As a bonus for readers, I like to periodically answer user questions that come up in comment threads and messages in a little more depth.

With the VIX having been consistently above the 40 level for a month and a half, I've focused my recent writing efforts on lower risk, fixed income ETFs that can be used either as a safe haven or cash alternative. This question came up in the comment thread on my recent article about the iShares Short Maturity Bond ETF (NEAR).

As always, if there's a question on your mind, feel free to comment on one of my articles, comment down below or shoot me a message. I may end up using your question in a future Q&A!

Today's question (lightly edited for clarity)...

Question: Why not use MINT? Doubt you would find a better fixed income manager than PIMCO.

Answer: A little background first...

I got this question back in late January when (MINT) (otherwise known as the PIMCO Enhanced Short Maturity Active ETF) had a daily chart for the past 7 years looked like this.


I proposed using NEAR as a cash alternative in a portfolio since share price volatility was historically low and it paid a yield more than 2% higher than short-term Treasury bills.

It seemed like a good recommendation at the time. Then, the coronavirus showed up and turned the daily chart into this.


Just when investors needed stability, the bottom fell out. MINT's share price, which typically just moves pennies on a daily basis, fell nearly 5% in value in a matter of several trading days.

The coronavirus had reset market expectations and pricing for virtually all risk assets, even short-term investment-grade corporate bonds. The swift action by the Fed to dump billions of liquidity into the economy gave investors the impression that investment-grade bonds would start slipping into junk status and junk bonds could begin defaulting altogether. It sent corporate bond prices plunging in a way not seen since the financial crisis.

Perhaps even more concerning for safety seekers was this.


The going price for shares was disconnecting from the underlying NAV helping to exacerbate losses in the near-term. Once the Fed stepped in with its latest $2.3 trillion package, volatility began to normalize and it's begun to reattach to its NAV, but the damage has been done. MINT is still about 2% below its 2020 high.

So that's the recent history of the fund, but let's review what it's all about.

According to fund documents:

MINT will primarily invest in short duration investment-grade debt securities. The average portfolio duration of MINT will vary based on PIMCO’s economic forecasts and active investment process decisions, and will not normally exceed one year.

Under normal market conditions, that makes MINT a good risk/return tradeoff compared to more conservative options. The SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL) is the natural comparison being a fund that also focuses on short-term, high quality bonds but sticks with government securities instead of corporate notes.

Over the past couple of years, MINT and BIL shared nearly identical share price volatility, while MINT held a significant yield advantage.


Of course, 2020 showed us exactly the kind of downside risks that can come with investing in corporate bonds, even short-term ones. Higher yields do indeed come with higher risks even if those risks only show up every several years.

To answer the original question, I maintain that MINT is still a good portfolio cash alternative as long as you don't need your cash within a month or so. While, yes, there is additional risk involved with MINT , I think it's important to remember that the coronavirus is a once-in-a-decade type event, if not a once in a generation event. In most circumstances, MINT behave just as it's supposed - as a higher yielding alternative to T-bills with similar risk.

The main theme that came up in the comment thread of my article was that something like BIL was the only true safe haven asset in a bear market. While I believe that's true, over longer periods of time, I still endorse MINT as a better option.

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