Money market exchange-traded funds (ETFs) are a necessary part of many investors' portfolios because they provide safety and preservation of capital in a turbulent market. These funds generally invest in high-quality and very liquid short-term debt instruments such as U.S. Treasury bonds and commercial paper, which don't usually provide significant income. 

While money market ETFs invest the majority of their funds in either cash equivalents or highly-rated securities with very short-term maturities, some may invest a portion of their assets in longer-term or lower-rated securities. Investors should understand those securities present higher risks.

Although all investments pose some risks, the following money market ETFs are a relatively safe option for investors:

  • iShares Short Treasury Bond ETF (SHV)
  • BlackRock Short Maturity Bond ETF (NEAR)
  • SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL)
  • Invesco Ultra Short Duration ETF (GSY)

Read on to find out more about these investments. The information provided here is updated as of May 11, 2021.

Key Takeaways

  • Money market ETFs are a necessary part of many investors' portfolios because they provide safety and preservation of capital in a turbulent market. 
  • These ETFs invest the majority of their funds in cash equivalents and securities with very short-term maturities, while others invest some of their assets in longer-term securities. 
  • Four ETFs that provide safe options are iShares Short Treasury Bond ETF, BlackRock Short Maturity Bond ETF, SPDR Bloomberg Barclays 1-3 Month T-Bill ETF, and Invesco Ultra Short Duration ETF.

iShares Short Treasury Bond ETF

The iShares Short Treasury Bond ETF trades on the Nasdaq and invests in the shortest end of the yield curve by focusing on U.S. Treasury bonds that have between one month and one year until maturity. The fund takes very little credit risk or interest rate risk and, therefore, generally delivers very low returns. The ETF's average annual return rate since its inception in 2007 is 0.99%. But it's a very safe fund in which to park assets during turbulent markets.

The fund has 39 holdings, investing about 52% of its $14.9 billion net assets in U.S. Treasury securities. The remaining 48% is invested in cash and/or derivatives. All of the fund's bond investments have the highest bond rating of AAA. The ETF has a low expense ratio of 0.15%.

As of July 2016, the ETF began tracking the ICE Short U.S. Treasury Securities Index. It has been underperforming its benchmark with a one-year return of -0.01% compared to 0.11% for the index.

BlackRock Short Maturity Bond ETF

The BlackRock Short Maturity Bond ETF invests the majority of its assets in investment-grade, fixed-income securities with an average duration that is generally less than one year. The fund is actively managed, which means it does not attempt to match the performance of an index.

Of the fund's $4.7 billion net assets, 15.2% of its assets are in cash and 10.7% are in asset-backed securities. Approximately 24% of the fund's bonds receive AAA ratings, about 6% receive AA ratings, and about 32.5% garner A ratings. The remaining bonds receive BBB or BB ratings.

The top five holdings in the ETF are:

  • BLK Treasury Fund
  • Tri-Party Goldman Sachs & Co, LLC
  • Charter Communications Operating LLC
  • FordF_19-3 A2
  • Bayer US Finance LLC

This ETF has a net expense ratio of 0.25%.

SPDR Bloomberg Barclays 1-3 Month T-Bill ETF

SPDR Bloomberg Barclays 1-3 Month T-Bill ETF seeks to track the performance of the Bloomberg Barclays 1-3 Month U.S. Treasury Bill Index and is traded on the NYSE Arca Exchange. The fund invests in the shortest end of the yield curve and focuses on zero-coupon U.S. Treasury securities with remaining maturities between one and three months. It takes very little credit or rate risk and, therefore, seeks to deliver safe returns. Because of the short duration of the investments in its portfolio, the ETF is rebalanced at the end of the month.

Investors should not expect high yields from the SPDR Bloomberg Barclays 1-3 Month T-Bill ETF. Since its inception in 2007, the fund has generated an average annual return of 0.76%. However, the fund may be a reasonable investment option during volatile markets. Keep in mind that even very short-duration investments carry market risks, especially when short-term interest rates are volatile.

The fund has $12 billion in net assets, with more than $28 million invested in cash. The fund's expense ratio of 0.14%.

Invesco Ultra Short Duration ETF

The Invesco Ultra Short Duration ETF attempts to maximize current income, preserve capital, and maintain liquidity for investors. The fund is actively managed and invests at least 80% of total assets in fixed-income securities. It seeks to outperform the ICE Bank of America-Merrill Lynch U.S. Treasury Bill Index. As of April 30, 2021, it received an overall rating of four stars from Morningstar out of 198 funds.

This ETF holds securities with average durations of less than a year, including U.S. Treasuries, corporate bonds, and high-yield bonds. The high-yield portion may boost returns but may also slightly increase the risk of the fund. But the short-term duration of the high-yield holdings may mitigate its risk.

The fund's slightly riskier portfolio has generated slightly above-average returns relative to other ETF money market funds. The fund generated one-year returns of 0.12%, three-year returns of 1.5%, and five-year returns of 1.2%. The fund had $3.02 billion in net assets and a total expense ratio of 0.22%, which is higher than the average money market fund.