ETF to Challenge Money-Market Funds

NEW YORK (TheStreet) -- In the latest challenge to the mutual fund industry, Pimco has launched the Enhanced Short Maturity Strategy Fund(MINT) to compete with money-market funds.

The new ETF, which Pimco notes is "intended to be a higher yielding alternative to money market funds," is actively managed and will primarily invest in short-duration investment-grade debt securities.

While a number of other bond ETFs, such as the Vanguard Short-Term Bond Fund(BSV), the iShares Barclays 1-3 Year Treasury Bond Fund(SHY), the SPDR Barclays Capital 1-3 Month T-Bill ETF(BIL), the WisdomTree U.S. Short-Term Government Income Fund(USY) and Pimco's own 1-3 Year U.S. Treasury Index Fund(TUZ) currently provide investors with exposure to short-maturity fixed-income instruments, the aim of MINT is to challenge money-market mutual funds such as Fidelity's Cash Reserves(FDRXX).

Seeing money-market yields hovering near zero, Pimco hopes to use its proven fixed-income prowess to promise stronger returns. Although MINT will mainly hold the same assets as other money-market funds, the instrument is also open to holding longer-maturity bonds and other investment-grade fixed-income securities to meet this goal.

While this fund is yet to prove its effectiveness, with a low 0.35% net expense ratio, MINT may become a strong contender among veteran money-market mutual funds if it can successfully achieve the returns it promises.

Thus far, MINT appears to have stirred up some investor interest. Since it was launched last week, MINT has had an average daily trading volume of 18,950 shares. This level of trading is solid for a new fund, and especially notable since many actively-managed ETFs have struggled to garner interest in the past.

While mutual fund investors are required to earmark funds for tax purposes, ETF investors often pay capital gains taxes only when the funds are sold. These tax advantages, along with the transparency inherent to the ETF structure, have helped to drive many investors from mutual funds to ETFs.