The New York Times writes about money funds again in, "Yes, There Are Alternatives to Stocks." Subtitled, "At the moment, money market funds and many bonds are not only less risky, but at current interest rates, they are compelling," the piece explains, "The stock market has been strutting into the spotlight lately, with talk -- however premature -- of a new A.I.-driven bull market popping up nearly everywhere you turn. Amid all the hoopla, you can easily miss the solid returns being posted by far less glamorous but always important and, at the moment, compelling asset classes: fixed-income investments, including bonds and cash." (Note: Thanks again to those who attended and supported our Money Fund Symposium last week in Atlanta! Conference materials are available in our "Money Fund Symposium 2023 Download Center." Watch for highlights and excerpts in coming days and in the upcoming issue of Money Fund Intelligence.)
The Times says, "Especially for those with short time horizons -- whether you're in retirement or close to it, or saving for a house, education, a car, a vacation or any other worthwhile purpose -- these lower-risk investments are worth a close look. Until a little over a year ago, when interest rates were about as low as they could go, a mantra on Wall Street was TINA. It's an acronym for 'there is no alternative' to the stock market, certainly not from fixed-income investments. Now, though, it's a different world: Interest rates, or yields, have risen significantly."
They tell us, "That's bad if you're borrowing, but if you have money to invest or stash somewhere safe so you can pay your bills, there are plenty of appealing options. It is debatable whether it's wise to lock in higher interest rates now, or stick with shorter-term holdings until it's clear that the Federal Reserve is done raising interest rates. But the time to appreciate the benefits of fixed-income holdings like money market funds and Treasury bills is already here. Even if you are just starting out in your first job, it's a good idea to try to keep an emergency fund in short-term, interest-bearing accounts.... For the moment, it's possible to get safe returns that are beating inflation."
The article continues, "Bonds are more reliable than they were last year because yields are already high. Even if they elevate further, there is a plush cushion now, and any potential price declines should be offset, and then some, by the income that bonds are generating. Bond mutual funds and exchange-traded funds aren't likely to experience declines in last year's range either. 'Bond math tells us it won't happen,' Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research, said in an interview."
It comments, "With the federal funds rate above 5 percent, rich yield has spilled into money market funds and Treasury bills of up to one year in duration. Now that the debt ceiling battle is behind us, and the Treasury is issuing a huge amount of fresh debt, it's fair to say, once again, that those investments are safe. You can't make that claim about tech stocks."
The NY Times piece also says, "With yields above 5 percent, money market funds have a powerful allure. They have been pulling in funds, with total money-market assets in the United States exceeding $5.8 trillion in June, according to Crane Data. Interest rates offered by the nation's banks are rising, too, but generally trail those of money market funds. The question, for opportunistic fixed-income investors, is whether it's time to lock in higher yields by holding bonds with durations of 10 or more years. I'm not sure that it is. The Federal Reserve has already told investors that short-term interest rates are likely to rise half a percent further this year. Rising yields would hurt the prices of current long-term bonds, as a matter of basic bond math."
Finally, it adds, "The only real change in my financial life in recent years is that I moved much of my emergency money from bank accounts to money market funds because of superior yields. But with inflation above 4 percent, I try not to kid myself. Even at today's interest rates, money market funds are barely keeping ahead of rising prices. That's why I keep putting money in the stock market. But money market funds and savings accounts and, to a lesser extent, bonds, all serve a critical purpose. The money should be waiting, ready for use, even when the stock market is rocky."
In other news, a press release entitled, "Federated Hermes Launches New Short-Term Euro Prime Fund," tells us, "Federated Hermes, Inc. (FHI), a global leader in active, responsible investing, today announces the launch of the Federated Hermes Short-Term Euro Prime Fund. The new fund is now available to investors and offers a portfolio of high-quality euro-denominated short-term debt instruments. The Federated Hermes Short-Term Euro Prime Fund is the first European-domiciled liquidity product the firm has launched, following the completion of Federated Investors' acquisition of Hermes Investment Management in July 2018."
It explains, "As Federated Hermes' first euro-denominated money markets solution, the Fund is an extension of the asset manager's currency offering from its $505.8 billion AUM (as of 31 March, 2023) global liquidity platform, sitting alongside its Short-Term USD Prime and Short-Term Sterling Prime Funds. Interest rate increases by the European Central Bank have reignited investor demand for the asset class in recent months, following years of near-zero rates. The Fund offers asset allocators with daily euro liquidity requirements an opportunity to deliver an improved return profile on their bank deposits."
Federated adds, "The Fund is co-managed by Gary Skedge, Senior Portfolio Manager, and Joanne Bartell, Portfolio Manager, overseen by Deborah Cunningham, Chief Investment Officer of Global Liquidity Markets, and Paige Wilhelm, Senior Portfolio Manager and Head of the Prime Liquidity Group. Both Skedge and Bartell are highly experienced portfolio managers with a proven track record of delivering strong investment performance. The Fund will initially be available to investors in Austria, Finland, Germany, Ireland, Italy, Luxembourg, Portugal, Spain, Netherlands and the United Kingdom."
Cunningham comments, "We are delighted to launch the Federated Hermes Short-Term Euro Prime Fund for investors seeking income. In an uncertain and volatile market environment, short-term debt can offer investors a low-risk, highly liquid solution, invested in high-quality assets. We believe that the European short-term debt market offers particularly attractive investment opportunities amid higher interest rates as well as protection from inflation."
