Link of The Day
Fed Hikes Rates 25 bps to 4.75-5.00%
The Fed's most release entitled, "Federal Reserve issues FOMC statement" tells us, "Recent indicators point to modest growth in spending and production. Job gains have picked up in recent months and are running at a robust pace; the unemployment rate has remained low. Inflation remains elevated. The U.S. banking system is sound and resilient. Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation. The extent of these effects is uncertain. The Committee remains highly attentive to inflation risks." It explains, "The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 4-3/4 to 5 percent. The Committee will closely monitor incoming information and assess the implications for monetary policy. The Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time. In determining the extent of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective." The Fed's statement adds, "In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments." Watch for money market fund yields to move higher in coming days as the latest Fed hike gets digested.
Morningstar: Ultra-Shorts Not Cash
Morningstar writes on "`Why Ultrashort Bond Funds Aren't Cash Substitutes," which tells us, "With interest rates now running well above their 2021 lows, investor interest is perking up in the short end of the yield curve. CDs, money market funds, and other cashlike assets are finally generating attractive yields for the first time in decades. At the same time, however, investors have sold off ultrashort bond funds, which focus on investment-grade bonds with shorter-term durations (typically less than one year). The category -- which raked in more than $260 billion in cumulative net inflows over the 10-year period ended in 2021 -- suffered about $9.2 billion in net outflows during 2022. These outflows suggest a potential mismatch between investors' expectations for safety and the performance they actually received. In this article, I'll delve into why ultrashort bond funds aren't a cash substitute." Author Amy Arnott says, "[U]ltrashort bond funds haven't matched the smooth ride offered by true cash assets.... That was particularly true in 2008, when the average ultrashort bond fund dropped 8.4%.... A few high-profile funds, such as Schwab YieldPlus, dropped even more. The fund had one of the highest yields in its category and was sold as a safe, higher-yielding alternative to money market funds. As the mortgage market unraveled in 2008, however, it lost more than 35%.... Fidelity Ultra-Short Bond Fund, which lost 7.8% in 2008, and SSgA Yield Plus, which lost 13.4% in 2007, suffered from similar issues, although the damage was less severe. All three funds have since been discontinued." The piece comments, "Although the disastrous results from the financial crisis haven't been repeated, ultrashort bond funds again wavered during the pandemic-driven downturn in early 2020. While most investment-grade bond categories posted positive returns during the market's flight to quality, the average ultrashort bond fund lost about 1.8% in the first quarter." It adds, "As resurgent inflation prompted the Federal Reserve to repeatedly hike interest rates during 2022, ultrashort bond funds were relatively resilient.... [T]hey had small losses during the first two quarters but made back most of their losses by the end of the year. As rates rose, portfolio managers for ultrashort funds were able to reinvest proceeds from maturing bonds at higher yields, offsetting some of their previous losses. Because of their somewhat spotty history, ultrashort bond funds aren't the best holding for short-term cash needs.... If a fund offers a higher-than-average yield, it's likely taking on more risk to do so -- either by dipping into corporate bonds with middling credit quality or investing in more credit-sensitive sectors, such as structured credits. Investors will likely get a smoother ride in ultrashort bond funds that avoid esoteric strategies and maintain a sizable Treasury buffer, such as Baird Ultra Short Bond (BUBSX), Pimco Enhanced Short Maturity Active ETF (MINT), and Pimco Enhanced Short Maturity Active ESG ETF (EMNT), which have Morningstar Analyst Ratings of Gold."
