Mutual fund news source ignites is the latest media source to signal that a "very good" 2018 for money funds is likely to foreshadow an "even better" year for them in 2019, based on conversations with market participants. Thursday's article, "You Ain't Seen Nothing Yet': Money Fund Flows Expected to Surge in 2019," cites "investors' growing awareness of the products' yields," as the principal reason behind fund leaders' optimism. Ignites writes, "Money market fund assets grew by 7% last year, adding $209 billion -- more than the previous five years of inflows combined." We quote from the piece, and also cover the ICI's latest money fund asset totals below.
They explain, "Industrywide, money fund assets reached $3 trillion in mid-December for the first time since early 2010, according to Investment Company Institute data. That comes after hovering around $2.7 trillion for several years. And thanks to four Federal Reserve rate hikes during the year -- on top of five previous increases since late 2015 -- money fund yields cracked 2% mid-year and have continued rising."
The ignites news continues, "Money funds' higher yields have snuck up on many investors, says Peter Crane, president and CEO of Crane Data. The Federal Reserve's single rate hikes in 2015 and 2016 didn't have a big impact on the product's yields. But seven subsequent increases have pushed the target federal funds rate to between 2.25% and 2.50% -- returns that are now getting investors' attention." "It's like boiling the frog slowly," says Crane, referring to yields continuing to rise above 2% for the first time in years.
"In fact," the article noted, "significant 2018 increases in money fund assets at Vanguard and Fidelity show that more retail investors are moving out of lower-yielding bank deposit products and into money funds, says Crane, who adds that he thinks this shift will increase in 2019." The piece quotes Crane, "You ain't seen nothing yet.... I'll eat my hat if money fund assets don't grow more in 2019 than they did in 2018."
Finally, the piece adds, "The extreme market volatility of December and January could impact investors' 2019 asset allocation decisions, says Michael Morin, head of liquidity management solutions for Fidelity Investments. 'That's another possible tailwind [for money funds],' he says, noting that the yield the products offered is attractive when compared to losses by most equity and bond indexes. 'Perhaps they feel like their allocation to cash should continue to increase.'"
In other news, the ICI released its latest "Money Market Fund Assets <i:https://www.ici.org/research/stats/mmf/mm_01_17_19>_" report, which shows that `only Prime MMFs showed asset gains in the latest week. MMFs have now posted 11 weeks of gains out of the past 13 weeks <b:>`_, during which time they've risen by $177.1 billion. ICI's weekly series showed Retail MMFs decreasing $3.6 billion, or -3.0%, while Institutional MMFs declined $13.8 billion, or -7.4%, since the previous week.
They write, "Total money market fund assets decreased by $17.36 billion to $3.05 trillion for the week ended Wednesday, January 16, the Investment Company Institute reported <b:>_. Among taxable money market funds, `government funds decreased by $20.44 billion and prime funds increased by $4.55 billion. Tax-exempt money market funds decreased by $1.47 billion." Total Government MMF assets, including Treasury funds, stood at $2.313 trillion (75.9% of all money funds), while Total Prime MMFs reached $590.5 billion (19.4%). Tax Exempt MMFs totaled $145.5 billion, or 4.8%.
ICI explains, "Assets of retail money market funds decreased by $3.56 billion to $1.19 trillion. Among retail funds, government money market fund assets decreased by $3.73 billion to $703.43 billion, prime money market fund assets increased by $1.29 billion to $353.12 billion, and tax-exempt fund assets decreased by $1.11 billion to $136.28 billion." Retail assets account for over a third of total assets, or 39.1%, and Government Retail assets make up 58.9% of all Retail MMFs.
The release adds, "Assets of institutional money market funds decreased by $13.80 billion to $1.86 trillion. Among institutional funds, government money market fund assets decreased by $16.71 billion to $1.61 trillion, prime money market fund assets increased by $3.26 billion to $237.33 billion, and tax-exempt fund assets decreased by $354 million to $9.18 billion." Institutional assets accounted for 60.9% of all MMF assets, with Government Institutional assets making up 86.7% of all Institutional MMF totals.
