More Relief for Money Market Fund Investors
Money market investors can continue to breathe easy. The US Treasury Department extended the temporary Money Market Funds Guarantee Program through September 18, 2009. The Program was scheduled to end on April 30, 2009.
The extension of the Program is a positive development, but be aware exactly what it means to you. If you bought a money market fund after the key date of September 19, 2008, then you are not covered. Also, only money market funds that chose to participate in the Program (and choose to extend coverage) are eligible.
If you hold money market funds from Vanguard, Fidelity, Schwab, and most other major players, then your funds were covered under the initial program -- up to the value of your holdings on September 19, 2008. It's likely that the fund families that participated in the initial program will choose to continue coverage. There is some debate whether companies will opt to have their treasury funds and government funds covered.
If you purchased a money market fund after September 19th, you should get to know your fund. More than likely (I stress more than likely), many funds have been ridded of the riskier assets, but it is no time for investors to stretch for a couple of extra basis points of yield.
Comments
Very good recap on the extension and what’s covered and what is not.
Agree that investors need to get to know their fund. A key problem, however, is that the reporting cycle for holdings is quarterly and 60 days in arrears.
But dollar-weighted average maturity for money market funds is capped at 90 days.
So there’s a very good chance that the most recent holdings report (3 to 5 months stale) won’t even remotely resemble the real-time holdings.
In fact, what’s to keep a manager from buying for the fund low quality 2-month maturity paper to pick up yield if the garbage conveniently rolls out of the holdings prior to the next holdings reporting date?
Holdings disclosure is a hugely important issue.
Good piece.
Robert Dubois
http://www.etfstore.com
Thanks for your comment, Robert. I’m sure many people had cruel homework assignments as students, but studying money market holdings via a prospectus might top them all. Some (maybe most) sophisticated investors and investment professionals might not even understand the money market holdings.
My recommendation wasn’t to read the prospectus for the holdings — you might not even find the money market holdings in the prospectus. Thank you for forcing my elaboration.
If investors are interested in money market holdings as a means to understand their money market funds, I suggest looking online. Schwab and others are outlining holdings on a weekly basis. Otherwise, investors may want to speak to their advisors who should be selecting the most appropriate money market funds. Many custodians and fund companies are hosting conference calls with advisors to answer questions and discuss risks. For individual investors, get to know where you stash your cash. Do some research on the risks and contact your fund company to request details on your money market fund.
Thanks again for your comment.