Vanguard Funds: Billions In, Billions Out – VMMXX VMFXX

Advertisement

Billions of dollars are sloshing into and out of Vanguard’s money market funds, as investors wrestle with new Securities and Exchange Commission rules scheduled to take effect in October.

Vanguard Funds: Billions In, Billions Out - VMMXX VMFXX
Click to Enlarge

Investors are sucking billions per month out of prime money market funds, which mainly invest in short-term debt issued by companies, and pouring it into funds focused on government debt.

The SEC rules, meant to make money market funds safer, have set off a slew of unintended consequences.

Over the last four months at Vanguard, $13.5 billion has drained out of the Vanguard Prime Money Market Fund (MUTF:VMMXX), while more than $19 billion has sluiced into the Vanguard Federal Money Market (MUTF:VMFXX).

What’s Going on With Vanguard?

The table above shows net flows for Vanguard’s money market funds this year (Note: I have combined the Investor and Admiral share classes of Prime Money Market). You can see there have been net outflows for all of Vanguard’s prime and municipal money market funds, while the government money market funds have raked in billions of dollars.

Adding to the huge cash dislocation has been Vanguard’s decision to consolidate all sweep money market accounts into VMFXX — making it the required “redemption” fund for all of its brokerage accounts.

Along the same lines, 401(k) administrators are making similar decisions, dropping prime money funds in favor of government funds.

Despite the material outflow this year, VMMXX, with over $125 billion in assets, is still the firm’s largest money market fund by a long shot. VMFXX comes in second with $27.5 billion, but its assets have increased nearly six times since the start of the year.

They say no good deed goes unpunished. It’s unclear if the SEC expected such dramatic shifts in fund flows, but in an attempt to make money funds safer for investors, the SEC has changed the landscape. Unfortunately, the new terrain may not be any better than the old, as investors have a host of new questions to fret over:

Do shrinking prime money funds make it more difficult for companies to operate?

The same question applies to municipalities as municipal money market funds have also seen outflows. On the flip side, as government money market funds grow, will the government have to increase supply (issue more debt) to meet the rising demand created by its own regulatory agency?

This isn’t to say that I’m worried about VMMXX breaking the buck — I’m not (I also wasn’t concerned about that in the past). But the new rules are affecting the markets in ways that I doubt the SEC intended.

Editor/Research Director Jeffrey DeMaso helps publish The Independent Adviser for Vanguard Investors, a monthly newsletter that keeps abreast of recent developments at Vanguard, and the annual FFSA Independent Guide to the Vanguard Funds.


Article printed from InvestorPlace Media, https://investorplace.com/2016/08/vanguard-billions-vmmxx-vmfxx/.

©2024 InvestorPlace Media, LLC