Tags: Investors | Pull | Trillion | Money | Market Funds

Investors Pull $1.1 Trillion Out of Low-Yielding Money Market Funds

Monday, 02 Aug 2010 08:08 AM

Money fund assets have fallen by $1.1 trillion since January 2009, which has forced experts to try and determine where all that cash has gone.

The average money fund yields 0.04 percent, USA Today reported, citing iMoneyNet, which tracks the funds.

At that rate, a $10,000 investment in the average fund will return just $4 in a year. A quarter of the nation's 1,643 funds, or 415, yield zero, iMoneyNet says.

Experts have a few ideas where the cash has gone:

• Bond funds. Investors looking for higher yields don't have to look any further than a two-year Treasury note, currently yielding 0.60 percent. In the past 18 months, about $700 billion has flowed into bond funds, says Charles Biderman, CEO of TrimTabs.com, which watches investment flows.

• Treasury securities. T-notes may not yield much, but they yield more than money funds. Some institutional managers may have decided to move from low-yielding money funds to direct investment in money market instruments.

• Bank accounts. The average bank money market account pays 0.75 percent, says Bankrate.com.

Despite the recent flight from money funds, another $2.18 trillion still remains in money market funds, and much of that will remain there, says J. Christopher Donahue, CEO of Federated Investors. "Rates have been low for a long time," Donahue told USA Today. "Those really interested in yield have already done something about it."

Meanwhile, some money returned to long-term U.S. mutual funds last month after investors pulled holdings out in May in the wake of the stock market's "flash crash," The Wall Street Journal reported.

In stock funds, more money continued to be pulled than was added, continuing a trend in which investors haven't consistently added to stock funds even since the market bottomed in March 2009.

Outflows, or selling, dropped to $5.41 billion in June from $24.76 billion a month earlier as money leaving domestic funds last month more than offset net inflows to those that primarily invest overseas, the Investment Company Institute said.

Instead, the bulk of cash going to mutual funds since then has been bond funds. In June, they received a net $20.74 billion, said the industry group, up from $14.54 billion in May. They rose 58 percent for taxable funds to $18.79 billion but dropped 27 percent for municipal-bond funds.

Money continues to flow from money-market funds as interest rates for such instruments remain near zero, the Journal reported. Outflows rose to $24.15 billion from $22.16 billion, putting the first half's total at $509.27 billion, said the ICI. That compares with outflows of $189.37 billion in the first half of 2009.

Meanwhile, for the latest week, assets in money-market funds jumped $3.57 billion as inflows into institutional funds more than offset a decrease in retail funds, according to the ICI.

For the week ended Wednesday, total fund assets grew to $2.802 trillion, according to the ICI. Earlier this year, the total funds tracked by the ICI dropped below $3 trillion for the first time since October 2007.

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Money fund assets have fallen by $1.1 trillion since January 2009, which has forced experts to try and determine where all that cash has gone. The average money fund yields 0.04 percent, USA Today reported, citing iMoneyNet, which tracks the funds. At that rate, a...
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2010-08-02
Monday, 02 Aug 2010 08:08 AM
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