Mutual Fund Money Market Yields and Holdings

A mutual fund money market is supposed to be a simple investment with a stable $1 share price with seemingly little differentiation between various funds. September 2008 showed that line of thought was a fallacy as several funds with heavy exposure to Lehman Brothers paper suffered losses significant enought to push their net asset value price below $1. As a consequence more customers have been asking the difference between Treasury-only funds and basic money funds. Mutual funds have offered for over 20 years Treasury-only money market funds which invest solely in United States Treasury products. The yields on Treasury-only funds have typically lagged the yields on other money funds which have the ability to utilize commercial paper and notes to boost their yield. Two money funds from Fidelty Investments illustrate the widening gap between yields on Treasury-only funds and basic money funds.

Fidelity Money Market Fund 2.46%

Fidelity U.S. Treasury Money Market Fund 0.60%

Treasury-only fund yields have been hampered by the huge influx of funds into U.S. Treasuries which have pushed yields on Treasury bills to historic lows, while other money funds have benefited from the assurance of the temporary federal guarantee (for participating companies)which has allowed managers to remain in their diversified positions. Investors can check online to find the holdings of money market funds. The latest available report from Fidelity on their Money Market Fund indicated holdings consisting of:

38.5% Medium-Term Notes

30.2% Certificates of Deposit

14.0% Commercial Paper

12.0% Repurchase Agreements

1.9% Federal Agency Paper

1.6% Master Notes

0.4% Short-Term Notes

0.4% Asset-Backed Securities

0.1% Bank Notes

0.1% Municipal Securities

The holdings will be updated each quarter so customers can determine how their manager is balancing yield and risk with their funds. While there has been some high-profile instability in the money market fund industry, for the most part the system has weathered the biggest financial crisis in over 50 years relatively smoothly. The September panic-liquidations of money funds was slowed within a week after the federal government jumped in with their guaranty program and aid to those mutual fund companies who were forced to freeze redemptions. The US taxpayer will pay the ultimate cost for the unsoundness of some of the mutual fund money market holdings, but the system as a whole is still functioning. In fact, inflows into mutual fund money markets have improved over the last few months and fund companies are doing a good job of making information available online for investors concerned about price instability.

Find the latest yields and news on money funds on the Money-Rates.com Money Funds page