Refinintiv Lipper on Big MMF Inflows
Refinitiv Lipper published a brief entitled, "Money Market Funds Are Breaking Start-of-Year Flow Trends." Senior Research Analyst Jack Fischer writes, "Since 2010, money market funds have been the recipient of year-end cash flows in all but one year (2016) with an average December monthly inflow of $47.5 billion. Investors typically tax-loss harvest at the end of a calendar year which theoretically leads to an influx of capital at the start of the year. Since 2010, the average total outflows between the first two months of a year are $30.4 billion. Of the 14 starts to a year since January 2010, only four have led to net inflows over January and February (2016, 2019, and 2023). The total inflows since the start of the year for money market funds are now at $49.0 billion which would be the largest inflow over the first two months of a calendar year since 2008 (+$275.2 billion)." He continues, "Equity funds and taxable income funds tend to be the benefactors of the money market outflows over the first two months. Since 2010, equity funds have averaged $33.8 billion while only logging one January/February net outflow. Taxable fixed income funds have also only seen one outflow over the two-month start of a year with an average of $50.0 billion over the same time span. In 2023, equity funds are poised to suffer their second two-month outflow (-$19.7 billion) as taxable fixed income (+$36.6 billion) is standing its ground, although below their 14-year average." Refinitiv Lipper adds, "Money market funds have realized two of their top 20 weekly inflows of all time this year. Since the start of 2022, money market funds have been the only asset class to attract positive weekly net flows (+$552.6 million)—equity funds (-$2.7 billion), taxable fixed income (-$2.4 billion), and tax-exempt fixed income (-$1.3 billion) have all averaged weekly outflows over the same stretch. Lipper has 11 money market classifications, and not all are built the same. The money market funds with a greater allocation to Treasuries and government debt have seen persistent outflows over the past year whereas the Lipper classification with certificates of deposit (CDs) and commercial paper (CP) have seen significant inflows. The interesting part is that the Lipper Money Market Fund classification has the highest average expense ratio (0.65%) and Lipper Institutional U.S. Government Money Market Funds currently have the lowest average expense ratio (0.25%). We all know fees matter, but right now, in this world, fees don't seem to matter as much as portfolio allocation towards relatively less liquid issues that benefit greater in a rising interest rate environment. Lipper Money Market Funds set a monthly intake record in January (+$45.5 billion) and are on pace to post their third-largest monthly inflow in February (+$39.7 billion)."
