Investment Q&A

We would consider money market funds and 'cash' ETFs to be very similar, but not exactly the same of course. Neither is guaranteed like GICs are. But they both invest in very short term securities. (money markets) or high interest deposits (ETFs). There are fees on both, but money market fees tend to be embedded into the yield offered (i.e. the dealer makes a slightly higher yield than the investor). ETF fees are accrued daily and reflected in the indicated yield already. The money market size is much bigger than the ETFs, but securities are bought and sold via brokerage networks and not on the market. The ETFs trade like stocks, and, at times, can see fluctuations due to supply and demand imbalances. This is rare, and ETF market makers can also create/cancel units if there is an imbalance of orders. In general, neither should experience losses in net asset value. There is typically few defaults in money market funds, as securities are typically less than 60 days. Any issues that arise are offset by diversification, selling (i.e there is always a market for short term paper at some price) or offset by yields on the rest of the portfolio. The ETFs are not likely to experience any issues unless there is a bank failure in Canada but again the short term nature of their assets helps protect them somewhat. In the US, in 2008, there were some money market funds that 'broke the buck' and went below net asset value. This was due to a seize up in the crdit market. In Canada, there were some issues in 2008 due to the collapse of the asset-backed commercial paper market, but these were relatively minor and to our memory no money market funds lost client money. The current mix of cash ETFs were not around in the 2008/09 financial crisis. The main pros on both are yield and liquidity. Unlike GICs they can be sold anytime. The main cons are the lack of guarantee, and lower yields. GICs locked in are still going to give investors a higher net yield.