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Hi folks…. My wife has an account at Merrill Lynch and I’m trying to figure out a good money Market fund to put her cash in. They offer money market funds from Fidelity, federated Hermes, and Blackrock. It seems to me that one of the Fidelity money market funds should be good. They offer FIGXX, FISXX and FSIXX. I can’t find much info on these funds. Does anyone have a recommendation? Thanks very much!
To my knowledge, through their history since 1970s, only 2 money market funds ever 'broke the buck'. So, statistically, any MM fund is as good as the other - apart from the yield (as well as management co and asset size, if one does not fully trusts statistics).
Personally, I always pick the highest yielding one (often quoted as "7-day yield"), unless other considerations - like min investment amount, sweep, trading allowance, etc. - are at issue.
Based on this Merrill link that would be PVOXX @ 5.37% for taxable as of yesterday. Of course, you may need to factor in the expense ratios but most top mm funds end up within a few 100'th % points, in my experience.
The 7-Day Yield represents the annualized fund yield based on the average income paid out over the previous seven days assuming interest income is not reinvested and it reflects the effect of all applicable waivers. Absent such waivers, the fund's yield would have been lower.
- this is an annual(ized) rate, comparable to a bank's interest rate, not APY. MMF yield including compounding is higher than 7 day yield;
- calculation is net of all expenses, including waivers that may expire
Regarding Merril considerations - their highest MMF yields (like PVOXX) typically have floating NAVs. Some of the MMFs settle same day, others next day. One of those sets (I think it is the same day funds) can only be bought in full dollar amounts (no cents). Because of different settlement times, often one cannot do an exchange between two MMFs even of the same family.
Also, in a taxable account, Treasury funds can provide better after-tax returns - some or all of their dividends may be state tax exempt. Percentage varies from fund to fund.
Thanks so much for the feedback to each of you. Really appreciate it . @Msf that’s a great point on treasury funds providing better after tax returns. Also I believe they are probably safer since backed by treasuries. I’m trying to understand the importance of your comment on 7 day yields. Can you please explain a bit.?
@MikeW, fwiw, my 401k moved from TRP to Merrill last year. VUSXX, Vanguard Treasury Money Market Fund is available to me. A quick look says it has a 7 day yield of 5.29% right now. Merrill's 401k is pretty limited in options (VUSXX is my only mm choice). I'm sure if your wife's account is an IRA, she has more options.
New money market reforms will eliminate the current distinction between the government and retail-prime m-mkt funds with $1 NAV. Institutional-prime with floating NAVs are another matter.
Be careful with Treasury m-mkt funds - Treasury-only m-mkt hold Treasuries directly, but Treasury-obligations m-mkt hold lots of Treasury Repos.
Thanks @MikeM and @yogibearbull. Hmmmm. So I need to be careful with treasury MMF? I want these funds to be safe. Hoping to get a good yield too but safety is of primary importance. Thoughts ?
@MikeM, Treasury-obligation m-mkt funds would be safe, but you won't get state/local tax exemptions that some buy Treasury-only m-mkt funds for. My caution was that there is more to these funds than "Treasury" in their names.
I think Yogi answered the question about the significance of 7 day yields. Just to reiterate, seven day yields are simple interest rates (no compounding). If you leave the divs in the MMF, then the interest compounds and you get more annual yield than the 7 day simple rate.
In a few states (NY, Conn, Calif), if at least 50% of the MMF's assets are not invested in state-exempt Treasuries each quarter, then none of the divs are state exempt. For taxpayers in those states, it's doubly important how much of a Treasury fund is actually invested in Treasuries.
The 7-Day Yield represents the annualized fund yield based on the average income paid out over the previous seven days assuming interest income is not reinvested and it reflects the effect of all applicable waivers. Absent such waivers, the fund's yield would have been lower.
- this is an annual(ized) rate, comparable to a bank's interest rate, not APY. MMF yield including compounding is higher than 7 day yield;
- calculation is net of all expenses, including waivers that may expire
I certainly agree on the waivers. Many brokerages tend to clearly highlight these, perhaps, making their funds' perception more appealing and helping with marketing in an area where product differentiation could otherwise be a bit challenging (given how rapidly their yields often fluctuate in the .xx% range).
But how did you conclude from that Schwab statement that calculations were net of all expenses? (Not trying to argue, @msf, simply been burned on such legalese one too many times.)
@yugo, the SEC requires accounting for expenses in the SEC yield calculations - 7-day for m-mkt, 30-day for other funds. Get a strong cup of coffee & look through Form N-1A (-:)
Thanks @yogibearbull! (I think I'll get something stronger...:)
Actually, turns out to be a fairly easy read. (I wish IRS had hired the people who drafted N-1A.) You are right, it's all spelled out pretty clearly in Item 26, assuming 'deductions' in 26(a)(1) are the same as 'fees' in 26.1(b) (for non-exempt funds).
