Global Investing

Healthy flows into money market funds

Despite concerns about contagion from the euro zone, investors injected fresh funds into U.S. mutual funds, including money market funds, latest weekly flow data from Lipper shows.

The week ended Nov 16 saw a net $10 billion inflow into mutual funds, including ETFs, while investors were net buyers of equity funds with flows at $2.8 billion. Equity funds, including ETFs, witnessed their fifth consecutive week of net inflows.

Reflecting jitters over the debt crisis however, investors injected $2.8 billion into taxable fixed income funds and for the second week in a row bought into money market funds to the tune of $2.9 billion.

Despite tensions in the funding market (LIBOR dollar rates were up again and 3-month euro/dollar cross-currency basis swaps hit their widest since December 2008 at 134bps yesterday), money market funds especially in the United States are attracting safe-haven flows. According to flow data from the Investment Company Institute, total U.S. money market mutual funds increased by $6.41 billion to $2.645 trillion for the week ended Wednesday.

So it seems no “breaking the buck” fears are resurfacing just yet.








Call that a money market fund?

Attempts to tidy up the European money market funds (MMFs) sector after last year’s turmoil have stirred up a hornets’ nest, with some providers arguing that the new definitions from trade bodies IMMFA and EFAMA don’t go far enough.

2008 was a testing time for the sector which sells a promise of providing instant liquidity with a little yield. In recent years so-called enhanced or dynamic MMFs promised extra yield by investing in securities with longer dated maturities or asset-backed securities that quickly became illiquid in the credit crunch.

When investors panicked and made a run on these funds, some broke the buck – like the US’s Reserve Primary Fund, whilst others had to suspend redemptions – such as BNP Paribas’s Parvest Dynamic ABS.