BlackRock Inc. is launching two money market ETFs, capitalizing on the $6.6 trillion industry that has grown under high interest rates, although the timing could prove tricky as the Federal Reserve begins to ease policy.
The world's largest asset manager is seeking approval for the iShares Government Money Market ETF and iShares Prime Money Market ETF, according to filings with the Securities and Exchange Commission.
The proposed ETF would offer investors the ability to trade throughout the day, unlike traditional money market funds. However, they will not be able to maintain the stable $1 net asset value that conventional money market funds provide.
The timing of the launch could be crucial to the fund's success, said Aniket Ullal, head of ETF research at CFRA. He notes that two years ago would have been ideal for such products, when rising interest rates drove investors toward money market funds.
However, Ullal suggests there could still be opportunities in the current environment. With yields still around 4%, investors could look to these funds to secure returns before rates fall further.
Despite expectations of interest rate cuts, money market funds have not experienced significant outflows. “We have seen some net additions to money market funds, so it is possible that these funds are not overdue,” Ullal said.
BlackRock's established presence could drive adoption of these new products, according to Ullal.
“Blackrock entering the space is a different story as they have a much better recognized brand and distribution power,” he added.
The Government Money Market ETF will invest at least 99.5% of its assets in instruments including cash, U.S. Treasury securities and repurchase agreements, while the primary fund will invest in a broad range of short-term commercial, banking and government instruments.
Research from Managing Partners Group shows that 96% of institutional investors and asset managers look to fixed income for stability, diversification and income in portfolios.
More than half of investors surveyed predict that between $2 and $2.5 trillion will leave the US money markets and return to the bond market in the coming years.
If approved, BlackRock's funds would be just the second and third money market ETFs to launch, following the Texas Capital Government Money Market ETF (MMKT)the first ETF to follow traditional money market fund rules when it debuted in September.
Read more: Texas Capital Unveils 'First of Its Kind' Money Market ETF
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