The Mattress Fund is the appropriate benchmark by which all investments should be measured. Forget that absurdity about so-called relative performance, the catch-all excuse of investment managers who performed worse than some market benchmarks. You can always put money in the bedding and sleep soundly, at least knowing that you will have the same amount when you wake up.
The merit of this lucid criterion goes to Floyd norris, Barron Commercial columnist when we were young. Which reminded me of the recent returns of some very short-term bond funds which, despite their minimal risk, have nonetheless managed to reduce your investment, if only by one basis point (or 1 / 100th of a point). percentage).
That might not seem like nothing, especially compared to a 20% overnight drop in a putative store of value like Bitcoin, which its fans think it is. But losing even a few basis points in a super-short exchange-traded fund seems like a lot of trouble for less.
Take into account
JPMorgan Ultra Short Income
ETF (ticker: JPST). The $ 18 billion fund generated a negative return of 0.11% for the last month and 0.26% for the last three months, based on its share price, according to Morningstar. Since the start of 2021, the return has been barely positive, up 0.10%.
It’s actually better than some competitors, like the
Pimco Enhanced Short Maturity Active
ETF (MINT). It is down 0.15% for the last month, down 0.26% for the past three months, and down 0.03% year-to-date. the
BlackRock Very Short Term Bond
ETF (ICSH) fared a bit better (or less badly) falling 0.07% over the past month and 0.08% over the past three months, but outperforming the Mattress Fund by gaining 0.15% since the start of the year.
The credit, or the blame, lies with the Federal Reserve, whose policy has been to keep short-term interest rates at the bottom as part of its emergency monetary policy put in place in March 2020 to counter the balance sheet. economic and financial situation of Covid-19. These ETFs were supposed to generate a slightly higher return than money market mutual funds, which earn one or two basis points while providing a safe parking space for cash balances.
Unlike money market funds, however, these super-short ETFs fluctuate, even if it’s just pennies on stocks that trade at prices of around $ 50 or $ 100 each. But when ETFs only pay a dime or less per share per month, even a tiny drop in the share price can wipe out the income paid in a month.
Then there are the transaction costs. Even with zero commission, buy at the highest asking price and selling at the lower bid price will weigh more heavily on returns, although bid-ask spreads are typically only a penny. All those pennies add up to more than you actually can to earn.
What is your alternative? Not much, which was the Fed’s goal: to make holding cash unattractive to push it into riskier bonds to lower long-term interest rates or into stocks to increase asset values. . Even if it doesn’t pay off, cash offers an “option”, the ability to take advantage of opportunities when they arise without putting the position at risk.
This is less than satisfactory for savers who remember being able to achieve high returns without risk by putting money into money market funds. These short-term ETFs, which were supposed to offer a bit higher return without any risk, clearly weren’t able to squeeze enough basis points out of a zero-return market to beat the metaphorical Mattress Fund.
Write to Randall W. Forsyth at [email protected]