Barron's on "Tech's Billions in Cash"
This weekend's Barron's features the article, "SVB Collapse Creates New Risk for Tech's Billions in Cash," which tells us, "As Silicon Valley Bank slid into receivership this month, one of the most unsettling disclosures was the large number of companies with bank deposits in excess of the $250,000 covered by federal deposit insurance. In the most startling example, the streaming video company Roku revealed that it had $487 million parked there, about 26% of its total corporate cash. 'At this time, the Company does not know to what extent the Company will be able to recover its cash on deposit at SVB,' Roku said in a securities filing. Those were scary words until the government came to the rescue of Roku and hundreds of other SVB depositors with accounts in excess of $250,000, vowing to make them whole. But the disclosures raise questions, not least of which is what other large companies are doing with all their cash." The piece continues, "It's no small market. According to Carfang Group, a treasury management consulting firm, U.S. companies currently hold about $3.6 trillion in cash on their balance sheets, soaring over the last two decades, from about $1 trillion in 2000. Just the five megacap tech companies alone -- Apple (AAPL), Microsoft (MSFT), Alphabet (GOOGL), Amazon.com (AMZN), and Meta Platforms (META) -- hold more than $500 billion worth of cash and marketable securities. The financial tech execs I spoke with, who asked not to be identified, noted that it's not unusual for larger companies to have hundreds or even thousands of bank accounts. Companies with geographically vast footprints and large daily cash deposits -- think of large retailers like Walmart or Costco Wholesale -- require a vast network of banks, often in places where larger banks don't have operations. Countries with far-flung international operations need local banks in every market, with multiple banks in China and other large countries." Barron's explains, "Here are some takeaways on how tech companies approach managing cash, according to senior execs I spoke with. The wisest course of action, they say, is to invest the cash in money-market funds backed by government securities -- or through direct purchases of short-term Treasuries, either through intermediaries or through the government's TreasuryDirect program. This generally cuts out the banks.... Several treasurers I spoke with said they use the money management portal from a company called Institutional Cash Distributors to access money-market funds from larger issuers like BlackRock, BNY Mellon, State Street, and others. They note that ICD provides a dashboard that makes it easy to invest in multiple money funds, spreading the risks, while getting detailed information on the combined nature of their holdings, in terms of duration, geography, credit ratings, returns, and issuers. They also noted that issuers pay a fee to ICD, but investors pay ICD nothing, with very low management fees on the funds." Finally, the story adds, "The primary goal for any corporate CFO or treasurer is capital preservation. A year ago, when rates were close to zero, there was no opportunity to generate a return on corporate cash. In the current environment, that cash can now generate a return that can be a useful addition to net income. But investors aren't buying tech stocks for their ability to squeeze extra dollars from cash balances, and there is little reason to take on additional risk to do it, despite the temptation to reach for yield. Tech companies may have piles of cash, but they aren't banks. They should be using their capital to innovate. Not speculate."
MFs in Retirement Plans Hit $602B
A release from the Investment Company Institute tells us that, "Retirement Assets Total $33.6 Trillion in Fourth Quarter 2022." It includes data tables showing that money market funds held in retirement accounts rose to $602 billion (from $583 billion) in total, or 13% of the total $4.777 trillion in money funds. MMFs represent just 5.9% of the total $10.136 trillion of mutual funds in retirement accounts. This release says, "Total US retirement assets were $33.6 trillion as of December 31, 2022, up 3.9 percent from September but down 14.7 percent for the year. Retirement assets accounted for 30 percent of all household financial assets in the United States at the end of December 2022. Assets in individual retirement accounts (IRAs) totaled $11.5 trillion at the end of the fourth quarter of 2022, an increase of 3.9 percent from the end of the third quarter of 2022. Defined contribution (DC) plan assets were $9.3 trillion at the end of the fourth quarter, up 4.3 percent from September 30, 2022. Government defined benefit (DB) plans—including federal, state, and local government plans -- held $7.6 trillion in assets as of the end of December 2022, a 4.3 percent increase from the end of September 2022. Private-sector DB plans held $3.1 trillion in assets at the end of the fourth quarter of 2022, and annuity reserves outside of retirement accounts accounted for another $2.2 trillion." The ICI tables also show money funds accounting for $428 billion, or 9%, of the $5.006 trillion in IRA mutual fund assets and $174 billion, or 3%, of the $5.130 trillion in defined contribution plan holdings. (Money funds in 401k plans totaled $120 billion, or 3% of the $4.049 trillion of mutual funds in 401k's.)
