WSJ on Federated Hermes' MMF Gains
The Wall Street Journal writes "Bank Losses Can Be Gains for This Money Fund." The article tells us, "There could be a simple way for investors to profit as banks shed deposits. Money-market fund managers are in position to be big beneficiaries of the recent surge of cash into these vehicles. Many of the biggest managers are actually relatively small parts of vast financial institutions. But there is one significant manager that is a more direct play on the money-fund business. Federated Hermes (FHI) says its share of the money-market mutual fund market was about 7.7% at the end of last year. According to Crane Data, its tracked money-fund assets at the end of March only ranked behind those of global asset-management giant BlackRock, nontraded Fidelity and Vanguard and megabanks JPMorgan Chase and Goldman Sachs. The Pittsburgh-based company had about 40% of its total revenue in 2022 attributable to money-market assets." The "Heard on the Street" piece says, "Already this year Federated's shares are up over 15%, escaping the financial sector's decline and outperforming the S&P 500's gain. Now a question for investors is whether money-fund inflows will continue to be strong, or whether recent weeks have pulled forward what would have been future flows. There are a number of reasons to believe inflows might continue. Strategists at Barclays have projected that balances for money-market funds that only hold government-backed instruments could rise by $500 billion to $1.5 trillion in the next 12 months, on top of what happened in March. 'Institutional investors have noticed that they were not getting as much compensation for taking on unsecured bank risk by keeping bank deposits above the $250,000 insurance cap,' they wrote in a recent note." The WSJ adds, "Plus, any big banks that received deposit inflows during the recent crisis might not raise their deposit rates as aggressively as they might have otherwise amid this surplus, which could give money-market funds a continued edge with many yield-seeking customers. April may be a litmus test for money-market funds. Normally it is a rough month for funds' flows, as people withdraw to make tax payments. But through April 10, month-to-date inflows industrywide are more than $40 billion, according to Crane. If those persist through tax day, that might surprise the market a bit. Autonomous Research analyst Patrick Davitt estimates that Federated may report $20 billion-plus of net inflow to money funds in the first quarter, and that market estimates for its full year may also need to be revised upward. So investors looking to diversify out of banks should keep looking at the flip side of that trade, too." (See also, Bloomberg's "`Investors Seen Pouring $1.5 Trillion More Into the Safest Money Funds, Barclays Says.")
