Money market mutual funds are on course to return their lowest annual rate since 2004 and post their fastest two year asset growth spurt since 1980-1981. Our Crane 100 Money Fund Index, an average of the 100 largest taxable institutional money funds, is projected to return 2.50% in 2008, following a 5.00% return in 2007 and a 4.77% return in 2006. Money fund assets should end the year near their current record $3.8 trillion, an annual increase of approximately 21.1%, up $663.5 billion. This follows a `record $760.0 billion increase in 2007, a gain of 31.9%.
The past 10 years of Crane 100 MF Index returns are as follows: 1999 - 4.93%, 2000 - 6.19%, 2001 - 3.99%, 2002 - 1.58%, 2003 - 0.89%, 2004 - 1.08%, 2005 - 2.94%, 2006 - 4.77%, 2007 - 5.00%, and 2008 - 2.50%. The past 10 years of asset growth for money funds, according to the Investment Company Institute, are as follows (dollar increase, percentage increase): 1999 (+261, 19.3%), 2000 (+232, 14.4%), 2001 (+440, 23.8%), 2002 (-13, -0.6%), 2003 (-220, -9.7%), 2004 (-139, -6.8%), 2005 (+144, 7.5%), 2006 (+327.9, 15.9%), 2007 (+760.0, 31.9%), and 2008 (+663.5, 21.1%).
Though the latest Crane 100 7-Day Yield Index of 1.23% remains well above its levels of 2003-2004, we could see rates again test the 1.00% level. It appears, however, that the latest round of Fed rate cuts is not being passed through to funds, which have only dropped just 14 basis points over the past two weeks, so we may see money fund rates stabilize just above 1.00%. (In past cases of rate cuts, the majority of the cuts would already be reflected in the first two weeks.)
Though asset growth should slow as funds lose the tailwind of falling rates, and as ultra-low yields gradually reduce the attraction of cash, Crane Data continues to expect money funds to attract assets in 2009. Continued concerns with practically every other asset class should assure that money fund assets continued to grow, even with meager 1.0% returns on average. We're estimating approximately 10% asset growth in 2009, which would bring the overall asset total to almost $4.2 trillion.
In other news, see The Boston Globe's "And the winner is...."," which crowns Bob Litterst of Fidelity Cash Reserves "Fund Manager of the Year" in its Boston Capital column. The article says, "Earning top-shelf returns was one thing. Keeping a money market fund out of trouble at the same time was a more dramatic feat. At least 25 of 91 mutual fund complexes tracked by Crane Data LLC had to bail out or otherwise lend financial support to their money funds, according to Peter Crane, who runs the Westborough money market research firm."
