WSJ on Ultra Shorts and MMFs
The Wall Street Journal published a story Friday, "How to Top Money Funds' Near-0% Yields." It says, "These are tough times for investors in money-market mutual funds—and things could get worse. Money funds, which hold short-term, low-risk debt, are paying about 0.01% a year, the result of the Federal Reserve's decision to keep interest rates near zero since late 2008. Last July, meanwhile, the Securities and Exchange Commission set new rules that are likely to make fund managers even more conservative, keeping a lid on yields, experts say. While many investors have been leaving money funds for short-term bond funds, you shouldn't necessarily follow suit <b:>_. The bond funds, which invest in riskier assets, are paying about 0.9% on average, according to research firm `Morningstar.... Short-term bond funds fluctuate more in market value. And their total return from price change and yield can beat money funds over time. Those funds returned an average 3% annually over the past 10 years, according to Morningstar, versus a 1.4% return for money-market funds. "Short-term bond funds are for someone who wants to have a little more yield, but is willing to take on more risk," says Christopher Philips, a senior analyst in Vanguard Group's Investment Strategy Group. The company launched the Vanguard Ultra-Short-Term Bond Fund last week, but warned the fund shouldn't be an alternative to money-market funds because it exposes investors to principal risk." In other news, Investment News ran a story, "Money Market Reforms Force Advisers to Rethink Risk," which says, "Financial advisers face choices -- and a new trade-off between risk and reward -- as money market funds begin to implement changes following rules passed by the Securities and Exchange Commission last year. Fidelity Investments will ask shareholders in March to approve plans to convert three prime funds, including Fidelity Cash Reserves, into government funds.... BlackRock Inc. is considering doing the same for about $3.6 billion in retail prime funds later this year, according to spokeswoman Tara McDonnell. Other managers are widely expected to follow suit.... But the changes mean advisers will need to rethink their options, from government-focused funds that may deliver rock-bottom yields but continue to operate like the money market funds of old, to corporate and municipal-debt funds that could restrict redemptions and see their share prices float, and ultrashort-term bond funds that can take on more market risk but also deliver richer yields."