MarketWatch on Brokerage Sweeps
MarketWatch writes, "Cash in your brokerage account may be costing you thousands." The article says, "Savers rethinking their cash options amid rising rates and recent bank failures shouldn't overlook their brokerage 'sweep' accounts. Many brokerage firms automatically sweep customers' uninvested cash into bank-deposit vehicles that may come with federal deposit insurance coverage but offer yields that in many cases have remained stubbornly low even as the Federal Reserve aggressively hikes rates. At Morgan Stanley, for example, sweep rates start at 0.01%, rising to 0.5% for cash of $5 million and above, whereas the average money market mutual fund yields well over 4%. Money market funds do not come with FDIC coverage but invest in very high-quality, short-term debt and aim to maintain a steady $1 share price." It tells us, "The yield gap between brokerage sweep accounts and the 100 largest taxable money market funds hit a record high of just under 4 percentage points at the end of February, according to research firm Crane Data, with the sweep vehicles yielding an average 0.43% and the money funds 4.39%.... Some brokerage firms have been able to keep sweep rates low in part because investors see these vehicles as very short-term parking spots for cash and don't focus on the yield. 'Most people in cash think they're only going to be there a matter of weeks,' said Peter Crane, president of Crane Data. 'But over time, the balances add up.'" The MarketWatch piece also comments, "The yawning yield gap means that investors leaving substantial sums in brokerage sweep accounts for any length of time should reassess their options, experts say. Brokerage firms' default sweep vehicles may be convenient and often provide the safety of FDIC insurance. But 'it's not like they're holding you hostage,' Crane said. Indeed, many small investors in recent months have switched cash over from brokerage sweep vehicles to money-market funds, he said, helping to drive money-fund assets to a record of more than $5.3 trillion in mid-March." Finally, the article adds, "The failure over the past week of Silicon Valley Bank and Signature Bank may only accelerate a broader trend of savers yanking money from lower-yielding bank deposits, said Ken Tumin, senior industry analyst at LendingTree. Particularly for those with cash balances over the $250,000 FDIC limit, 'it might be another reason for them to expedite movement over to T-bills and money market funds,' he said, as the yield differences and stability concerns dampen savers' enthusiasm for keeping large balances in bank deposits. Low brokerage sweep rates were already drawing scrutiny a year ago when the Fed started raising rates. Massachusetts Secretary of the Commonwealth William Galvin in March 2022 directed the state's securities division to investigate brokerage firms' sweep account rates. Letters sent to a half-dozen brokerage firms, including Bank of America's Merrill and LPL Financial asked whether the firms intended to increase their sweep rates and how risks and any conflicts of interest associated with the sweep programs were disclosed to customers, among other issues. Sweep account rates used to be more competitive with money market funds, but as brokerage firms have shifted to zero-commission trading, they've become more dependent on sweep revenues, Crane said. In some cases, a sweep vehicle may funnel deposits into a brokerage firm's affiliated bank and boost profits for the parent company."
