Money market mutual funds are hot and getting hotter, with articles on them appearing in Barron's, The Wall Street Journal and the Financial Times on Friday alone. Barron's piece, "Yields on Money-Market Mutual Funds Near 3%. How to Buy In," explains, "Cash hasn't looked this good in money-market mutual funds for a long time. Yields are averaging 2.77% [now 2.80%], up from 0.02% in early January, according to Crane Data. Retail money funds could soon cross the 3% threshold, assuming that the Federal Reserve keeps raising its benchmark federal-funds rate. 'Money funds follow the Fed, so there's no mystery of where yields are going,' says Peter Crane, president and publisher of Crane Data and Money Fund Intelligence. 'You haven't seen 3% to 4% yields since prior to the [2008-09] financial crisis,' he adds." (Note: Visit us at booth #458 at AFP 2022 in Philadelphia this week, and register for our Money Fund University, Dec. 15-16 in Boston, Mass!)

It tells us, "Plenty of banks and other financial companies offer comparable yields in savings products, of course. But money funds are now paying a lot more than bank savings accounts, which yield an average of 0.16%, according to Bankrate.com. Other types of bank-sponsored accounts yield more than 2%, but they aren't as convenient for investors. Indeed, money funds tend to be used as a parking place for cash between investments or trades. The funds hold $4.6 trillion in assets, making them the third-largest category of mutual funds on the market, after domestic equities and taxable bonds, according to the Investment Company Institute, an industry trade group."

The quote, "'You're in cash because you might need the money today or tomorrow, period,' says Crane, referring to money funds. Institutional investors, holding $3 trillion in money-fund assets, also use the funds for liquidity and stability, says Deborah Cunningham, senior portfolio manager at asset manager Federated Hermes. 'They need daily liquidity at par in an instrument they are comfortable with -- and that provides safety and security,' she says."

The Barron's article comments, "Fidelity Investments is the biggest player, with more than $935 billion in money-fund assets. Its offerings include the Fidelity Money Market fund (SPRXX), a prime fund with a 2.79% yield. Its government-backed fund, Fidelity Government Money Market (SPAXX), yields 2.58%. For investors in a high tax-bracket, Fidelity Tax-Exempt Money Market (FMOXX) may be the best bet. It yields 1.75%, equivalent to a taxable yield of 3.43%, according to Fidelity. Vanguard Group's funds may yield slightly more, reflecting the fund company's ultralow expense ratios. The Vanguard Federal Money Market fund (VMFXX) has an expense ratio of 0.11%, for instance, and yields 2.82%."

It adds, "That stands to reason: Fund companies earn quite a bit off the fees. Schwab, for one, reported revenue of $132 million off money funds in the third quarter, up from $29 million a year earlier, when the company had to issue fee waivers to compensate for ultralow market yields. That isn't the case anymore as money funds become more lucrative, both for their corporate sponsors and investors looking to park some cash."

The FT writes, "Retail investors take shelter in cash after stock market rout." They say, "Retail investors are piling into cash after a brutal sell-off in financial markets this year triggered trillions of dollars in losses, stamping out enthusiasm for riskier assets. Nearly $140bn has poured into retail money market funds so far in 2022, according to the Investment Company Institute, taking the size of these vehicles to $1.55tn after 10 straight weeks of fresh investment. Inflows have totalled almost $36bn in the past three weeks alone."

The update continues, "That rush into cash follows a long and volatile sell-off in US equity markets this year.... 'It has been one of these years where everyone has gotten torched and it really is an environment where you feel like you don't want to put your toes in the water,' said Joe D'Angelo, who runs asset manager PGIM Fixed Income's money market business. The higher returns available on money market funds -- which have steadily increased since the Fed started raising interest rates in March -- are also enticing everyday investors, particularly as interest rates on savings accounts at big banks such as JPMorgan Chase and Bank of America hover near zero."

It states, "Fidelity's $240bn government money market fund now yields roughly 2.6 per cent, while the yield on Vanguard's $218bn Federal money market fund rose to 2.83 per cent this month. An index of the 100 largest money market funds run by Crane Data, which tracks the industry, shows yields have climbed on average to 2.77 per cent from 0.02 per cent at the start of the year. 'For individuals, for the first time in a long time, you can get some return,' Steve Sosnick, chief strategist at Interactive Brokers, said of the funds. 'For years we've heard 'there is no alternative', but now there is an alternative.'"

The FT tells us, "Retail investors have been joined by big asset managers as well, who are increasingly keeping money on the sidelines as they attempt to wait out the ructions in both equity and fixed income markets. A closely followed Bank of America survey this week showed asset managers in October were holding 6.3 per cent of their portfolios in cash, the highest level since April 2001. But even as many seek refuge in cash, institutional money market funds have still been hit by $87.4bn of redemptions since the Fed started increasing interest rates this year, taking outflows for 2022 above $250bn. The withdrawals have been driven in part by companies spending the excess they built up to weather the pandemic. Analysts at Goldman Sachs warned last month that 'cash balances are back to pre-pandemic norms' for both blue-chip companies and riskier, junk-rated businesses."

It explains, "'Corporate cash has been used to pay down debt, used to invest in their businesses and with inflation things are more expensive,' said Matt Jones, head of liquidity distribution at Western Asset Management. 'Costs of running a business are higher than it was.' ... 'We saw more sophisticated clients go directly into markets themselves,' said John Tobin, CIO of Dreyfus, adding that some clients invested in short-term instruments such as commercial paper, Treasury bills or bank certificates of deposit."

Finally, the FT adds, "Money market funds have not been popular for long, but managers are wondering if their pre-eminence is set to continue, said John Croke, head of active fixed income products at Vanguard. 'If inflation stays high, it ensures that rates will stay positive for longer, and money market funds will retain their relevance for longer.'" (See also, The Wall Street Journal's, "You're Giving Away Yield and Don’t Even Know It.")

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