Investors Pulling Money Out Of Prime Money Funds

Ted

FYI: (This is a follow-up article).
Assets in money market funds that invest in short-term corporate debt securities have fallen to 17-year lows, according to new data from the Investment Company Institute, a fund industry trade group. Investors are pulling their money from the investment vehicles ahead of money market fund reform due to take effect in October.
Regards,
Ted
http://blogs.wsj.com/moneybeat/2016/07/28/investors-pulling-money-out-of-prime-money-funds/

msf

The quote above talks about generic "investors" pulling cash from MMFs, but the article goes on to write about corporate investors.

It would be interesting to know whether a disproportionate amount of outflows are coming from the institutional side. Funds open to institutional investors must either be limited to government securities such as Treasuries, or must have a floating NAV. One means low returns, the other means risk of loss.

In contrast, individual investors ("natural persons") can continue investing in retail MMFs which invest in other securities and still have a fixed $1 NAV. (The gotcha is that in times of stress, they're allowed to impose a redemption fee and/or hold your cash for ten days.)

The outflow is causing yields to rise (as noted in the article), which is beneficial to individuals, especially in brokerage IRAs. One typically has at best a choice between a bank sweep account paying virtually nothing or in-house MMFs. With yields rising, at least one can now get at least a few cents on a captive sawbuck.

Ted

@msf & MFO Members Here are the numbers from ICI.
Regards,
Ted
https://www.ici.org/research/stats/mmf/mm_07_28_16

Old_Joe

@msf- Speaking as an "unnatural person", I'm also wondering what to do with the cash that we've been keeping in American Funds and American Century MMFs. Not particularly worried about safety/stability of either of those companies, but makes nothing there, might make more sense to move to FDIC protection.

catch22

Hi @Old-Joe
How about ACITX ? This equals gov't. or either of the American's offer a short term gov't. bond fund? Fido has a short duration gov't. bond fund that has a YTD of +1.9%.
And no, the TIPS fund is not because of inflation, but is getting the action because of investors moving into U.S. gov't. related; as is part of the action for such a fund type.
My no fee, no guarantee of continued positive movement in something like TIPS funds remains unchanged. Please sign below to trigger the hold-harmless agreement:

____________________________

Have a pleasant time at the river, if you two are traveling that direction.
Catch

Old_Joe

@catch22- Hey there, Catch... now that rings a bell. Held ACITX years ago, but haven't looked at that in a long time. Will do, thanks. If I do invest and lose any money my uncle, Joe "knee-breaker" Mafioso will be the arbitrator.

Take care- OJ

catch22

@Old_Joe
Your Uncle Joe and my "bud" Bonzo Marelli (metro Detroit area) can settle any score, eh?
Bonzo charges a flat fee of $500, and then $2/mile outside of Detroit city limits.

msf

Old_Joe said:

@msf- Speaking as an "unnatural person", I'm also wondering what to do with the cash that we've been keeping in American Funds and American Century MMFs. Not particularly worried about safety/stability of either of those companies, but makes nothing there, might make more sense to move to FDIC protection.

I took a quick look at AC brokerage accounts - curious that they don't seem to say that their sweep options (transaction/core account) will be changing, or even give you the option to choose their government MMF TCRXX.

You're right that all of AC's MMFs have painfully low yields, ranging from a "high" of 0.07% federally tax free (BNTXX) to a low of 0.01% taxable (TCRXX). I agree with you that at least for a taxable account, if you can wait a day or two for access to your cash, an online savings account (yielding around 1%, insured) looks much better.

The difficulty is in doing this with IRAs. It's not so easy to move money back and forth between IRAs at different custodians. Which is why the 0.45% MMF yield with FZDXX (Fidelity $500 IRA min) or VMMXX (Vanguard $3K min) seem to make sense for cash in IRAs.

Old_Joe

Thanks @msf- the AC accounts are all non-retirement, so moving cash isn't a big deal. The American Funds accounts are a mix of IRA & non-retirement, so some navigation room is available there also.

VintageFreak

Let me get this right. After October I should not have money in Vanguard Prime Money Market or Fidelity Select Money Market or TRowe Price Prime Reserve? Then what should I do with my cash?

JohnChisum

"Then what should I do with my cash?"

Spend it.

Hey Catch22, great idea re ACITX.

BenWP

@JohnChisum: You back?

JohnChisum

@BenWP, yep. I thought I would check in. There are some timely discussions here. Good to hear from you.

TSP_Transfer

From my post from February 2015 ..
Any opinion or observation concerning DHGAX ? A little research led me to feel it may be a reasonable defensive play due to it's 2008-09 performance.The fund is available no-load in my Schwab I R A. Advice/opinion ???
Hat tip to @heezsafe said in February 2015
@TSP_Transfer : Ah, yes, the Dreyfus/Standish Global Fixed Income Fund. Sometimes it pays to be less than fastidious in cleaning up the old Ideas folder (and what a shameful mess mine is). I found a 2010 prospectus. Rhao, it is not (though he is an internatl. fund mgr.). The name of the portfolio mgr I was trying to remember is: David C. Leduc. FWIW
Today...
Mr Leduc is indeed still the lead manager.I own the fund with the same premise I asked about 18 months ago. Chart vs ACITX. Still like DHGAX minimal draw downs.Subject to Schwab's 90 day early W D penalty. No distributions this year ???
https://public.dreyfus.com/documents/compliancedocs/factsheets/monthly/6940.pdf

February 2015 discussion M F O link:
http://www.mutualfundobserver.com/discuss/discussion/18700/what-are-your-favorite-fixed-income-investments/p1

shipwreckedandalone

Why not simply move to cash in the sweep? No money market at all? With this much money moving to the same source would negative rates be a possibility.

Mona

shipwreckedandalone said:

Why not simply move to cash in the sweep? No money market at all? With this much money moving to the same source would negative rates be a possibility.

At Vanguard the sweep account is Federal Money Market Fund. Fidelity is also switching. However, sweep accounts at some brokers are not MM funds, but are FDIC-insured accounts.

Mona

msf

At Fidelity, its CMA account and most tax-sheltered accounts also use bank accounts.

However, the bank accounts used by brokerages for sweeps are low paying checking accounts (they can't be savings accounts which are allowed only 6 withdrawals per period). So if you want to get something for your cash at a bank, it's still DIY - find a good yielding bank account and manage the cash yourself.

Sample brokerage FDIC sweep rates:
Fidelity: 0.07%
Schwab: 0.10%
E*Trade: 0.10%
TDAmeritrade: 0.10%
Scottrade: 0.10%

I think a footnote on Scottrade's page says it all:
"The fee paid to Scottrade by the Program Banks may exceed the interest rate amounts paid to clients."