this month. Although the Federal Reserve began cutting interest rates in September, Texas Capital believes there are still opportunities.
MMKT has an annual expense ratio of 20 basis points and must invest 99.5% of its assets in cash or short-term government securities. According to filings submitted to the SEC, its holding period can be as short as overnight (in the form of repurchase agreements) or as long as 13 months.
MMKT differs from existing cash-like ETFs. Take the SPDR Bloomberg 1-3 Month Treasury Bill ETF (ticker BIL) with assets under management of $34 billion as an example; although almost all of the fund's holdings are short-term government bonds, BIL is only required to invest at least 80% of its assets in such holdings, and its expense ratio is 0.14%.