Press Releases Archives: February, 2009

"Money-Market Funds Waive Fees to Boost Yields" writes Kiplinger's, saying, "The borrower's boon is the saver's bust: With yields on short-term Treasury bills stuck near zero percent, money-market funds that hold these securities are struggling to keep their returns positive, after fees. Some funds are investing in longer-term securities, which extends the average maturity of the fund and garners a little extra yield without compromising safety." Also, USA Today writes "S&P 500 is at risk of hitting a new low as angst persists", which says, "Investors are piling into assets viewed as havens, such as short-term Treasury bills and gold, as well as cash. In mid-February, there was nearly $4 trillion parked in money market mutual funds, vs. $3.4 trillion a year ago, according to Crane Data." "Several hundred billion is true cash seeking shelter," it quotes Peter Crane.

Barron's "Fund of Information: Popularity Is Painful for Treasury Money Markets" writes, "Historically low interest rates may be good for the economy, but they're murder on money-market fund profits." It says, "Vanguard recently closed to new accounts its Vanguard Admiral Treasury Money Market Fund (VUSXX), which jumped by $5.4 billion in 2008 to $26 billion last month, and Vanguard Treasury Money Market (VMPXX), which grew by $1.7 billion last year to $7.9 billion. Investors poured money into them as virtually every asset class was plummeting." Barron's also cites these funds as closed to new investors: Fidelity U.S Treasury Money Market Fund (FDLXX), Fidelity Institutional Money Market Treasury Portfolio (FISXX), Fidelity Institutional Money Market Treasury Only Portfolio (FOIXX) and Fidelity Cash Management (FDUXX), and MFS Government Money Market Fund (MMGXX).

The Oregonian features "Skip the safe and consider an online bank savings account", saying, "Jokes aside, these savings accounts offer better yields (currently between 2 and 3.20 percent) than down-in-the-dumps money market mutual funds (about 0.75 percent, on average, according to Crane Data). They even out-earn most bank certificates of deposit, which require you to give up your money over an agreed-upon period." The paper quotes Peter Crane, president of Crane Data, a "Massachusetts firm that tracks money market accounts", warning about the top banks, "The highest yield attracts the wrong kind of crowd.... It's a crisis waiting to happen." See also, BusinessWeeks' "Volcker Financial Regulation Testimony Sketches Broad Changes".

Mutual fund news source features Crane Data's Peter Crane in its "Money Voices" column today in an editorial entitled, "Don't Mess With The Buck." Crane argues that the $1.00 NAV and the structure of money funds should not be changed."

He writes in ignites, "Over the past two years, money market mutual funds have experienced at least 25 cases of support actions by fund advisors and a single case of a fund 'breaking the buck.' Given this unprecedented period of money market turmoil, a number of people have suggested changes to the regulation and structure of money market mutual funds. Some have gone so far as to propose that money funds abandon their $1 share price target and discontinue their use of amortized cost accounting."

Crane says, "I believe investors almost unanimously oppose these suggestions, and that these ideas would severely diminish the attraction of money market funds. Some of the changes could even cause severe economic repercussions, including a return to the credit market freeze we experienced in the second half of last year. Money funds purchase almost half of all the debt in the short-term Treasury, government agency, commercial paper, bank certificate of deposit and municipal security markets, so any change to their structure should not be taken lightly."

The ignites editorial continues, "While yield has played a role in the tremendous success of money funds, it's clear that convenience and simplicity have been big drivers of the category. If yield were the main consideration for savers, Internet banks, ultra-short bond funds or auction rate securities would be the ones holding almost $4 trillion in assets. The safety, stability and, particularly, the simplicity of a stable share price have been the key drivers of money funds' growth. Many an investor has learned that conducting daily check-writing and debit-card transactions with a fluctuating NAV product, like an ultra-short bond fund, quickly becomes a recordkeeping nightmare."

Finally, Crane says, "Money market mutual funds now have approximately 40 million shareholders with assets totaling over $3.9 trillion. Crane Data estimates that money funds have produced over $1 trillion in interest income over their 38-year history -- over $300 billion in interest income above and beyond what investors would have earned in bank savings accounts. Savers and investors do not forget this kind of performance and generosity.... My advice to regulators, commentators and industry participants is, 'Don't mess with the buck.'."