Canada has gotten North America's first money market fund. Can the U.S. be far behind?

Claymore Investments, which is the second-largest exchange-traded funds (ETF) issuer in Canada, has launched the Claymore Premium Money Market ETF (CMR) on the Toronto Stock Exchange. It's the first money market ETF in North America, and to make things more interesting, the fund does not track an index.  

Money market funds typically hold high-quality, short-term debt, like Treasury bills; they are typically used for capital preservation. CMR's current asset mix includes roughly 59% government bills and 42% commercial paper, with the rest in cash. The fact that the fund does not track an index is less remarkable than it may first seem. The fund is fully transparent, as money market instruments are not subject to the type of front-running seen in the equity space. It is unclear if the fund is considered to be actively managed in Canada, although technically it would meet the standards for that designation in the U.S.

Money market funds are frequently used to hold cash reserves. While standard money market funds sometimes offer privileges like check-cashing, this ETF will mostly serve as a way for investors to quickly park cash in a low-risk, relatively high-yielding investment. Money market accounts typically pay substantially higher interest than standard savings or brokerage accounts, with a vanishing risk of default.

The transparency of an ETF is likely an added bonus as well in the eyes of would-be buyers. Given that money market funds are a fallback position for many investors, a fund with the unique characteristics of an ETF should do quite well. It seems likely the U.S. will have its own version soon - a similar fund is on file from Bear Stearns (view the prospectus here).

"We think this ETF will meet the needs of Canadian investors by bringing a low-cost way to manage their cash positions. Money Market interest rates today are low, and by offering a low MER of only 0.25%, which is dramatically lower compared to other money market funds in Canada, we are able to reduce the risk the portfolio needs to take to provide attractive interest rates on cash to investors," says Som Seif, president and chief executive officer of Claymore Investments.

CMR carries an expense ratio of 0.25%. Regular and advisor shares are available. You can view the prospectus here.