There is one major reason that insurance companies, pension funds and endowments are investing their profits in these popular etfs. These make money in a field that these institutional investors understand and can track. By understanding money market ETFs and ETFs in general it is easy to follow this logical progression to income.
There are many different money market ETFs and each one of these investment avenues purchase different securities to hold in their portfolio. These may be securities issued by government enterprises like Fannie Mae, Federal Home Loan Bank, Freddie Mac, government sponsored loans for corporations, or agreements to repurchase, public obligations, large time deposits, US federal agency discount notes, fixed income securities, commercial paper, certificates of deposit and bankers acceptances. A smart investor will check out the holdings of each ETF and profit level before making an investment.
Of the 20 largest mutual fund investment companies, 17 use ETFs. Likewise, of the 20 largest hedge funds, 15 use ETFs. These companies like the diversification available and the ability to invest cash in a product that they understand.
ETFs offer investors an undivided interest in a pool of securities or other assets. These are available in various commodities, currencies, stocks and many other markets. Among the advantages are low-cost and maintenance fees and expenses. Most hold their products for a long time and the investors are not paying heavy management fees or stock broker fees. The longer hold time allows more tax efficiency; there are fewer taxable trades. In addition the money market ETF offers a higher interest rate than can be obtained on certificates of deposit and pays regular monthly interest payments.
ETFs are electronic traded funds and are also known as ETPs which are electronic traded products. In the United States, these investments are traded on the stock exchange under the control of the SEC and are big business. In April, 2010, there was 998 US-based ETFs on the stock exchanges. Their assets topped $846.7 billion and more than one-sixth of the new issues in the past year have been a ETF. Investors like these products because they are very liquid, they can buy or sell them at any time and they allow a variety thereby increasing profits and reducing risks. They can be traded like stock and have many of the benefits of mutual funds.
Institutional investors put their money in these ETFs because they make money with this investment. Other investors can enjoy the profits by investing these also.