MINT: Cash Parking Pays Over 4% Now (NYSEARCA:MINT)

Investors looking for cash parking opportunities tend to look no further than PIMCO Enhanced Short Maturity Active Exchange-Traded Fund (NYSEARCA:MINT). MINT purports to provide stronger returns than cash in exchange for a slight increase in risk while maintaining cash-like liquidity.

Except for the globally experienced hysteria for a brief period in 2020, it has traded in a narrow range since inception in 2009 living up to its capital preservation claims.

When we last wrote on this ETF, we were left unimpressed with the expected forward returns of 0.23%. With yields so low, the risk, however small, was not worth it. We suggested our readers look for short-term securities from A rated institutions to park their cash, write cash secured puts or invest in preferred shares with a high likelihood of redemption. We gave one example each for the latter two suggestions.

Our recommendations outperformed MINT:

1) Global Net Lease, Inc. 7.25% CUM PFD A (GNL.PA) vs. MINT – recommended on the basis of 1-year redemption probability.

Note: the close price reflects the intraday price on August 24, when the article was written.

GNL.PA outperformed albeit with far more volatility, so you likely used up the extra money on Pepto-Bismol. At present, redemption is extremely unlikely as market conditions for new deals have collapsed. The security is still a very a high coupon one that will handle duration risk better than many.

2) W. P. Carey Inc. (WPC) – $70 strike Cash Secured Put.

With WPC nowhere close to $70 on April 14, 2022, we got to pocket premium making the intended annualized yield. We actually did better than this number as we closed the option before expiration.

With interest rates rising, fixed income opportunities have opened up and alongside that so has MINT’s earning potential. Let’s review where we stand vis-a-vis this ETF today and whether we give it a yay or a nay.

The Now

The first notable change here is that MINT has more than doubled its exposure to unrated securities since last October.

This has mainly come at the expense of government securities, which were over 15% back then. While this does boost the returns, the offset is a higher default risk as the ETF has branched away from the safer zone. The offset to that offset is that this is PIMCO and these are very short-dated securities. The securitized nature of these unrated issues helps, and there is a huge amount of diversification as well.

The result is clearly reflected in the substantial jump in the forward returns or 30-day SEC yield.

The 2.65% SEC Yield is a refreshing change from the 0.23% we saw last time. The estimated yield to maturity is now at 4.13% and there is likely a moderate-sized rate hike coming in September from the Federal Reserve. All other things being equal, we would expect the fund to earn about 4.0% in the next 12 months net of fees.

The ETF continues to have negligible interest rate risk, with an effective duration of under 0.6 years. The expenses also remain a nominal amount at 0.35%. When we last wrote on MINT, the expenses took a chunk out of the returns as the yield was just as nominal. This time around, however, the yield has some juice and can absorb the expenses while still giving modest returns to the investors.

With the rise in earnings, the distributions have had the expected increase over the last few months.

Based on the last distribution amount and the price of $99.28 at the time of writing this article, MINT yields 1.69%. Most websites quote the trailing yield, which is the cumulation of the last 12 months.

However, in the current environment of rising rates, both figures will actually be on the lower side of reality, and we should comfortably do well in excess of 4.0%. With the increasing earning potential and market volatility, investors are showing higher support for this ETF and looks like in 2022 it will spend a smaller amount of time trading at a discount.

Benchmarked against FTSE 3-Month Treasury Bill Index, it has kept up or beat the index over the long term. Short term, not so much.

Some of this is because MINT has expenses, however small, unlike the index. While MINT will not be minting wealth for its investors anytime soon, that is not its purpose. Its purpose is to be a place where investors let their cash hang while they look for safe, higher-yielding investments or ride out the volatile times. Currently, it serves the purpose for which it was created and may work for some. We continue to prefer cherry-picking our cash-like investments, investing in quality preferred shares, and of course, selling cash-secured puts to satisfy our 7-9% income goal.

Please note that this is not financial advice. It may seem like it, sound like it, but surprisingly, it is not. Investors are expected to do their own due diligence and consult with a professional who knows their objectives and constraints.