Weekly MF Portfolio Holdings
Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Wednesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of March 10) includes Holdings information from 45 money funds (down 16 from two weeks ago), which totals $1.355 trillion (down from $1.724 trillion) of the $5.291 trillion in total money fund assets (or 25.6%) tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website. See our latest Monthly Money Fund Portfolio Holdings here.) Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $843.6 billion (down from $1.017 trillion two weeks ago), or 62.3%; Treasuries totaling $294.9 billion (down from $391.3 billion two weeks ago), or 21.8%, and Government Agency securities totaling $101.2 billion (down from $147.0 billion), or 7.5%. Commercial Paper (CP) totaled $51.7 billion (down from two weeks ago at $69.3 billion), or 3.8%. Certificates of Deposit (CDs) totaled $19.1 billion (down from $27.7 billion two weeks ago), or 1.4%. The Other category accounted for $33.2 billion or 2.4%, while VRDNs accounted for $10.9 billion, or 0.8%. The Ten Largest Issuers in our Weekly Holdings product include: the Federal Reserve Bank of New York with $562.9 billion (41.6%), the US Treasury with $294.9 billion (21.8% of total holdings), Fixed Income Clearing Corp with $67.2B (5.0%), Federal Home Loan Bank with $59.6B (4.4%), Federal Farm Credit Bank with $39.4B (2.9%), JP Morgan with $29.5B (2.2%), RBC with $23.8B (1.8%), Goldman Sachs with $20.5B (1.5%), Mitsubishi UFJ Financial Group Inc with $17.3B (1.3%) and Barclays PLC with $14.8B (1.1%). The Ten Largest Funds tracked in our latest Weekly include: Fidelity Inv MM: Govt Port ($145.2B), Morgan Stanley Inst Liq Govt ($130.2B), Dreyfus Govt Cash Mgmt ($119.3B), Fidelity Inv MM: MM Port ($103.6B), Allspring Govt MM ($89.8B), Invesco Govt & Agency ($85.5B), First American Govt Oblg ($66.7B), State Street Inst US Govt ($66.0B), Fidelity Inv MM: Treas Port ($49.8B) and Dreyfus Treas Sec Cash Mg ($43.9B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)
MMFs on Edge Over SVB Says Ignites
Yesterday, ignites published the piece, "Money Funds on Edge Amid Fears of SVB, Signature Contagion." They write, "The Friday collapse of Silicon Valley Bank and related fall on Sunday of Signature Bank sparked volatile markets on Monday amid fears of potential contagion to other banks and sectors of the economy. Money market funds, which experienced a run at the onset of the pandemic in March 2020, on Monday appeared to be weathering the tumult. 'Risk everywhere has increased noticeably [due to the bankruptcies], but money market funds are several levels removed from the tip of the spear here,' said Peter Crane, chief executive of Crane Data." The article continues, "Money funds represented $5.2 trillion in assets as of Friday, according to Crane Data. Investors pulled about $7 billion from the funds that day [Friday], which Crane characterized as 'minimal,' given the products' huge asset base. Investors yanked about $100 billion from institutional prime money funds during a two-week period in March 2020." [Note: Crane Data's MFI Daily showed a very big jump in assets on Monday, March 13, though, with MMFs rising $37.7 billion to a record $5.328 trillion.] Federated Hermes' Deborah Cunningham tells ignites, "As of Monday, the firm's money funds had not been materially impacted by those holdings, she said.... Federated Hermes also spent time on Monday trying to reassure its money fund shareholders that 'the profile of SVB versus the profile of the banking institutions that are high-quality, minimal credit risk that we use in money market fund portfolios are vastly different,' Cunningham said." The article says, "Money funds 'ought to be better positioned than during the global financial crisis due to regulatory changes,' Stephen Dover, chief investment strategist at Franklin Templeton Institute, wrote in a Sunday update.... Money funds may even see an increase in assets from investors seeking a safe haven during the current bout of market stress, Crane said. The biggest impact from the bank collapses may be on whether the Fed changes course with its tightening policy, which aims to rein in record-high rates of inflation. When interest rates fall, money funds often get an initial 'burst of assets' because investors seek to buy the lag, essentially buying older, higher-yielding securities that money funds hold, Crane said." See also Barron's latest news piece, "People Are Flocking Into Money-Market Funds. There's a Small Risk."
