This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Wary Investors Flock to Ultra-Short ETFs

NEW YORK ( TheStreet ) -- Investors have been pouring into ultra-short ETFs, including PIMCO Enhanced Short Maturity (MINT). In September, the PIMCO fund emerged as the largest actively managed ETF, according to Morningstar. With $3.8 billion in assets, the ultra-short bond fund took the top spot away from PIMCO Total Return ETF (BOND), an intermediate-term fund that has $3.7 billion in assets. Run by bond star Bill Gross, the intermediate ETF is similar to PIMCO Total Return (PTTRX), the largest bond mutual fund.

The move to short-term funds accelerated as investors became concerned about rising rates. When rates rise, most bonds tend to fall, but short-term issues are relatively resilient. The migration to ultra-short funds represents a sharp change from the trends of recent years. As the financial crisis unfolded in 2008, investors began dumping stocks and racing to bonds. At first, ultra-short funds attracted little attention. Instead, investors focused on intermediate-term funds, which offer higher yields.

In May this year, interest rates spiked. For the month, PIMCO Total Return ETF lost 2.2%, while the PIMCO ultra-short ETF only declined 0.1%.The losses caused investors to scramble.

From June through the first week in November, shareholders pulled $1.2 billion out of PIMCO Total Return ETF and invested $857 million into the ultra-short ETF, according to IndexUniverse.com.

Along with PIMCO, other fund companies have been introducing ultra-short ETFs and attracting assets. Competitors include FlexShares Ready Access Variable Income (RAVI), Guggenheim Enhanced Short Duration Bond (GSY) and SPDR SSgA Ultra Short-Term Bond (ULST).

For many investors, the ultra-short funds offer a way to get a bit more yield than money-market funds offer -- without taking on much more risk. According to Crane Data, the average money market yields only 0.02%. In contrast, the Guggenheim ultra-short ETF yields 0.92%, while the SPDR ETF yields 0.54%.

Yields on money markets are being held down by new regulations imposed since the financial crisis. Under the rules, money markets are required to maintain average weighted maturities of 60 days. In contrast, the ultra-short funds often own securities with maturities ranging from a few days to 7 years. In the current market, bonds with slightly longer maturities deliver substantially higher yields. While 3-month Treasury bills yield 0.08%, 5-year Treasuries yield 1.42%.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
BOND $110.13 0.00%
MINT $101.15 0.00%
AAPL $124.43 0.00%
FB $82.22 0.00%
GOOG $548.00 0.00%

Markets

DOW 17,776.12 -200.19 -1.11%
S&P 500 2,067.89 -18.35 -0.88%
NASDAQ 4,900.8850 -46.5560 -0.94%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs