As we’ve written previously, we don’t believe the US Federal Reserve’s “Operation Twist” program will resolve the problems it ostensibly addresses. The Fed’s intent is to buy long-term bonds in a bid to lower interest rates for consumers and businesses. Of course, lower interest rates should be a boon for those consumers who have the need and ability to qualify for a loan. But there may not be many creditworthy borrowers at the moment.

Furthermore, corporate balance sheets are currently flush with cash, and firms have little desire to issue additional debt amid sluggish growth.

But that doesn’t mean “Operation Twist” doesn’t have some marginal value. In fact, money market fund (MMF) managers were likely relieved when the program was announced.

Because the Federal Reserve has committed to maintaining interest rates at artificially low levels, it’s become extremely unprofitable to manage MMFs. Many MMF managers have sacrificed their management fees in order to continue paying out some semblance of a yield while still preserving a stable net asset value (NAV). Some fund sponsors have even had to contribute their own money to maintain stable NAVs. As a result, MMFs have become unprofitable loss leaders for many sponsors.

As such, numerous MMFs have closed over the past 18 months. By our count, more than 200 MMFs have liquidated thus far. And the real number could be significantly higher than that since we’re relying upon data reported one month ago.

However, “Operation Twist” could help MMFs return to modest profitability.

As part of its program, the Fed will use the proceeds from the sale of the short-term bonds on its balance sheet to finance its purchase of long-term bonds. That means long-term rates should fall and short-term rates should see a slight bump.  Since the Fed announced its program, in fact, ultra-short rates have already increased by about 30 basis points. While that’s hardly a panacea for MMFs, that small bump will be a huge help for funds that are heavily reliant on T-bills.

Although that’s not enough to restore my interest in MMFs, it has made PIMCO Enhanced Short Maturity Strategy ETF (NYSE: MINT) more attractive.

PIMCO Enhanced Short Maturity Strategy ETF is an actively managed, extremely short-duration bond fund designed to offer a superior yield to MMFs while mimicking their investment strategy. The fund currently sports a trailing 0.9 percent yield, and that yield should climb higher in the coming months as its SEC yield is presently at 1.24 percent. SEC yield is calculated in accordance to specifications by the US Securities and Exchange Commission (SEC). It’s a handy tool for gauging the size of upcoming payouts since it measures interest and dividends earned over the trailing 30 days after the deduction of fund expenses. While there’s no guarantee it will always work out this way, when SEC yield is higher than trailing yield it generally means fund yields experience an increase.

In addition to a higher yield, the fund also offers greater transparency than money market funds because it discloses its holdings on a daily basis and doesn’t use options, futures, swaps or any other types of leverage in its portfolio.

The fund has clearly captured investors’ attention in this yield-starved environment; PIMCO Enhanced Short Maturity Strategy ETF was the first actively managed exchange-traded fund (ETF) to pass $1 billion in assets under management. But there is a trade-off for investors: In exchange for a higher yield, the fund invests in slightly riskier securities than traditional MMFs.

What’s New

There were 11 new ETF launches last week, most of which are unlikely to garner much interest since they either replicate existing ETFs or pursue unattractive strategies. But there was one potentially compelling offering.

AdvisorShares TrimTabs Float Shrink ETF (NYSE: TTFS) is a new actively managed ETF that takes a unique approach to running its portfolio. TrimTabs’ strategy involves buying companies that are seeing their free-float –the number of a company’s shares actually available on the market –shrink. That means the ETF invests in companies that aggressively buy back their own shares on the market. But management only buys those companies that generate sufficient free cash flow to repurchase their shares without using debt.

That’s an appealing concept since companies are presumably in the best position to know if their shares represent a compelling value. Given the difficulty many companies have had creating value for their shareholders lately, we’ll likely be seeing more share buybacks going forward.

Perhaps because of its active management and novel approach, the fund charges a high 0.99 percent expense ratio. Nevertheless, investors may find it worthwhile to research this ETF further.

Portfolio Roundup

This month’s issue of Global ETF Profits should have already arrived at your inbox. It details the latest moves in our Model Portfolio.

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