MINT: A Conservative Way to Stash Cash

January 28, 2010 by  
Filed under Actively Managed ETFs, Commentary, Pick of the Week

Investors are often conditioned to believe that cash is king, or that it is at least a good idea to keep some of your assets in cash to preserve your portfolio’s liquidity. After all, emergencies and unforeseen expenses happen. While this all makes sense, most cash investments offer meager rates of return. To get a decent yield on a traditional bank certificate of deposit (CD), you have to lock-up your money for four or five years. Then inflation becomes a concern.

U.S. Treasuries have historically been a safe and popular alternative for cash holdings. However, yields on these investments have plunged as the Federal Reserve injects vast amounts of liquidity into the economy. Short-term money market accounts are not much better. You should consider yourself lucky if you are getting 1%.

Nonetheless, smart investors always keep some cash on hand. This week’s pick is an ETF issued by bond giant PIMCO for this very purpose. PIMCO is one of the world’s largest bond mutual fund managers. The firm recently entered the ETF game, and one of its offerings may appeal to cash investors: PIMCO Enhanced Short Maturity Strategy Fund (MINT). MINT is barely three months old but has already amassed more than $59 million in assets and trades more than 200,000 shares on an average day. These are impressive figures for any new ETF, much less one that is not very exciting. MINT is an actively traded ETF, which so far haven’t attracted much investor interest. PIMCO seems to have overcome that obstacle with this ETF.

MINT is a possible alternative to money market funds for many investors. The ETF holds only investment-grade short-term fixed income instruments – no riskier fare like emerging markets bonds or high-yielding corporate bonds. MINT has about 400 different holdings, fully disclosed to investors every day. MINT does not use options, futures, or swaps to help generate returns, another aspect that may appeal to more conservative investors. All of MINT’s holdings are denominated in U.S. dollars. Investors should keep in mind the 0.35% expense ratio.

MINT is certainly not as glamorous as many ETFs. Nearly half of its assets reside in investment-grade credit securities and another 36% is in government debt. The remainder is allocated to mortgage securities. Given the short maturity of its holdings, MINT should effectively reduce volatility for investors seeking to enhance the return on their cash while keeping risk minimized. MINT is currently trading just over its issue price of $100 at $100.27 – exactly where it should be. To go with a stable cash equivalent not tied to long-term CDs, buy PIMCO’s MINT.

MINT Chart

Disclosure covering writer, editor, publisher, and affiliates: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

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