Mutual fund news source ignites published a story titled, "'Wall of Cash' or Stubborn Stash? ETF Shops Prep for Windfall," which claims, "ETF issuers are preparing for a potential influx of cash that could come during the 'great rotation' out of cash and money market funds. Assets in money market funds now exceed $7.5 trillion, according to Morningstar Direct. When interest rates eventually fall, the question among asset managers and analysts is whether this wall of cash represents a temporary holding pen, or a surprisingly sticky, risk-averse allocation." (Note: There's still time to register for our upcoming European Money Fund Symposium, which is Sept. 22-23, 2025 in Dublin. We hope to see you next month in Ireland!)
It continues, "Some analysts and executives believe money market fund assets could become a powerful growth catalyst for ETFs.... Investors poured $1.3 trillion into ETFs during the year ended July, according to Morningstar Direct. Money funds, meanwhile, attracted $738 billion during the same period. Many investors don't want to sell a fund with 'large embedded gains,' but once they do, they are likely to reinvest in ETFs.... And as rates drop and investors believe they can get a higher return for the same risk, they will rotate from money markets into ETFs.... In all, 571 ETFs have come to market this year, compared to 51 mutual funds, Morningstar Direct data shows."
The piece states, "Not everyone is convinced that a great rotation is imminent. The 'wall of cash' and 'parking place' theories have been debunked by recent events, said Peter Crane, president of Crane Data. 'The parking garage has been full for the last 50 years,' Crane said. In addition, money market fund assets have declined in only three of the last 50 years, primarily when yields hit zero, he noted. The vast majority of money market fund assets are not there for yield, but for liquidity and stability, he said."
Ignites says, "The cash pile could belong to two types of investors: those taking profits from an expansive market and those who are simply scared by market volatility, said Dan Sotiroff, a senior principal at Morningstar. A 'big correction' or 'pretty good drawdown' would be needed to prompt a rotation of money markets, he added."
They add, "The biggest winners of a great rotation out of money funds and into ETFs would likely be issuers with 'strong and well-diversified' ETF lineups, Geraci said. 'The rich will get richer,' he said. In addition, firms with a significant money market fund franchise that are also large in the ETF space will likely benefit, Ullal said."
In related news, WRAL News posted a "MarketMinute" piece titled, "The $7 Trillion Question: A Tidal Wave of Capital Poised to Reshape Stock Markets." It explains, "An unprecedented sum of approximately $7.19 trillion currently sits in money market funds, a colossal reservoir of capital that has captivated the attention of financial strategists worldwide. This monumental accumulation, largely driven by elevated interest rates and a flight to safety, is now seen as a potential catalyst for a significant shift in the financial landscape. As central banks, most notably the Federal Reserve, contemplate and embark on interest rate cuts, the attractiveness of these low-risk havens is expected to wane, potentially unleashing a torrent of funds into the equity markets."
The article continues, "The imminent decline in money market fund yields could trigger a massive reallocation of this dormant capital, providing a substantial tailwind for stock prices and reshaping investment strategies across the board. The implications are profound, suggesting a potential boost to valuations, increased market activity, and a re-evaluation of risk appetites as investors seek higher returns in a more accommodative monetary environment."
It tells us, "The accumulation of over $7 trillion in money market funds (MMFs) is not an accidental phenomenon but rather the culmination of a deliberate economic policy and investor behavior over the past few years. Following the Federal Reserve's aggressive interest rate hiking cycle, which commenced in March 2022, MMFs became increasingly attractive, offering yields between 4% and 5%. This made them highly competitive compared to traditional bank savings accounts, drawing in vast sums from both institutional and retail investors seeking a safe, liquid, and well-yielding place to park their cash. The Investment Company Institute (ICI) reported that total money market fund assets reached a record ... $7.19 trillion by August 20, 2025."
The piece states, "Beyond attractive yields, MMFs served as a critical safe haven during periods of heightened market volatility and economic uncertainty. The banking turmoil in March 2023, which saw the collapse of Silicon Valley Bank and Signature Bank, prompted a significant flight to safety, with approximately $480 billion reallocated into MMFs. This underscored their role as a refuge during financial stress, prioritizing capital preservation and liquidity. Key players in this accumulation include major financial institutions offering MMFs such as Fidelity Investments, Vanguard, and Charles Schwab, whose products became prime destinations for this parked capital."
It adds, "The current juncture, however, marks a pivotal moment. With inflation showing signs of moderating [sic] and the Federal Reserve signaling a potential pivot towards rate cuts, the very factor that made MMFs so appealing -- their high yields -- is expected to diminish. This impending shift has spurred discussions among economists and market analysts about the 'unlocking' of this capital, with the dominant sentiment being that a significant portion will seek higher returns in riskier assets, particularly equities. Initial market reactions have been largely anticipatory, with many analysts forecasting a supportive environment for stock prices, albeit with caution regarding the pace and magnitude of these inflows."
Crane Data comment: Of course, neither of these stories or the analysts on CNBC appreciate the fact that over 60% of money fund assets are Institutional, and these dollars will likely never shift into risk assets. Nor do they appreciate or mention the fact that bank deposits total almost $20 trillion and that most brokerage sweep cash goes into deposits and not money funds. Finally, the huge buildup in money market fund assets coincided with a record run for the stock market, so why would a decline in money funds further fuel a rally?
