ThinkAdvisor on Vanguard MMF Moves
Financial advisor website ThinkAdvisor writes on "How Vanguard Overhauled a Prime Money Fund." They tell us, "A day after Vanguard announced the liquidation of two municipal money market funds, it has converted its Prime Money Market to a Cash Reserves Federal Money Market fund.... The changes being made by Vanguard are just the latest in a series of shifts affecting money market funds more broadly due to near-zero short-term rates in the U.S., which the Federal Reserve expects to maintain through the end of 2023." The piece explains, "[I]n August Fidelity Investments liquidated two institutional prime money market funds -- Fidelity Investments Money Market Prime Money Market Portfolio and Fidelity Investments Money Market Prime Reserves Portfolio -- and Northern Trust liquidated its Northern Institutional Prime Obligations Portfolio in July.... Vanguard cited the supply shortage of 'certain types of municipal securities in Pennsylvania and New Jersey' for its decision to liquidate the funds, but Peter Crane, president of Crane Data, which monitors the money market and mutual fund and banks savings market, says the decision may have more to do with the nature of the muni money market universe -- 'the smallest and most expensive money market funds to run with limited audience' and Vanguard's own structure." They quote Crane, "Vanguard doesn't have the flexibility that other for-profit companies have in cross-subsidizing its products.... It makes sense for Vanguard to get out of a less popular higher cost segment." ThinkAdvisor adds, "Other fund companies are also liquidating muni money market funds, including Federated Investors and Dreyfus, owned by BNY Mellon. The tax exemption for the interest earned from these funds is also worth far less in a near-zero rate market -- 'a worthless investment when there is no income,' says Crane.... Crane expects to see more consolidation in the money market space, especially in muni market and prime market space because 'rates are so low funds can only charge half what they normally do.'"
