Money market funds have long been the default home for investors looking to preserve capital while earning whatever short-term interest rates are available. By investing in ultra-high-quality, short-duration fixed-income securities, they have historically maintained a stable $1 net asset value while providing daily liquidity.
They’re not perfect, though. Some money market mutual funds charge surprisingly high expense ratios, while others impose minimum investment requirements that can make them less accessible to smaller investors. Fortunately, investors can now access the same general strategy through money market ETFs.
While money market ETFs don’t maintain a fixed $1 share price because they trade throughout the day on an exchange, they operate under the same strict regulatory framework and generally exhibit extremely low price volatility. In practice, they’re about as low-risk as ETFs get.
The category remains relatively small, but a few products have begun to stand out. One that recently caught my attention is the JPMorgan 100% U.S. Treasury Securities Money Market ETF (JMMF). Here’s what you need to know about this newer ETF.
What Is JMMF?
JMMF is structured as a government money market fund. Under SEC rules, government money market funds must invest at least 99.5% of their assets in cash, U.S. government securities, or repurchase agreements backed by those securities, but JMMF goes a step further.
Rather than holding agency securities or repurchase agreements, the fund invests exclusively in U.S. Treasury bills, Treasury notes, and Treasury bonds. These are among the safest and most liquid securities in the world, backed by the full faith and credit of the U.S. government.
Unlike a traditional money market mutual fund, JMMF doesn’t maintain a fixed $1 share price. Because it’s an ETF, shares trade on an exchange throughout the day. However, the ETF creation and redemption process keeps the market price closely aligned with the fund’s underlying net asset value.
In practice, you’ll typically see JMMF’s share price hover around $100, gradually increasing by a few cents as interest accrues before dropping by approximately the distribution amount on the ex-dividend date, creating a familiar sawtooth price pattern.
One feature that sets JMMF apart is its payment schedule. Whereas most money market mutual funds accrue income daily and typically distribute it monthly, JMMF makes weekly distributions. After deducting its 0.16% expense ratio, the ETF currently offers a 3.55% 7-day SEC yield.
A Potential State Tax Advantage
Not all money market funds receive the same tax treatment. Prime money market funds are generally the least tax-efficient because they invest heavily in corporate commercial paper and other private-sector short-term debt. The income they generate is typically taxable at both the federal and state levels.
Municipal money market funds occupy the opposite end of the spectrum, with income that is often exempt from federal income taxes and, in some cases, state taxes as well. Treasury-only money market funds occupy a useful middle ground.
Because their income comes from U.S. Treasury securities, that interest is generally exempt from state and local income taxes, although it remains subject to federal income tax. For investors living in states with relatively high income tax rates, such as California or New York, that exemption can meaningfully improve after-tax returns.
Since JMMF invests exclusively in U.S. Treasury securities, investors can generally expect its Treasury income to qualify for that state and local tax exemption. That means more of the fund’s current 3.55% 7-day SEC yield may remain in your pocket after taxes.
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