It's an abomination to think that the "next money market fund could be an ETF," but it could happen, writes contributor Ari Weinberg for Forbes.

Ken Froot, Harvard Business School Professor, was booed when he floated the idea during a 2009 U.S. Chamber of Commerce event, but he still believes that an ETF, or a fund structured like an ETF, is a possible alternative for mutual funds.

Froot, in an email to Weinberg, said that the structure would "...force the markets to generate better liquidity in the underlying short term debt instruments, and, if this is a costly thing, to make both types of spread — bid/ask and mid-point spreads over treasuries — wider."

Weinberg writes that mutual funds are sacred, but he questions why fund managers have been considering ETFs that employ risk and return similar to mutual funds.

On a related note, some recent fund filings with the SEC that hint at a trend of ultra-short duration products include:

• FlexShares Ready Access Variable Income Fund
• Legg Mason Western Asset Ultra-Short Duration ETF
• Franklin Templeton Short Duration Government ETF
• Federated Active Ultrashort Fixed Income ETF
• iShares Ultrashort Bond Fund

Weinberg notes that if the reform applies, these new ultra short-duration funds could fast track it to market. 

Edited by: Irene Park


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