A small Texas bank is reinventing money market funds for a new era, but it may take some time for financial advisers to warm up to the idea. Texas Capital launched the Government Money Market ETF (MMKT) in late September, taking aim at the asset class that has grown rapidly since the Federal Reserve began raising interest rates in 2022. Total assets in money market funds have ballooned to more than $6.5 trillion, according to the paper. Investment Company Institute’s theory is that the increased liquidity of ETFs compared to traditional money market funds is attractive to asset managers, especially those in accounts that don’t allow margin trading. Traditional money market fund trading occurs at the end of each trading day, whereas ETFs trade constantly during market hours. The ETF also discloses its holdings daily, making it more transparent than traditional funds. But some financial advisors told CNBC that stability, not liquidity, is the top priority when using money market funds, which can lead to hesitation about using new types of funds. he said. “It may make more sense for day traders and people who are really doing things quickly, but most wealth managers and financial advisors have a fairly long-term view. “There will be no difference,” he said. Michael Carbone, wealth manager at Eppolito Financial Strategies in Chelmsford, Massachusetts. In less than a month, the fund has about $40 million in assets, according to FactSet. That’s not bad for a relatively small ETF company, but essentially all of the inflows occurred within about two weeks of inception. Many financial advisors are also restricted from purchasing new funds until they are approved for use by their brokerage partners or major carriers. How it works The Texas Capital ETF holds very short-term fixed income instruments, similar to traditional money market funds. We comply with Rule 2a-7, the U.S. Securities and Exchange Commission regulation governing the liquidity of holdings in traditional money market funds. One important difference is that the Texas Capital Fund is not designed to have a stable net asset value. Many traditional money market funds are designed to always trade at $1, which is why one fund’s withdrawal in 2008 to “crash capital” caused turmoil in financial markets. is. “Of course, the fact that net asset values can go down as well as up can go up,” says Richard Reimgruber, a private wealth advisor at Onyx Bridge Wealth Group in Tarrytown, New York. That’s my concern.” Texas Capital Fund has traded between $100.01 and $100.36 per share so far since its inception, according to FactSet. This deviation can occur due to trading patterns or the timing of distributions. Another thing individuals should consider is that using ETFs instead of traditional money market funds can change the fees you pay to your financial advisor. While some advisors do not consider cash assets like money market funds when evaluating fee basis, ETFs may fall into a separate category. Looking ahead The potential market for money market ETFs is huge. According to ICI, there are more than $5 trillion in government money market funds. The Texas Capital ETF has an expense ratio of 0.20% and a 7-day yield of 4.74%, making it competitive with many of the larger funds in the space. “If it turns out there aren’t any other hidden risks or positions that make it more risky under certain circumstances, it can be a really interesting option. That’s what a typical retail investor needs. I don’t know if it’s any kind of liquidity,”’ said Jeff Schwartz, president of Markov Process International, a fund research and investment analysis provider. Another area where ETFs may find a receptive audience is in model portfolios or fund-of-funds strategies that favor ETFs. Brad Ross, chief investment officer at Thor Financial Technologies, said his firm uses Treasury Bill ETFs as a proxy for money markets in its strategy, but is looking to move toward something like the new Texas Capital Fund. He said he would be positive about the transition. “We’re always looking at other alternatives as possibilities,” Ross said.
