While most recent articles on money funds are still dwelling on the negatives and the past (see Bloomberg's 6-months late piece, "Almost a Decade Later, U.S. Money Markets Are Yet to Recover"), a couple of recent ones have finally discovered the good news -- rising yields and funds now returning over 1%. Over the weekend, both Investment News and Barron's wrote about the growing number of funds yielding 1.0% or higher. IN featured "As Fed raises interest rates, money funds increase yields, some to more than 1%," while Barron's wrote, "Where to Find Safe Yields Above 1%." We quote from these two articles, and review the latest top-yielding funds and averages, below.
The Investment News John Waggoner article says, "Thanks to the Federal Reserve's recent interest-rate hikes, some money market funds are doing things they haven't done in a decade: Paying 1% interest. Your clients won't get rich on their money fund holdings, but at least they'll get more than zero."
It explains, "According to Crane Data, four institutional money funds and three retail money funds now pay 1% or more. The highest-yielding money fund, Fidelity Investments Money Market (FNSXX), now yields 1.06%, while Morgan Stanley Institutional Liquid MMP (MPUXX), now yields 1.05%."
The piece tells us, "Investors have $2.65 trillion in money market funds, according to the Investment Company Institute, the funds' trade group. Yields hovered near or at zero until December 2015, when the Fed pushed rates from zero to 0.25%. Many of those zero yields were subsidized by fee waivers from the fund sponsors, and in some variable annuity and retirement accounts, yields fell below zero."
It adds, "The majority of money funds are well below 1%, says Peter Crane, president of Crane Data: The 100 largest money funds yield an average of 0.60%. Those yields should rise slightly as they digest the Fed's March 16th rate hike. The typical money fund has an average weighted maturity of about 35 days, meaning it takes a bit more than a month for money funds to feel the full effect of rising rates."
Investment News also comments, "Several banks are offering money market accounts with yields of 1% or more, according to Bankrate.com. While national average yields on bank money market accounts are a subterranean 0.11%, top-yielding accounts pay an average 1.15%.... Obviously, no one is going to get rich on current rates. At 2.3%, it will take 31 years to double your money.... On the other hand, earning 1% is better than earning nothing. A client with $100,000 in cash could now get $1,200 to $2,300 income from money funds or bank CDs. That's better than zero, and worth at least a few nice dinners out."
The Barron's article, which we mentioned in a recent "Link of the Day," tells us, "Banks, money-market funds, and short-term bond funds are starting to yield real money now that the Fed has hiked interest rates again. Now that the Federal Reserve has hiked interest rates three times in the past 16 months -- including twice in the past four months -- the interest that investors can earn on their cash is starting to get real."
It explains, "There are now plenty of options for earning safe yields above 1% for investors who hunt around. The best interest rates are most readily available from banks, but there are some high-minimum money-market funds, such as Fidelity Money Market Portfolio (ticker: FMPXX), that yield above 1%." "They are going to get more company in next couple of months," they quote our Peter Crane. "Things look better for cash investors than they have in a decade."
Barron's Amey Stone writes, "For investors, a money-market fund makes more sense as a place to stash "dry powder" that can be readily deployed. Yield gains, however, have trailed Fed rate hikes. The largest money funds have an average yield of 0.6%, just 10 basis points (or 0.1 percentage point) more than before the Fed's mid-March 25-basis-point rate hike. Many funds hold 30-day securities, and the rate hike is just two weeks old. "Ten more basis points will come through," Crane says. "Whether we ever get the other five is unclear." Fund companies have used recent rate hikes to restore fees that were waived to keep money-fund yields from going negative when rates were near zero."
The piece adds, "Still, many money-market funds meant for individual investors are getting close to the 1% threshold. Vanguard Prime Money Market fund (VMMXX) has a 0.87% yield. Its tax-exempt cousin, Vanguard Municipal Money Market fund (VMSXX), has a yield of 0.7%, which is more than 1% on a tax-equivalent basis for many. The next Fed rate hike could come as soon as June, and Crane thinks that short-term debt markets will start to price it in ahead of time."
Finally, they write, "Until then, investors willing to take slightly more risk can easily find yields well above 1% among ultrashort bond funds. Pimco Enhanced Short Maturity Active exchange-traded fund (MINT) is a popular choice. It has returned 2.25% in the past year and has a 1.36% yield. It holds a lot of floating-rate instruments, so the yield should keep pace with Fed rate hikes, says Jerome Schneider, who heads short-term portfolio management at Pimco.... Unlike money-market funds, the net asset values of ultrashort funds float, which means that loss of principal is a possibility. They are safe and liquid, but there is a lot of variation in strategies and risk levels, warns Roger Merritt, who heads the funds-rating group at Fitch Ratings."
Crane Data's Money Fund Intelligence Daily currently shows 17 funds (out of 903 total) yielding 1.00% or higher (as of 4/4), while 118 funds are still yielding 0.00% or 0.01%. The average money fund is yielding 0.61% (Crane 100) or 0.42% (Crane MF Average), depending on which average you look at (larger funds or a broader all taxable). See our "Highest-Yielding Money Market Funds table above or on our homepage for the top-yielding funds. (Note: These lists exclude repeated share classes and restricted or internal funds.)
