Morningstar Talks w/Schneider on MFs
Morningstar writes on "How Investors Can Outpace the Returns of Money Market Funds." They ask PIMCO's Jerome Schneider, "[H]ow attractive, for example, are money markets these days relative to other short-term opportunities?" Schneider responds, "[I]t's a $6 trillion question at this point in time, given the amount of assets that have flown into money markets over the past years. Listen, there's a great amount of opportunity for investors to be defensive and in fact safe by earning 5% plus or minus in money market and T-bill-like investments. We fully understand that, as investors, and understanding why people want to have that beautiful triumvirate of capital preservation, liquidity management, with some positive return for once. But what we also are finding is that there's a revealing aspect of fixed income right now that if you move just slightly beyond the money market space into that zero to one-year space in a more diversified portfolio, away from Treasury bills, away from money market strategies, that you can have additional opportunities through earning additional income as well as being senior in different opportunities for corporate bonds as well as asset-backed securities, which are quite attractive." He continues, "And it puts a total return metric well above 6% at this point in time without taking much interest-rate exposure at this point in time. Said a little bit differently, if investors have the horizon and comfort to put money to work over the course of the next six months of the year, effectively they can capture liquidity premiums, which allow them to earn and outpace the returns in a total return format versus being in a money market fund. And that's really the attractive spot that we haven't seen in quite a few years, perhaps dating back to 2015 when short-term strategies became once again in focus in a higher rate cycle." Schneider explains, "This, too, now lends itself to be very relevant for investors who want to be in that 6% to 8% returns without having a lot of aspects of taking a lot of risk, managing interest-rate exposure at the front of the curve, but yet having the time horizon to put money to work over the next few months or the next few quarters, there's attractive ways to do that. And so we would encourage, effectively, investors to tier their cash, think about what they need for same-day liquidity, keep that in money market funds, AAA rated, government guaranteed type of obligations, but to the extent they can tier their cash over the next few quarters, it makes it a very attractive opportunity whether you're an individual investor, a corporate cash CFO, or even a pension or foundation, if the opportunities are there to create those diversified portfolios away from the traditional mindset of cash management."
