The podcast "Money Life with Chuck Jaffe" interviewed our Peter Crane in a segment titled "In today's rocky markets, cash is an asset-allocation choice." Their description states, "Peter Crane, president of Crane Data -- which publishes the Money Fund Intelligence newsletter tracking the performance of money market mutual funds -- says that high interest rates should have investors thinking about where to park and protect their cash, and to treat their cash holdings as an asset rather than an after-thought in the investment plan. He also discusses the likely path of money fund rates based on the Fed's moves."
Jaffe comments, "Welcome to the Big interview on the November 1st edition of Money Life. Joining me now, Peter Crane. He's president of Crane Data, publisher of Money Fund Intelligence. You want learn about money market funds? There's just no other source. Nobody even comes close. Cranedata.com is the preeminent source for information on the field. And when money funds were paying nothing, Pete was so dedicated to the craft that he kept things going and kept the best work out there in the business on it. So if you're looking for money funds because you want to figure out what the top yields are and figure out how to surf to the top of the charts, www.CraneData.com. Pete Crane, great to have you back on Money Life."
Asked about rates after last week's Fed meeting, Crane responds, "The money funds still follow the Fed, and they follow them very quickly. So if they do nothing, they'll stay where they are.... Yields have been really inching up the last several weeks, just like a basis point a week, so there's still a little bit of climb just because the odds of a hike later this year or ... the odds of a cut have gone down. The odds of another hike are still there, but they'll stay flat in the main. So you'll see 5% or so ... is here to stay for at least the near future."
He explains, "Money funds are really competing with bank deposits at this point, both on the bank savings side and as far as the stock market goes. So they're not really competing with each other because rates have jumped so far so fast that they're all good.... I tell people, money funds are really like ... glorified index funds.... They're all buying from the same limited pool of triple-A double-A rated banks and Treasury bills, and what's called repo or repurchase agreements. So ... there is a little bit of differentiation between them in the services and in the expense ratio. But even the lowest money fund is paying over 4 1/2% [and] the highest is almost touching 5 1/2%."
Crane continues, "But all the big money is clustered [around] 5.19%, which is what our Crane 100 Money Fund Index is currently.... You're going to get a little over 5% no matter which money fund you pick, most likely. So why bother moving around or switching? It's all about the convenience, unless you're a real big investor and you know you have relationships with big banks and want to get credit for using their other products, etc."
When asked about competitive fee waivers, he answers, "In the late 1990's and early 2000's, you used to have new money funds come in and waive all their fees. I used to joke that money funds are the only place where you can buy a number one ranking by doing that. You do have a little bit [of fee waiving] around the edges, competitive shifts and stuff. Now, you have these D&I, these diversity and inclusion, share classes where some of the fees go to minority brokers or women-owned brokers, but that's mainly in the institutional side. [Y]ou'll see Fee waiving there so they can keep the fees at the lowest level. But you haven't seen big retail come in mainly because they haven't had to -- the retail flows have been so big and so heavy that nobody needs to go out and sort of advertise and get extra assets because they're happy dealing with the deluge they're already seeing."
Crane tells Jaffe, "It's usually a pretty good bet that, the number-one ranked anything is sort of tweaking the expenses and doing a little extra. Allspring, because they were rolled off from Wells Fargo, is probably trying a little extra hard to get recognized because they've got to sell the new name. It used to be Wells Fargo Funds. Wells Fargo still owns a big chunk of them and does business with them. But yeah, there's probably some of that going on."
He comments, "But in general, it's because for money funds, what they invest in has been tightened and restricted over the years.... They're about to see another round of new reforms passed in July that are being implemented over the next 6 months plus which are going into effect. Each time regulators change something, they've gotten shorter, they've gotten more restrictive, they've gotten more government-oriented. So, there's just not a whole lot where you can compete. But fee waving certainly around the edges [is still a thing, though] nobody's waiving everything. If you're charging 14 basis points instead of 17, or 20 instead of 25, even that can give you an edge in this environment."
Crane then comments, "Convenience should be the number one concern as far as cash goes, because you're there because you're moving it somewhere else, or you might move it somewhere else tomorrow. So depending on where the money's going -- if it's going back and forth to your checking account, a bank savings account that pays a competitive rate makes more sense. If it's an investment account ... money market mutual funds usually have the edge because they're closer to that brokerage or investment account. Then, of course, if you're moving blocks of big savings, you can do either if you don't have to worry about a lot of transactions or wiring or debit cards, and if you're moving just big blocks on your own."
He states, "But, as a reminder, the banks can tell you what you're going to make today, but they have no idea what they're going to pay a month from now. The money funds can tell you what you made yesterday, but what you make today is based on what the market pays it. And so, money fund yields follow the Fed. Bank deposits have just gotten the reputation of underperforming because the banks ... in general have to make money and this is true more today than ever. They're dependent on that net interest margin and the spreads, and a lot of the brokerages are today as well. So even the internet banks and high yield savings that'll pay a competitive rate, over time, they tend to lag. They'll try to 'boil the frog slowly,' show you a real heavy, high rate and hope you're not going to do the maintenance and watch that rate."
Crane adds, "For a lot of investors, ... you want to be competitive, but having that market rate [allows you to] 'set it and forget it'.... Taking what the Fed gives you has made money funds real attractive now ... because they're up. If rates start going down at some point later next year, or who knows when they're going to go down, of course you're going to follow the Fed lower. But, you know, you shouldn't be depressed about that. You've got to take what the market gives you."
He says, "You shouldn't time 'cash' more than you should time any other markets. If you might need the money, you should be in money market funds or bank deposits, in cash. If you don't need the money, you should still be investing for the longer term. But markets in general, ... I don't want to time them. But the odds of the stock market doing well, and the odds of the bond market -- it's been hammered so it's seen some of a correction -- but they've had decades and decades of overperformance. It wouldn't shock me if you saw underperformance and even a nasty downturn in those markets.... So I'd hold a little more cash, but don't get crazy and move everything to cash."
Asked about market timers, Crane replies, "The 5% yields are certainly bringing in assets, but the vast majority of the trillion dollars that's come in the money market mutual funds over the past year is from bank deposits. One of my mantras is 'cash competes with cash' and money funds versus bank deposits is the big show.... How much is moving in and out of the stock market is a sideshow. Market strategist telling you that there's this giant wall of cash [is incorrect]. I mean if you sell stock in a brokerage account, it normally goes into a bank account, so what money funds hold normally isn't indicative that investors are raising tons of cash."
Finally, he adds, "I'm biased towards cash. I love the space and have been doing this forever. But I look longer-term, and I still think cash is underweighted, not overweighted. I laugh when I hear talk of the 60-40 model.... It used to be the 60-30-10 model, right?! You'll know cash is back when people start saying 60-30-10, because you used to have a 10% cash allocation. People call you crazy for having 10% in cash. So I listen to that and say, 'Yeah, we're nowhere near peaking as far as interest in cash.'"
