WSJ: Expenses Rise Faster Than Yields
The Wall Street Journal published "How to Stop Your Fund Manager From Feeding on Your Cash," which discusses rising yields and the removal of fee waivers on money market mutual funds. Columnist Jason Zweig writes, "As interest rates rise, the benefits are accruing to the people who manage cash, not to the investors who hold it. In the first quarter, the yield on three-month Treasury bills rose 0.46 percentage point. The yield on retail money-market mutual funds rose a measly 0.03 point -- while their expenses shot up 0.22 point." He comments, "With fund managers capturing nearly all the extra income from the Federal Reserve's 0.25-percentage-point interest-rate increase last month, you'll have to take matters into your own hands to maximize the return on your cash.... Money-market funds ... pay dividends that should rise and fall to track short-term interest rates. Why, then, has almost all the recent rise in rates gone to asset managers, rather than investors? Fund companies charge roughly 0.25% to 0.5% annually to manage retail money-market funds. With the Fed keeping interest rates within spitting distance of zero for most of the past decade, many money-market funds could barely cover what it cost to run them.... So asset-management companies have been subsidizing these funds with fee waivers for years. Look, for example, at Dreyfus Government Cash Management, with $115 billion in assets. According to a recent disclosure, this fund's manager, a unit of Bank of New York Mellon Corp., waived or reimbursed fees totaling $91 million between 2019 and 2021." The piece continues, "So, to some extent, it's only fair that the recent rise in yield has gone into asset managers' pockets (assuming expenses weren't too high in the first place).... To put it bluntly, '`the big dog's gotta eat first,' says Peter Crane, president of Crane Data, a firm that monitors cash and other short-term investments." The Journal adds, "Here's how heavy those subsidies have been: As of March, with rates heading up, Mr. Crane reckons money managers were pulling in total fees at a clip of about $10.3 billion a year. At the end of 2021, with rates so low that managers had to waive fees, their take was running at only about $4 billion a year.... In any event, money funds are already in the money for them, but not yet for you. The average yield on the Crane 100 index of the 100 largest funds stood this week at 0.20%. That's up a hair from 0.15% on March 31 and an improvement from its pathetic 0.02% at the end of February -- but still far below the yield this week on one-month and three-month U.S. Treasury bills, at 0.33% and 0.83%, respectively."
