Money market exchange-traded fund’s (ETFs) invest in short-term, low-risk, interest-bearing securities like Treasury bills, investment grade bonds, and commercial paper. They are considered low risk, making them suitable investments to preserve capital and provide income during times of market uncertainty. Investors often use money market ETFs as a cash alternative because they offer a slightly higher return than traditional savings accounts while maintaining relatively low volatility and easy access to funds.
In 2023, money market funds saw steady inflows due to the Federal Reserve’s rate hikes which increased yields in fixed-income securities, making them more appealing than parking cash in a bank account where higher savings rates often took time to materialize. These funds also gained in popularity after several prominent regional banks failed early last year, prompting many…