Money market mutual fund complexes continue to gradually merge away tiny funds and fine-tune their fund lineups. A Prospectus Supplement filing for JPMorgan Prime Money Market Fund, JPMorgan Liquid Assets Money Market Fund and JPMorgan U.S. Treasury Plus Money Market Fund (Class C Shares) describes the "Conversion of Class C Shares to Reserve Shares." It says, "The Board of Trustees of the J.P. Morgan Funds approved the automatic conversion of each Fund's Class C Shares into Reserve Class Shares, effective as of the close of business on January 31, 2023. Beginning January 31, 2023, Class C Shares of the Fund will no longer be available for purchase." (See too our Jan. 26 Link of the Day, "Invesco Liquidating T-F Cash Reserves," and our Jan. 5 LOTD, "Harbor Money Market Fund Liquidates.")
JPM's filing adds, "Prior to the Conversion Date, shareholders of Class C Shares may redeem or exchange their investments as described in each Fund's Prospectus. No contingent deferred sales charges were assessed in connection with this automatic conversion. Depending on the tax status of the shareholder and whether or not the account is invested through a tax-deferred arrangement such as a 401(k) plan account, such redemption or exchange may be a taxable event resulting in taxable income to the shareholder. Please consult your tax advisor on this issue. The conversion will not be considered a taxable event for federal income tax purposes."
A filing for American Century US Govt MM G (AGGXX) tells us, "The advisor has determined to no longer offer G Class shares of the U.S. Government Money Market Fund. Therefore, all references to the fund's G Class shares are hereby deleted." All of these funds have been removed from the pending issue of Money Fund Intelligence.
In other news, The Wall Street Journal covers cash yet again in, "The Best Investment Idea Is Also the Most Obvious." They ask, "Why take the risk and hassle of investing, when a nice safe money-market fund or Treasury bill is so attractive?" The piece says, "Investing is all about risk and reward, but at the moment it's mostly about risk and not very much reward. Some risks aren't just badly rewarded, but are more expensive than holding the very safest forms of money. The extra yield that can be earned above cash by buying risky junk bonds is the lowest outside the credit bubble of 2007, in data that go back to 1986. A standard, albeit flawed, Wall Street valuation measure shows the smallest extra reward for the risk of holding stocks over cash since the dot-com bubble burst two decades ago."
It queries, "So why take the risk and hassle of investing, when a nice safe money-market fund or Treasury bill is so attractive? There are two basic answers. One is that investors don't expect cash to stay so appealing, and want to lock in future yields. The second is that after a decade when cash was trash with a zero yield, few think of cash as anything other than a temporary place to park money. That thinking needs to go, at least for now. There's little reward for venturing out of cash."
The article states, "The Federal Reserve pays 4.55% to money-market funds on its reverse-repurchase facilities, part of its effort to soak up cash from the economy and keep rates high. That's more than the yield on safe AA-rated bonds, such as those from Apple or Berkshire Hathaway. These are companies that are rock-solid -- but they still carry far more risk than cash held at the Fed or in T-bills, where the three-month yield is 4.54%."
It adds, "Indeed, just because risky assets are expensive compared with cash doesn't mean cash is sure to outperform. If everything goes as markets expect, interest rates will fall, stocks rise and those who locked in their yield on longer-maturity corporate bonds will be happy. But think about reward for risk taken. Risk-free cash -- debt-ceiling-driven default aside -- looks very attractive." (See also, the WSJ's "`The Unusual Crew Behind Tether, Crypto's Pre-Eminent Stablecoin.")
The Journal also writes about brokerage sweep accounts in "Some Investors Are Missing Out on Higher Yields -- and Don't Know It." Their latest update says, "Stocks and bonds both fell sharply last year. But one bright spot in financial markets was the rising interest rates on money-market funds, which in December topped 4% on average for the first time in 15 years. Money-fund rates have stayed high so far this year, now averaging 4.18%, according to Crane Data LLC. That's a big increase from just a few months ago, and investors who aren't aware of the climb in rates -- or who don't act on it -- could be missing out on an opportunity for much higher returns than they're getting now on the cash in their brokerage accounts."
It says, "To see why, you have to understand so-called bank cash-sweep vehicles, which most big Wall Street brokerage firms use to handle the cash that comes into investors' accounts. Firms that use these programs sweep the proceeds of investors' securities sales and interest and dividend payments into a bank-deposit vehicle that typically pays a fraction of what investors could earn on a money-market fund.... At these and other firms, cash generated by an investor's account is automatically swept into the bank vehicles in most cases."
The Journal comments, "Sweeps also buoyed Morgan Stanley's results. The firm's bank sweep deposits held $198 billion in the fourth quarter, or 4.7% of the $4.2 trillion assets of Morgan Stanley wealth-management customers. At Schwab, the $482 billion in sweep assets as of last September represented 7.3% of customer assets, according to a company presentation at a quarterly session with analysts."
Finally, Barron's also mentions money market funds in their update, "Vanguard Quietly Drops Its Money-Market Fee Waivers." They write, "Vanguard isn't in the habit of waiving fees temporarily to attract new investors like many of its competitors do. However, in recent years, expense ratio limitations -- don't call them 'waivers' -- for its money-market funds seem to have emerged out of nowhere, with little explanation or fanfare. And now that interest rates have gone up, they've returned to nowhere."
The article explains, "Vanguard Municipal Money Market had the biggest change. In its annual report dated Oct. 31, 2022, its expense ratio jumped from 0.08% in fiscal 2021 to 0.13% in fiscal 2022. In a footnote, Vanguard says: 'Vanguard and the board of trustees have agreed to temporarily limit certain net operating expenses in excess of the fund's daily yield in order to maintain a zero or positive yield for the fund.... The ratio of total expenses to average net assets before an expense reduction was 0.15% for 2022 and 0.15% for 2021."
It adds, "Many money fund managers such as Fidelity and Charles Schwab also waived their fees and covered the costs of their money-market funds out of their overall profits. The problem for Vanguard is it is ostensibly run 'at-cost' without any profits to cover extraneous costs. So where did the money to cover them come from? ... Maybe now that Vanguard Federal Money Market Fund yields 4.3% and Municipal Money Market 1.6% tax-free, investors won't care if the true costs of managing them remain a mystery."
