BlackRock, a major player in the world of exchange-traded funds (ETFs), has stepped into a rapidly growing sector by introducing two new money market ETFs. On Wednesday, the asset management giant unveiled the iShares Prime Money Market ETF (PMMF) and the iShares Government Money Market ETF (GMMF). Although money market funds often fly under the radar, they’ve gained significant attention lately as the Federal Reserve has been hiking interest rates since early 2022. According to the Investment Company Institute, the industry boasted over $6.8 trillion in assets as of the week ending January 29. Out of this, government funds claimed about $5.6 trillion, while prime funds, which have a higher proportion of corporate short-term debt, held around $1.1 trillion.
“We see a great opportunity to innovate in the money market arena with an ETF format,” explained Steve Laipply, who co-heads the global iShares fixed income ETFs at BlackRock. In essence, these new ETFs won’t stray far from the typical money market fund mold. The government-focused fund will mainly consist of short-term government securities like Treasury bills. Meanwhile, the prime fund will diversify a bit more, incorporating commercial paper and other forms of government debt, generally offering a slightly higher yield than its government counterpart.
Each of BlackRock’s new funds carries an expense ratio of 0.2%, making them competitively priced among leading traditional money market products. While it’s still early, these ETFs are expected to offer yields around 4%, aligning them with similar offerings.
BlackRock isn’t trailblazing alone in this field. For example, Texas Capital introduced a government money market ETF (MMKT) back in September, which now manages about $50 million and sees relatively modest trading activity compared to other ETFs. This Texas Capital ETF offers a seven-day yield of 4.42%.
Adhering to SEC regulation 2a-7, both BlackRock ETFs qualify as money market funds, similar to the Texas Capital ETF. However, it’s uncertain which investor demographics will gravitate towards these new ETFs. While ETFs appeal with their intraday liquidity, some financial advisors and clients might still prefer the straightforward nature and long-standing history of conventional money market funds, many of which maintain a stable share price of $1.
BlackRock’s foray into this corner of the market might inspire other companies to explore similar innovations, especially given BlackRock’s substantial influence and credibility. As of December 31, 2024, BlackRock managed about $11.6 trillion in assets, showcasing its enormous reach in the financial world.
