Vanguard Market Liquidity Changes
We discussed the announcement last week that Vanguard Prime Money Market Fund would convert to a Government MMF. (See Friday's News.) We hadn't realized that Vanguard also filed for changes in its two remaining Prime MMFs too. These funds will remain "Prime" but will increase their holdings of Government securities. A Prospectus Supplement for the $94.1 billion Vanguard Market Liquidity Fund says, "The purpose of this supplement is to provide you with information regarding the investment strategy for Vanguard Market Liquidity Fund. The Fund invests primarily in high-quality, short-term money market instruments, including certificates of deposit, banker's acceptances, commercial paper, Eurodollar and Yankee obligations, and other money market securities, including securities issued by the U.S. government or its agencies and instrumentalities. The Fund invests more than 25% of its assets in the financial services industry (i.e., issuers principally engaged in providing financial services to consumers and industry), which includes securities issued by government-sponsored enterprises, such as the Federal National Mortgage Association ('Fannie Mae'), the Federal Home Loan Mortgage Corporation ('Freddie Mac'), and the Federal Home Loan Banks. The Fund has no limit on its ability to invest in cash, U.S. government securities, and/or repurchase agreements that are collateralized solely by U.S. government securities or cash ('government securities'). The Fund has been increasing its investments in government securities and expects to continue to do so." The same language is used in a filing for the $1.4 billion Vanguard Variable Insurance Money Market Fund. Website ignites.com also wrote about Vanguard's changes Friday in "Vanguard Retreats From Prime Money Funds." They tell us, "The king of retail prime money funds is abdicating the throne and retreating to the less risky confines of government liquid securities. Vanguard will remake its $125.3 billion Prime Money Market Fund into a government fund, and rename it the Vanguard Cash Reserves Federal Money Market Fund, the firm disclosed Thursday. The changes will take place on or around Sept. 29." They quote our Peter Crane, "From a product perspective, it's the wrong time to be exiting prime [money funds].... But Vanguard has considerations other than investor appetite to consider. `In the money fund business, deep pockets have been necessary on occasion, and Vanguard doesn't have any pockets."
