BlackRock writes "​Time for Prime?". The brief says, "​Leading up to the implementation of money market reform in the US in the fall of 2016, investors moved approximately $​1 trillion from prime money market funds (​MMFs) to government MMFs, signaling, in our view, a preference for low volatility and operational certainty over yield. Now, with two Fed rate hikes since December 2015, a rise in benchmark rates such as LIBOR, and three months of operational stability, we are seeing renewed interest in prime MMFs as yields have risen to levels that have eluded cash investors for many years. Is it time to revisit prime MMFs for a portion of your cash investments?" It comments on the "Trends in money market funds that there are "Signs that appetite is returning for prime MMFs." BlackRock cites 3 reasons: "Prime MMF assets under management are growing. We'​ve seen investors start to return to this asset class as the understanding of prime MMFs in the new world matures. At $​11 billion, TempFund, a series of BlackRock Liquidity Funds (​TempFund), stands as one of the largest institutional prime MMFs in the industry and has experienced 34% growth in assets since the beginning of the year; Rising rates broaden the spread over government MMFs. In a normal and rising interest rate environment, the natural spread between government and prime MMF strategies may materialize. Today, this spread stands at approximately 40 basis points, representing what we believe to be a meaningful difference in the yield of prime MMFs over government MMFs; Opportunities in short term credit are compelling, but require a strong credit management approach to identify. With demand heavily focused on government securities, prime MMFs have been able to capitalize on opportunities in the credit markets without taking disproportionate risk." The piece adds, "We believe prime MMFs can be a useful addition to a balanced portfolio as they may help boost overall cash portfolio income and returns and represent a diversified companion to government MMFs.... A strategic allocation to prime MMFs offers diversification benefits and higher return potential while adding only incremental risk to your portfolio.... We understand that change can be challenging, but looking at these investment strategies with an eye on total return and seeking to understand the credit process can help even the most discerning cash investors."

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