Howdy, Stranger!

It looks like you're new here. If you want to get involved, click one of these buttons!

In this Discussion

Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

    Support MFO

  • Donate through PayPal

M-Mkt Funds Dropping Fee-Waivers/ER-Caps

Vanguard is beginning to remove fee-waivers/ER-caps for m-mkt funds that had been in place during the ZIRP. Investors may notice the changes as most are watching rates very closely. Affected are "...Vanguard Municipal Money Market (ticker: VMSXX), Vanguard Federal Money Market Fund (VMFXX), and Vanguard Cash Reserves Federal Money Market (VMRXX)....Vanguard hasn’t announced it was reducing the fee waivers, which arguably reflect a return to a more normal state of affairs now that rates are no longer near zero....".

Other m-mkt funds are expected to do the same.

By @LewisBraham
https://www.barrons.com/articles/vanguard-money-market-fund-fee-waivers-51675291662?mod=bol-social-tw

Comments

  • Vanguard is beginning to remove fee-waivers/ER-caps for m-mkt funds that had been in place during the ZIRP. Investors may notice the changes as most are watching rates very closely. Affected are "...Vanguard Municipal Money Market (ticker: VMSXX), Vanguard Federal Money Market Fund (VMFXX), and Vanguard Cash Reserves Federal Money Market (VMRXX)....Vanguard hasn’t announced it was reducing the fee waivers, which arguably reflect a return to a more normal state of affairs now that rates are no longer near zero....".

    Other m-mkt funds are expected to do the same.

    By @LewisBraham
    https://www.barrons.com/articles/vanguard-money-market-fund-fee-waivers-51675291662?mod=bol-social-tw

    I hit a paywall with the Barrons article. As of yesterday, the 7 day SEC yield for VMRXX was 4.31%. Is that with or without the fee waiver?
  • I would say it is with fee waiver. If you subscribe to Apple News ($10/month), you get SOME articles which are behind the paywall including Barron’s, WSJ, and Washington Post.
    But now that the Federal Reserve has hiked interest rates repeatedly, taking the federal-funds rate to 4.5% on Wednesday, Vanguard money funds have sufficiently plump yields to absorb the costs and still deliver a meaningful return to investors. For example, the Vanguard Federal Money Market Fund yields 4.3%, and the Municipal Money Market yields 1.6% tax-free.  
    Vanguard hasn’t announced it was reducing the fee waivers, which arguably reflect a return to a more normal state of affairs now that rates are no longer near zero. Instead, one can see the shift in the funds’ annual reports. 
  • I checked the prospectus (download) for 5-yr history of operating expenses. For VMFXX, for FYs (9/1-8/31),
    2018 0.11%
    2019 0.11%
    2020 0.11%
    2021 0.09%
    2022 0.09%
    Now 0.11% (see the screen shot from today)

    So, the waiver was 2 bps that doesn't seem large but can be substantial on $220+ billions ($40+ million). For VG investors, this isn't a big deal. But it may be a bigger issue for other m-mkt funds that have typical ERs of 0.35-0.50%. Those m-mkt funds were being operated at substantial losses during the ZIRP, and many were shut or merged.

    https://i.ibb.co/wSm6hrD/Screenshot-2023-02-02-18-11-45.png

    image
  • A similar check for Fidelity core/settlement m-mkt fund SPAXX with FYs 5/1-4/30,
    2018 0.42%
    2019 0.42%
    2020 0.42%
    2021 0.15%
    2022 0.10%
    Now 0.42%
  • Mona said:

    I hit a paywall with the Barrons article.
    As of yesterday, the 7 day SEC yield for VMRXX was 4.31%.
    Is that with or without the fee waiver?

    You may want to check if your local library system offers Proquest.
    I'm able to access Barron's and Wall Street Journal articles online using Proquest.
  • edited February 2023
    Probably stating the obvious here - but the waivers became necessary several years ago as short term rates sank to near 0 to keep money market fund yields from potentially going negative. I get the print version of Barron’s. Don’t recall seeing the article last weekend. Perhaps it will publish in the Feb. 6 issue?
  • edited February 2023
    There are some Barron’s stories that are online and meant for Barron’s financial advisor channel. This is one of them, so it won’t appear in the magazine. But basically the premise is correct that fee waivers at Vanguard have disappeared because interest rates have gone up. What the story also looks at is how Vanguard paid for those waivers as it is ostensibly an “at-cost” manager which has no extraneous operational costs. At competitors like Schwab and Fidelity they waive fees by reducing some of their profits. During zero rate environments, they see money market funds as loss leaders to get investors into other profitable products. But Vanguard says it has no profits to reduce. So, how did it pay for the waivers on products that can’t cover their own costs themselves when rates are zero? Vanguard also doesn’t call them waivers but “expense limitations.”
  • edited February 2023
    @hank, I saw the article on my Twitter feed. It's dated 2/2/23 at Barron'e Online. It may or may not be in the next weekend Barron's; it's under the "Mutual Funds" category and my guess is it should be.
  • I haven't looked, but I'm sure Schwab's .34 ER on MMFs doesn't reflect any discount, so it'll probably go up, too.
  • edited February 2023
    Thanks for the info .
    Let me add : "
    Account Service Fee Per Year
    (for certain fund account balances below $1,000,000)

    $20"
  • rforno said:

    I haven't looked, but I'm sure Schwab's .34 ER on MMFs doesn't reflect any discount, so it'll probably go up, too.

    As with Vanguard, Schwab's waiver is peanuts; 1 basis point. Not worth a moment's thought.
    https://www.schwabassetmanagement.com/products/swvxx
  • Derf said:


    Let me add : "
    Account Service Fee Per Year
    (for certain fund account balances below $1,000,000)

    $20"

    "Certain" means (except for Flagship customers) funds that one holds on Vanguard's legacy mutual fund platform. Not a concern for new Vanguard accounts, because one cannot open a new account on the legacy platform. Existing customers on the legacy platform have the option of converting to brokerage accounts.
    https://investor.vanguard.com/client-benefits/account-fees

    Though Vanguard still charges non-Flagship customers for paper statements.
Sign In or Register to comment.