Money market funds surge in market turmoil
|By Laura Bruce Bankrate.com
The widening credit market crunch has prompted many investors to lock up their gains and cut losses by selling stocks and retreating to the sidelines. Statistics show that they're socking those dollars into money market funds until they feel it's safe to move back into stocks.
Retail money market funds have gained more than $52
billion since mid-July as investors have grown more wary of the
subprime credit debacle. (The chart below shows the weekly inflows
to money market funds.)
Chris Wloszczyna, a spokesman at the Washington,
D.C.-based Investment Company Institute, says the growth in retail money market
funds has been impressive since about 2004, which may coincide with an increase
in the number of high-yield funds. This recent surge, however, has been unusual.
Brad Durham, managing director of EPFR Global, a provider
of fund flows and asset allocation data, says some investors began
redeploying their money back into the stock market the week of Aug.
13, but, nevertheless, the piling into money market funds has been
"It's off the charts," says Durham.
"It's remarkable the speed at which money flows these days.
|Growth in retail money market fund assets |
Curiously, Durham notes, people appear to be investing money
in U.S. equities; a move that could be risky.
of panic people look at their portfolio and decide where they can take profits
first. It so happens that the healthier profits lately have been in their global
allocations. It's kind of ironic that people are pulling out of global allocations
and moving the money back into U.S. equity funds when the U.S. is the source of
the crisis, it's where the deficits are the biggest and the vulnerability is the
Peter Crane, founder of Crane Data LLC and publisher
of Money Fund Intelligence, says the surge in money funds is more a sign that
things are booming than a flight to safety.
and day traders are overrated. Thankfully, there aren't that many of them. The
smart money, the vast majority of money, is super long-term and doesn't move.
When someone makes a decision to be in cash it's dictated by circumstance, not
market events. It's there for a down payment on a house; it's there for an emergency
reserve. People swinging back and forth are less than 5 percent of investors --
although they tend to get all the headlines."