The Investment Company Institute released its "2022 Investment Company Fact Book," an annual compilation of statistics and commentary on the mutual fund space. Subtitled, "A Review of Trends and Activities in the Investment Company Industry," the latest edition reports that equity, bond fund and money market funds all saw assets increase nicely in 2021 (though 2022 year-to-date has been another matter). Overall, money funds assets were $4.756 trillion at year-end 2021, making up 17.6% of the $27.0 trillion in overall mutual fund assets. Retail investors held $1.480 trillion, while institutional investors held $3.276 trillion. We excerpt from the latest "Fact Book" below. (Note: Our Peter Crane will be attending the 2022 ICI Leadership Summit in Washington Wednesday and Thursday, so look for him at the show and watch for reports from the show in coming days.)
Discussing "Worldwide" mutual funds (page 5), ICI writes, "Money market funds -- which are generally defined throughout the world as regulated funds that are restricted to holding short-term, high-quality debt instruments -- saw their total net assets increase from $8.3 trillion to $8.8 trillion (6.2%). At year-end 2021, equity funds remained the largest category of worldwide regulated funds, accounting for 47% of net assets. Bond funds accounted for 19% of net assets, mixed/other funds for 21%, and money market funds for 12%."
On "Worldwide Net Sales of Money Market Funds" (page 13), they tell us, "Worldwide net sales of money market funds totaled $673 billion in 2021, a decrease from $1.3 trillion in 2020.... The decline in worldwide demand for money market funds was largely driven by a decrease in net sales in the United States and Europe. Investor demand for money market funds in the United States decreased from $700 billion in 2020 to $424 billion in 2021. Money market funds in Europe experienced net outflows of $20 billion in 2021 after experiencing $250 billion in net inflows in 2020. In the Asia-Pacific region, money market funds experienced net inflows of $254 billion in 2021, down from $302 billion in 2020, and money market funds in the rest of the world received $15 billion in net inflows in 2021, down from $43 billion in 2020."
ICI explains, "Investors use money market funds because they are professionally managed, tightly regulated vehicles with holdings limited to high-quality, short-term debt instruments. As such, they are highly liquid, attractive, cash-like alternatives to bank deposits. Generally, the demand for money market funds depends on their performance and interest rate risk exposure. As the difference between yields on short-term fixed-income securities and yields on long-term fixed income securities narrows (i.e., the 'yield curve' flattens), money market funds tend to experience inflows because investors can reduce interest rate risk without sacrificing much yield by using a fund with a short duration. By contrast, steeper yield curves tend to be associated with a weaker demand for money market funds."
They comment, "In 2021, demand for money market funds weakened as yield curves worldwide generally became steeper, and demand for high-quality, short-term investments -- brought on by the COVID-19 public health crisis -- abated. Despite the intermittent spikes in COVID-19 cases and the emergence of the Omicron variant, economic growth was projected to be strong -- at the same time, inflation was expected to rise, which contributed to higher long-term yields and steeper yield curves."
Chapter 2, "U.S.-Registered Investment Companies," states, "Money market funds received $422 billion of net inflows, while long-term mutual funds saw net outflows of $59 billion in 2021.... Businesses and other institutional investors also rely on funds. For instance, institutions can use money market funds to manage some of their cash and other short-term assets. At year-end 2021, nonfinancial businesses held 15 percent, or $816 billion, of their short-term assets in money market funds.... Finally, mutual funds are important investors in the US commercial paper market, which is a critical source of short-term funding for many major corporations around the world. At year-end 2021, the share of the commercial paper market held by mutual funds (primarily prime money market funds) was 17%, down from 22% at year-end 2020."
ICI writes in Chapter 3, "The majority of US mutual fund net assets at year-end 2021 were in long-term mutual funds, with equity funds alone making up 55% of US mutual fund net assets. Bond funds were the second-largest category, with 21% of net assets. Money market funds (18%) and hybrid funds (7%) held the remainder.... Despite near-zero yields on short-term assets, money market funds experienced another year of strong demand.... Retail investors also held substantial money market fund net assets ($2.8 trillion), but this was a relatively small share (12%) of their total mutual fund net assets ($23.7 trillion).... The majority (60%) of the $3.2 trillion that institutions held in mutual funds was in money market funds, because one of the primary reasons institutions use mutual funds is to help manage their cash balances."
The section on "Money Market Funds" (page 64), explains, "In 2021, demand for money market funds remained strong, with $422 billion in net new cash flows -- despite another year of near-zero yields.... Government money market funds received substantial inflows ($541 billion) while prime money market funds and tax-exempt money market funds had outflows of $100 billion and $19 billion, respectively."
It continues, "Demand for government money market funds in 2021 was likely shaped by movements in long-term interest rates. In the first quarter of 2021, the yield on the 10-year Treasury sharply increased 81 basis points, which led to capital losses on long-term bonds. To mitigate these losses, investors may have shifted some of their bond fund positions into money market funds to shorten the duration of their fixed-income investments. And with the Federal Reserve announcements in November and December (see page 56), investors likely expected that long-term interest rates would soon rise, which may have contributed to additional inflows into money market funds in those months."
A chapter on "Characteristics of US Mutual Fund Owners," tells us (on page 123), "Households are more likely to invest their retirement assets in long-term mutual funds than in money market funds.... DC retirement plan and IRA assets in money market funds totaled just $529 billion, or 11% of those funds' total net assets industrywide.... DC plans and IRAs held 54% of total net assets in long-term mutual funds but a much smaller share of total net assets in money market funds (11%). Similarly, mutual funds held in DC plans and IRAs accounted for 58% of household long-term mutual fund assets, but only 19% of household money market fund assets."
Finally, on page 131 ICI says, "Equity funds were the most commonly owned type of mutual fund in 2021, held by 89% of mutual fund–owning households.... In addition, 41% owned balanced funds, 44% owned bond funds, and 53% owned money market funds." On page 159, they write, "The remaining 18% of mutual fund assets held in DC plans and IRAs at the end of 2021 were invested in bond funds and money market funds. Bond funds held $1.7 trillion, or 14%, of mutual fund assets held in DC plans or IRAs, and money market funds accounted for $529 billion, or 4%."