Crane 100 MF Index Flat at 4.40%
Money fund yields were flat last week after jumping last month following the Fed's 25 basis point hike on Feb. 1. Our Crane 100 Money Fund Index (7-Day Yield) was unchanged at 4.40% in the week ended Friday, 3/10. Yields rose by 1 basis point the previous week and they're up from 4.15% on Jan. 31, 2023. Money fund yields have risen from 4.05% on 12/31/22, from 3.59% on Nov. 30, from 2.88% on Oct. 31 and from 2.66% on Sept. 30. Yields should be flat in coming days, and it's now unclear whether the Fed will hike rates again at its next meeting on March 22. The top-yielding money market funds remain flat at just over 4.70%. (See our "Highest-Yielding Money Funds" table above). The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 687), shows a 7-day yield of 4.30%, up 2 bps in the week through Friday. Prime Inst MFs were up 1 bp at 4.50% in the latest week. Government Inst MFs rose by 3 bps to 4.36%. Treasury Inst MFs up 2 bps for the week at 4.34%. Treasury Retail MFs currently yield 4.12%, Government Retail MFs yield 4.06%, and Prime Retail MFs yield 4.32%, Tax-exempt MF 7-day yields were down at 2.04%. According to Monday's Money Fund Intelligence Daily, with data as of Friday (3/10), just 48 money funds (out of 823 total) yield between 0.00% and 1.99% with $18.3 billion, or 0.3%; 89 funds yield between 2.00% and 2.99% with $103.3 billion, or 2.0%; 97 funds yield between 3.00% and 3.99% ($76.2 billion, or 1.4%), and 589 funds yield 4.0% or more ($5.093 trillion, or 96.3%). Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, was unchanged at 0.54% after decreasing 1 bp the week before. The latest Brokerage Sweep Intelligence, with data as of March 10, shows that there was no changes over the past week. Just 3 of 11 major brokerages still offer rates of 0.01% for balances of $100K (and lower tiers). These include: E*Trade, Merrill Lynch and Morgan Stanley. See also, The Wall Street Journal's "Individual Investors Pile Into Cash, Chasing Higher Returns" and "Savers Pile Money Into Bank CDs as Rates Top 5%."
Uninsured Deposits Focus After SVB
Reuters writes that, "Breakingviews: SVB dies, but its disease lives on," which says, "Nearly three years with no U.S. bank failures just came to an unseemly end. Silicon Valley Bank, which counts among its customers half of all U.S. venture-capital backed startups, was taken into receivership by the Federal Deposit Insurance Corp on Friday after a slide in deposits and a hasty capital raising failed to restore confidence. By acting quickly, regulators have stopped one crisis, but may have laid the groundwork for more." They explain, "Customers in American banks typically don't have to worry about what happens if a lender goes under, thanks to a guarantee from Uncle Sam to pay back depositors if an institution fails. But there's a big exception. Balances over $250,000 aren't covered. Above that level, customers must fight with other creditors for scraps." Reuters tells us, "The bank owned by SVB Financial (SIVB.O) relied more heavily on large, and therefore, uninsured, deposits than other banks. Some 94% of the funds held at SVB weren't guaranteed at the end of 2022, according to its regulatory filings, compared with 52% at JPMorgan (JPM.N), and 58% at Silvergate Bank, a crypto-focused lender that is also closing its doors this week after depositors turned tail." They write, "Anyone with uninsured deposits is now, effectively, on notice that these balances aren't guaranteed when push comes to shove. That message probably gets forgotten in peacetime. And while few banks have the concentration of tech-sector risk that made SVB's customers lose their nerve, many have a substantial reliance on deposits that are now revealed to be anything but rock solid. If the regulators' goal was to make mega-banks like JPMorgan and Bank of America (BAC.N) even bigger, they couldn't have found a better way." See also our March 2 News, "MF Yields Up 25 Bps, Record Assets in Feb.; FDIC Quarterly; Cunningham," the FDIC's release on Silicon Valley Bank, "FDIC Creates a Deposit Insurance National Bank of Santa Clara to Protect Insured Depositors of Silicon Valley Bank, Santa Clara, California" and the release, "Joint Statement by the Department of the Treasury, Federal Reserve, and FDIC."
