There are scores of exchange-traded funds (ETFs) that attempt to help investors with the objectives of capital preservation and income generation. Add the newly minted Arrow Reserve Capital Management ETF (ARCM) to that list. The Arrow Reserve Capital Management ETF debuted Tuesday and is an actively managed ETF that can be used as an alternative to low-yielding money markets and other cash instruments. Investors prize money market funds for stability, but with that stability comes paltry yields.
"A money market fund is an investment whose objective is to earn interest for shareholders while maintaining a net asset value (NAV) of $1 per share. A money market fund's portfolio is comprised of short-term, or less than one year, securities representing high-quality, liquid debt and monetary instruments. Investors can purchase shares of money market funds through mutual funds, brokerage firms and banks,” according to Investopedia.
ARCM consists entirely of highly rated, ultra-short-term U.S. government debt. The new ETF is sub-advised by Halyard Asset Management, LLC. The average duration of ARCM's holdings is just 18 months. Duration measures a bond's sensitivity to changes in interest rates. (See also: Advanced Bond Concepts: Duration.)
Recent regulatory changes in the money market space could enhance the appeal of ARCM. "Regulatory changes in the money market space combined with a low interest rate environment have driven many investors to take a closer look at their cash management strategies," said Michael Kastner of Halyard Asset Management in a statement issued by Arrow Funds.
Last year, the Securities and Exchange Commission (SEC) unveiled changes to money market investing, including restrictions on who can purchase these products. The SEC's money market reform efforts also separate potential money market investors into three categories – government, institutional and retail. The SEC money market reform effort is aimed at stabilizing prices at $1 per share for government and retail investors. During the 2007-08 Global Financial Crisis, a money market fund that invested in Lehman Brothers debt "broke the buck," stoking widespread redemptions. (See also: New Money Market Regulations: What You Need to Know.)
ARCM charges 0.38 percent per year, or $38 on a $10,000 investment. (See also: Generating Income in Retirement Using ETFs.)