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After exiting equity markets during this year’s chaotic stock sell-off, individual investors transferred $155 billion into money market funds so far this year to take advantage of rising interest rates while stock markets settle down, the Financial Times reported.
The cash influx has boosted the value of the funds to $1.55 trillion, the FT said.
In the previous three weeks alone, about $43 billion has entered the funds, continuing 11 consecutive weeks of net cash inflows.
The stock market debacle wiped $15 trillion in value from investors’ accounts, driving the Standard & Poor’s 500 index to its longest consecutive stretch of quarterly losses since 2008 during the depths of the Great Recession.
“Everyone has gotten torched and it really is an environment where you don’t want to put your toes in the water,” Joseph D’Angelo, money market manager for PGIM Fixed Income, told the FT.
Thanks to rising interest rates, money market funds also are attracting money from banks’ savings accounts, where returns are lower, the FT reported.
Among the 100 largest U.S. money market funds, the average interest rate has jumped from 0.02 percent at the beginning of this year to 2.77 percent now, almost a 140-fold increase.
In addition to retail investors, professional money managers also are parking assets in money market funds, according to a new Bank of America survey.
Asset managers now hold 6.3 percent of their assets in cash, the highest proportion since April 2001, the survey found.
Money markets’ new influx of cash has been offset by $275 billion in withdrawals so far this year as people cope with inflation and rising interest rates and blue-chip and highly leveraged companies spend down their cash to pre-COVID levels, Goldman Sachs said.
TREND FORECAST: For retail investors, money market funds are a stop along the way to cashing out completely. Again, the future of the markets will be determined by the U.S. Fed future interest rate policy which we thoroughly detail in this Trends Journal.