MMF Assets Flat After Breaking Record
ICI's latest weekly "Money Market Fund Assets" report shows money funds flat in the latest week, after skyrocketing to a record $4.9 trillion the previous week. Over the past 52 weeks, money fund assets have risen $318 billion, or 7.0%, with Retail MMFs rising by $342 billion (23.0%) and Inst MMFs falling by $24 billion (-0.8%). ICI shows assets up by $159 billion, or 3.4%, year-to-date in 2023, with Institutional MMFs up $10 billion, or 0.3% and Retail MMFs up $149 billion, or 8.9%. The weekly release says, "Total money market fund assets decreased by $23 million to $4.89 trillion for the week ended Wednesday, March 8, the Investment Company Institute reported today. Among taxable money market funds, government funds decreased by $13.89 billion and prime funds increased by $12.71 billion. Tax-exempt money market funds increased by $1.15 billion." ICI's stats show Institutional MMFs falling by $13.5 billion and Retail MMFs rising $13.5 billion in the latest week. Total Government MMF assets, including Treasury funds, were $3.983 trillion (81.4% of all money funds), while Total Prime MMFs were $794.2 billion (16.2%). Tax Exempt MMFs totaled $116.2 billion (2.4%). ICI explains, "Assets of retail money market funds increased by $13.48 billion to $1.83 trillion. Among retail funds, government money market fund assets increased by $2.51 billion to $1.20 trillion, prime money market fund assets increased by $10.32 billion to $525.29 billion, and tax-exempt fund assets increased by $651 million to $103.28 billion." Retail assets account for over a third of total assets, or 37.3%, and Government Retail assets make up 65.6% of all Retail MMFs. They add, "Assets of institutional money market funds decreased by $13.51 billion to $3.07 trillion. Among institutional funds, government money market fund assets decreased by $16.40 billion to $2.79 trillion, prime money market fund assets increased by $2.39 billion to $268.92 billion, and tax-exempt fund assets increased by $499 million to $12.94 billion." Institutional assets accounted for 62.7% of all MMF assets, with Government Institutional assets making up 90.8% of all Institutional MMF totals. According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets increased by $67.4 billion for the month of February (through 2/28/23), and they rose another $27.0 billion over the first 8 days of March to $5.279 trillion. (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're over $400 billion lower than Crane's asset series.)
Bloomberg Intelligence on Cash ETFs
Bloomberg Intelligence posted an article entitled, "Cash Is King: 'Cash' Hoarding Grows to Record in ETFs as Distributions Rise." It explains, "Assets in cash-like ETFs have climbed to a record $87 billion after one their best months of flows. Cash alternatives like the SPDR Bloomberg 1-3 Month T-Bill ETF have outperformed 90% of all ETF strategies over the past 12 months, and increased distribution payouts are luring more investors deterred by equity-market volatility." (Note: Ultra-short "cash" ETFs will be a major topic at our upcoming Crane's Bond Fund Symposium, which takes place March 23-24, 2023, in Boston, Mass. Click here for details.) The piece tells us, "Assets in cash-like ETFs with a duration of one year or less have reached a new high of $87 billion, with inflows driven by volatile equity markets. Assets may stay elevated given higher yields than in the past. Positions tend to rise and fall based on the S&P 500's relationship to its 200-day moving average and overall market sentiment. Though the index is still above the 200-day threshold, assets in ultra-short cash-like ETFs have climbed, and a more sustained bull market may be needed to attract flows back into equities.... Allocating to ultra-short term bond ETFs has sheltered investors from market declines, with 90% of ETFs lagging behind the SPDR Bloomberg 1-3 Month T-Bill ETF (BIL) over the past 12 months -- the highest reading since 2018. The figure dipped below 10% in early 2021." Bloomberg says, "Fixed-income ETFs with the shortest duration accounted for one of the highest percentages of total ETF flows historically in February. The ultra-short category took in $9.5 billion, while the industry overall added just $7.7 billion due to widespread outflows.... Ultra-short ETFs, in addition to providing shelter from market volatility, have begun to pay out larger monthly distributions -- another reason why investors may be reluctant to pull money out of the category. Recent dividend payouts were the highest since we began tracking them in 2020. The group's average indicated yield is just over 3.5%."
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)."
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