But Crane doubts SSgA will call itself a money market fund, either. "Though like the WisdomTree ETF it's very close, in order to call themselves a true money market fund, they've got to adhere to strict SEC regulations in terms of quality, maturity, diversity and maintaining a stable NAV," he said. "I'm not sure those can be matched exactly in an ETF format."

An ETF will need to ask for special exemptive relief to call itself a money market, he added. "The grand bargain of money market funds is, in order to maintain stable value in pricing, you've got to be able to use a special form of accounting," Crane noted.

USY basically holds the same types of securities as a conservative money market mutual fund, agrees Bruce Lavine. "We're not guaranteeing constant-value NAVs. But if you look at the history, it hasn't moved around much at all," said WisdomTree's president.

The ETF's NAV opened at $25 per share. That has gone up on the high end to $25.08. The portfolio's current yield-to-maturity is 2.33%. Its seven-day yield is 2.09%. The average money market mutual fund has a seven-day yield of 2.21%.

"To be a money market fund, you've got to comply with the 2a-7 guidelines, which require a constant NAV at all times," Lavine said.

Creation & Redemption Process

With an ETF, there's no direct transaction between sponsors and the ultimate fund shareholders. Due to this unique creation and redemption process, says Lavine, "We're in new territory, exploring ways to make the accounting similar to a traditional 2a-7 fund, so we can go head-to-head against traditional money market funds."

Money market mutual funds don't actually guarantee a stable NAV, noted Richard Morris, deputy general counsel at WisdomTree. "As short-term instruments, they're valued at amortized costs," he added.

For example, if its underlying investments were worth less than the amortized cost of the entire portfolio, a mutual fund doesn't necessarily have to recognize a lower valuation on a daily basis, Lavine adds. "From an accounting perspective, you don't have to mark-to-market the underlying instrument on a daily basis with money market mutual funds. The NAVs are smoothed," he said.

The value of the securities in a money market fund is just part of the equation. In order to maintain a constant asset value, money market mutual funds also declare dividends, typically credited on a daily basis. That income from short-term investments and payment of dividends helps support a constant NAV.

At some point, the fund pays out those dividends to investors, which decreases the fund's value. That interaction between income streams and paying out dividends is managed to a large degree by transfer agents. Those are companies that are specialists in maintaining records and processing payments to make sure that dividend and income streams mesh to help keep NAVs stable.

Dividends Handled Differently

For an ETF, the income coming into the fund works exactly the same as it does with a money market mutual fund. The process of declaring dividends, however, is quite different. Lavine notes that USY's dividends are declared and paid on a monthly rather than a daily basis.

"Once these sort of accounting issues are resolved, it's very possible that USY would become a 2a-7 fund," he said.

Lavine won't venture how long that could take or how close the industry is to coming up with a solution. But he says even with the naming issue, USY should be able to fill the niche of many income-minded investors.

"There has been an amazing amount of concern lately about what's actually inside a money market mutual fund," Lavine said. Indeed, several large fund companies have had to dip into their reserves to replenish their money market funds in order to stop any losses of principal in the wake of the credit crisis.

"USY remains one of the few money-market-like instruments on the market today that disclose its holdings on a daily basis," added Lavine. "That's not something traditional mutual funds do."

1 | 2 |