Larry Berman CFA, CMT, CTA BMO Money Market Fund ZMMK-T BUY Sep 09, 2024

He recommends "barbelling" it in with longer-term fixed income like ZAG.

Now paying 15-20 bps higher than a plain-vanilla high-interest savings ETF. Good if you need access to cash, never drops below where you bought it if you buy on the ex-dividend date. A cash-like position in your portfolio. Pays interest. 

The sawtooth graph is explained as money accumulating on short-term paper holdings, and then paid out all at once every month. You can, of course, automatically reinvest the proceeds.

A short-term money market ETF is not going to be impacted by currency volatility. They're Canadian plays in Canada. Even though the BOC is a lot more aggressive in terms of cutting rates because the Canadian economy is significantly weaker than that of the US. 

The more in money market you are, the safer it is because the time to maturity of holding assets is lower. So the shorter the duration, the safer. The more government, the safer, but also a lower yield.

For an enhanced money market yield, he really likes ZST.

Pays a slightly higher yield than cash-alternative ETFs. Gives you exposure to money market, but combines with other instruments to get a little bit of extra yield. A bit riskier than cash. Note that the chart will look funny.

Very good vehicle for fixed income. Prefers it to investing in a HISA. Lots of diversification.

Money market exposure, but focused on government debt. Both buy instruments of less than a year's duration.

ZST is corporate debt -- slightly higher risk, so you get a premium yield. No junk bonds. Best-quality corporate bonds in Canada. Some credit risk, but quality holdings make this minimal. Money-market like, very safe, additional yield. Likes it.

Both have money market exposure, but ZMMK is government debt, and ZST is corporate debt. Corporate is slightly riskier, so you get a premium yield. ZST buys quality investment grade, though there is some credit risk. Pretty safe.

When he compares these two, it's on total return not just the yield. If you look at the price charts of these 2 ETFs over the last few years, you'll notice that in this falling rate environment the money market securities have a very slight downward trend in terms of their average price. Whereas ZST and its corporate bonds have a very slight upward trajectory, owing to their slightly longer duration.

When you look at the coupon payments, largely what's in ZMMK is commercial paper. While that's corporate credit, Canadian government bills and so on, there's still overall an aggregate yield that's less than what you're getting on a total return basis. 

A lot of the bonds under a year that are being purchased in ZST are being purchased at a discount. So you get the coupon plus a little bit of capital growth. Total return is not a lot more, but still more.