Cash ETF vs Fund (SHY vs FDLXX)

[economicsjunkie]

I have an account at Fidelity now and as far as I can tell my two best options for zero fee cash equivalent assets are:

- SHY (The 1-3 yr Treasury ETF)
- FDLXX (Fidelity Treasury Only Money Market Fund)

Which options would you prefer and what are the pros/cons?

[sophie]

There are lots of cash options in the stickied threads, including (but not limited to) both of these.

Fidelity's Treasury MM just changed - that one that you mention is no longer Treasury only, but they have a new Treasury MM - read online or call them to find out.  Formerly you needed a minimum balance of $25K.

Treasury MM's were Harry Browne's prescription for the cash bucket, but you have plenty of other options.  For convenience, you can't beat a savings account or the core brokerage account, although strictly speaking the FDIC protection is not as good as having your money backed up by the US Treasury.    Other cash options include T bills bought through Fidelity or Treasury direct with or without auto-rollover, series I or EE savings bonds, and the ETF SHV.  I suppose you can also stuff cash under your mattress :-).  Don't do TIPS.

SHY is an example of short term Treasuries instead of T bills.  It's acceptable but you might want to be wary of it if you're planning to dip into it for cash.  In a rising interest rate environment, it will lose value.

[economicsjunkie]

Great, thanks! I'm checking with Fidelity regarding their new MM now.

[economicsjunkie]

Fidelity's Treasury MM just changed - that one that you mention is no longer Treasury only, but they have a new Treasury MM - read online or call them to find out.  Formerly you needed a minimum balance of $25K.

It seems to be Treasury only though: https://fundresearch.fidelity.com/mutua ... /31617H300

Where did you hear it's no longer treasury only?

[sophie]

I got a message from fidelity about it.  I didn't check further though. 

[barrett]

According to economicsjunkie's link, here is the FDLXX breakdown as of 6/30/15

U.S. Treasury Bills 45.58%
U.S. Treasury Coupons 48.71%
U.S. Treasury Inflation-Protected Securities 8.36%
Net Other Assets -2.65%

Does this look OK to those of you in the know? I hold some of this in my Fidelity account and would love to know. The TIPS look funky. Also, "U.S. Treasury Coupons" looks intentionally vague to me. Thanks for any help.

[sophie]

You guys are right - the treasury MM is still FDLXX.  However, I see they've reduced the minimum balance from $25,000 to $2,000 (!!) while instituting a check-writing fee of $2.  Also, there is a note that is worth reading carefully.  The message I saw said that they're merging several MM funds, including some merged into FDLXX (I must have misread that part).

Dear Shareholder:
In response to regulations that will go into effect next year, Fidelity has announced several changes to our money market fund offerings to meet shareholders' investment needs and help ensure that our funds comply with the new rules. We announced our plans for these changes early in 2015, well in advance of the U.S. Securities and Exchange Commission's (SEC's) October 2016 implementation deadline. We want to give investors plenty of time to understand these developments and make informed decisions about their money market investments.
The rules will require institutional prime (general purpose) and institutional municipal money market mutual funds - those primarily held by institutional investors rather than individuals - to price and transact at a "floating" net asset value (NAV), or price per share, instead of at the stable $1 NAV that typically applies to such shareholder transactions today. Prime and municipal money market funds that are defined as retail funds will continue to be eligible to transact at a stable $1 NAV.

In addition, during periods of extraordinary market stress, institutional and retail prime and municipal funds will have the ability, if they choose to use it, to slow redemptions by temporarily charging liquidity fees, payable to the funds upon redemption, or to temporarily halt redemptions by applying redemption "gates."
Government and U.S. Treasury money market mutual funds will continue to be eligible to transact at the stable $1 NAV and will not be subject to the potential of redemption fees or gates, although they will face tighter investment requirements.

Fidelity has spent significant time talking to investors about these rules. Many have told us they prefer funds that seek a stable $1 NAV and they would like to avoid the possibility of liquidity fees or redemption gates. Based on these preferences, we will continue to offer a full range of money market funds, while making changes to comply with the rules. We are amending the investment policies on our government and U.S. Treasury money market funds, which already meet the new tighter regulations. We also intend to make other changes, such as converting several of our prime money market funds to government money market funds, merging several funds with similar investment strategies, and changing the names of certain funds.

 

P.S.  Most definitely read this if you hold a money market fund in an institutional (e.g. 401K) account.

[economicsjunkie]

Interesting, thanks!

[economicsjunkie]

I guess I'm just going to buy treasury bills directly with auto re-invest. Given that I have that option, I'd rather do that than pay anyone a fee for effectively doing the same while suffering counterparty risk.