The Investment Company Institute's latest weekly "Money Market Fund Assets" report shows MMF assets jumping for the second week in a row after plunging the prior week. ICI's asset series jumped $62.7 billion the past week to $5.695 trillion. Assets are up by $960 billion, or 20.3%, year-to-date in 2023, with Institutional MMFs up $423 billion, or 13.8% and Retail MMFs up $537 billion, or 32.0%. Over the past 52 weeks, money funds have risen a massive $1.063 trillion, or 23.0%, with Retail MMFs rising by $627 billion (39.5%) and Inst MMFs rising by $436 billion (14.3%). (Note: Start making plans for our upcoming Money Fund University, which will take place Dec. 18-19, 2023 in Jersey City, NJ. We hope to see you in December!)
The weekly release says, "Total money market fund assets increased by $62.68 billion to $5.70 trillion for the week ended Wednesday, November 1, the Investment Company Institute reported. Among taxable money market funds, government funds increased by $53.91 billion and prime funds increased by $4.80 billion. Tax-exempt money market funds increased by $3.97 billion." ICI's stats show Institutional MMFs rising $38.2 billion and Retail MMFs rising $24.5 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.651 trillion (81.7% of all money funds), while Total Prime MMFs were $920.0 billion (16.2%). Tax Exempt MMFs totaled $124.2 billion (2.2%).
ICI explains, "Assets of retail money market funds increased by $24.47 billion to $2.21 trillion. Among retail funds, government money market fund assets increased by $14.30 billion to $1.44 trillion, prime money market fund assets increased by $6.53 billion to $658.35 billion, and tax-exempt fund assets increased by $3.64 billion to $111.16 billion." Retail assets account for over a third of total assets, or 38.9%, and Government Retail assets make up 65.3% of all Retail MMFs.
They add, "Assets of institutional money market funds increased by $38.22 billion to $3.48 trillion. Among institutional funds, government money market fund assets increased by $39.61 billion to $3.21 trillion, prime money market fund assets decreased by $1.72 billion to $261.62 billion, and tax-exempt fund assets increased by $331 million to $13.02 billion." Institutional assets accounted for 61.1% of all MMF assets, with Government Institutional assets making up 92.1% of all Institutional MMF totals.
According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets rose $62.4 billion over the past week to $6.074 trillion. Assets fell by $31.9 billion in October after rising by $93.9 billion in September, $98.3 billion in August and $34.7 billion in July. Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're over $400 billion lower than Crane's asset series.
In related news, a new "ICI Research Perspective" entitled, "Characteristics of Mutual Fund Investors, 2023," tells us, "Mutual fund holdings represented a significant portion of owning households' financial assets. In 2023, 67 percent of mutual fund–owning households had more than half of their household financial assets invested in mutual funds."
It explains, "Equity funds were the most commonly owned type of mutual fund, held by 79 percent of mutual fund–owning households.... In addition, 33 percent owned balanced funds, 34 percent owned bond funds, and 50 percent owned money market funds. Forty-six percent of mutual fund–owning households owned equity index funds, and 30 percent owned global or international equity mutual funds."
ICI writes, "Mutual fund–owning households typically have other types of savings and investments. In 2023, these households also reach for additional equities and diversification through individual stocks (38 percent of mutual fund–owning households owning), exchange-traded funds (ETFs) (19 percent owning), and closed-end funds (4 percent owning). Mutual fund–owning households had additional fixed-income investing through US savings bonds (21 percent owning), individual bonds other than US savings bonds (10 percent owning), and certificates of deposit (22 percent owning). Additionally, 13 percent owned fixed or variable annuities, 17 percent owned investment real estate, and 10 percent owned cryptocurrency."
In other news, a publication named, "Financial Accounting" published a piece entitled, "Wash Sale Rules Have Now Eased for Money Market Funds." Subtitled, "Charles Schwab's Hayden Adams shares how new IRS guidance will make money market fund tax preparation easier and will get rid of enforcement on wash sale rules," it tells us, "The IRS's recently issued Rev. Proc. 2023-35 states that wash sale rules will no longer apply to the sale of shares in money market funds. The new guidance, effective Oct. 2, makes these investments an easier decision by simplifying the tax preparation of MMF transactions and eliminating IRS enforcement of wash sale rules on MMF sales."
The article explains, "A wash sale happens when a security is sold at a loss and an identical purchase is then made within 30 days. Though losses in MMFs are generally rare, this change means investors will be able to use sale losses to offset other capital gains and/or up to $3,000 of ordinary income, in the year the loss is realized. This new guidance extends the wash sale relief from the previous Rev. Proc. 2014-45 to MMFs with stable net asset values, where the prior guidance provided wash sale relief to investors in MMFs with a floating NAV."
It continues, "Traditionally, MMFs have a NAV per share price of $1, which means investors can normally buy and sell those funds and not be concerned about creating a taxable event. Because the purchase price of these funds generally match the selling price, having a loss in these funds hasn't been an issue for most investors, and the wash sale rules were of no real concern. However, an investor can actually see a loss in a MMF. Though rare, 'breaking the buck' sometimes happens when the NAV per share price goes below $1. This can trigger a mad rush of investors out of a fund, causing liquidity issues for the fund manager."
Financial Accounting says, "To alleviate the problem of MMF investors having to face the complexity of the wash sale rules, the IRS issued Revenue Procedure 2023-35 to 'reduce undue tax compliance burdens' and 'because of the constant value of shares in stable-NAV MMFs, the frequency with which many taxpayers continuously acquire and redeem shares in these MMFs, and the administrative and compliance burdens that would flow from applying section 1091 to these transactions.'"
They add, "Though the likelihood of losses from a MMF transaction is still very low, the latest IRS guidance helps remove some potential complications and concerns investors could face if a fund did break the buck or charged a liquidity fee for a redemption. It also means that tax professionals and financial advisers won’t need to worry about telling clients about the complexities of the wash sale rules when it comes to investments in MMFs."
