The Investment Company Insitute has released its 2009 Investment Company Fact Book. As in the past, this year's edition contains a wealth of statistics and analysis on the mutual fund industry, including plenty of nuggets on money market mutual funds. In its section "Demand for Money Market Funds, the ICFB says, "Net new cash to money market funds, particularly those funds invested only in U.S. government securities, remained strong in 2008, likely reflecting the flight to safety by investors in response to a deepening of the crisis in financial markets. Retail money market funds, which are principally sold to individual investors, received net new cash of $112 billion in 2008, following an inflow of $172 billion the previous year."
It continues, "Money fund yields followed the pattern of short-term interest rates, dropping fairly steadily throughout the year. The difference between yields on money market funds and those on bank deposits narrowed significantly from a little over 300 basis points at the start of 2008 to only 16 basis points by the end of the year. In general, retail investors tend to withdraw cash from money market funds when the interest rate spread narrows to a low level. Flows to retail money market funds in 2008 likely were boosted by investors' reactions to negative developments in the stock and bond markets."
The Fact Book says, "Institutional money market funds -- used by businesses, pension funds, state and local governments, and other large investors -- had inflows of $525 billion in 2008, following inflows of $483 billion the previous year. Inflows to institutional money market funds likely were boosted by several factors. First, short-term interest rates fell considerably during 2008 as the Federal Reserve eased monetary policy. Institutional money market funds tend to receive inflows when short-term interest rates decline because the yields on these funds lag behind and are therefore higher than those available on competing products, such as direct investments in commercial paper and short-term U.S. Treasury instruments."
"Second, the turmoil and illiquidity in credit markets that began in August 2007 intensified in 2008 and likely prompted corporate treasurers to make even greater use of institutional money market funds. Some corporate treasurers -- cognizant of the lack of liquidity in short-term credit markets and concerned about their ability to adequately monitor and assess credit quality -- may have taken the opportunity to redirect some portion of their companies' liquid assets away from direct purchases of short-term instruments and toward institutional money market funds. At year-end 2008, U.S. nonfinancial businesses held a record 32 percent of their short-term assets in money market funds. Institutional money market funds also received inflows from investors moving from unregistered cash pools and other cash-like investments during the credit crisis," says the ICI.
Look for more coverage in our pending Money Fund Intelligence Distribution Survey, our upcoming May issue of Money Fund Intelligence, and in future Crane Data News briefs.