It doesn't make any sense to include the effect of waivers (which reduce expenses), but not the effect of the expenses themselves. Say a fund has waivers amounting to 0.3%. The effect of those waivers is to boost returns by 0.3%. IOW, but for the waivers, the net returns would be 0.3% lower.
If you compute returns without considering all expenses, but still including the effect of the waiver, then you're increasing the yield by 0.3%.
For example, if gross yield (before considering expenses or waivers) is 5.0% and expenses are 0.5%, then net yield is 4.8% including the effect of waivers. If we include only the effect of waivers and not the effect of expenses, then the yield is 5.3%. That makes no sense.
Or, just look at the SEC definition as Yogi suggests.
7-Day Yield: The average income return over the previous seven days, assuming the rate stays the same for one year. It is the Fund's total income net of expenses, divided by the total number of outstanding shares and includes any applicable waiver or reimbursement. The 7-Day SEC Yield Without Reductions is the yield without applicable waivers or reimbursements.
Or, just look at the SEC definition as Yogi suggests.
7-Day Yield: The average income return over the previous seven days, assuming the rate stays the same for one year. It is the Fund's total income net of expenses, divided by the total number of outstanding shares and includes any applicable waiver or reimbursement. The 7-Day SEC Yield Without Reductions is the yield without applicable waivers or reimbursements.
Some companies seem to be more explicit about this. Clearly, Fidelity is one of the more thorough outfits and spells this out, but I was not sure about the others. In fact, I have tried to verify this relatively recently w WMPXX. Strangely, I ended up with a number that was exactly 0.20% less than expected, which also happened to be their Net Expense Ratio and made it appear as if they were not factoring expenses into the quoted yield. But, given the N-1A requirements, I must have simply miscalculated.
Redemption restrictions should be more of a concern than breaking the buck. If you are parking your money for a future investment that may be time sensitive, I would make sure the MM does not have redemption restrictions that may frustrate you when you want to use the money. I have not kept up with the MM rules but vaguely remember a push not to allow redemption restrictions.
If you're thinking of redemption gates, the SEC is eliminating that. If your concern is liquidity (redemption) fees, the SEC is imposing a mandatory liquidity fee on institutional MMFs (other than government funds) if daily redemptions exceed 5% of assets. Finally, non-government MMFs can at their discretion impose a redemption fee if they deem it in the best interest of the fund (fat chance).
So ISTM that SEC-imposed redemption restrictions are a non-issue. In practice, these restrictions were never a real concern. MMFs managers were so focused on not triggering a restriction that they managed their funds too conservatively. That was part of the SEC's rationale in getting rid of these restrictions.
If you're really time-sensitive, then you'll want to use funds that settle same day. The settlement date for some (not all) of the MMFs at Merrill can be found under Cash Management Solutions if you have a Merrill login. https://olui2.fs.ml.com/Mutualfunds/MFBDCashManagement.aspx
Of note is that Merrill requires sell orders to be submitted well before 4PM for most of these funds, even if they don't settle until the next day. Merrill also notes that some of these funds price multiple times daily but that if you go through Merrill you'll only get the day end price. If intraday access to your cash is important to you, you'll likely have to invest in these MMFs directly with the distributor.
Is it fair to assume that after (extended) market purchases in a T+1 regime may require one to keep more money in same day settle MM funds (sweep accounts) to avoid margin interest?
Are all Fidelity MM funds at Fidelity same day settlement funds? I rely on them to draw from my Treasury only MM fund and keep 0 in sweep account.
Comments
https://www.fidelity.com/mutual-funds/fidelity-funds/overview
Personally, I always pick the highest yielding one (often quoted as "7-day yield"), unless other considerations - like min investment amount, sweep, trading allowance, etc. - are at issue.
Based on this Merrill link that would be PVOXX @ 5.37% for taxable as of yesterday. Of course, you may need to factor in the expense ratios but most top mm funds end up within a few 100'th % points, in my experience.
Two significant points (underlined)
- this is an annual(ized) rate, comparable to a bank's interest rate, not APY. MMF yield including compounding is higher than 7 day yield;
- calculation is net of all expenses, including waivers that may expire
Regarding Merril considerations - their highest MMF yields (like PVOXX) typically have floating NAVs. Some of the MMFs settle same day, others next day. One of those sets (I think it is the same day funds) can only be bought in full dollar amounts (no cents). Because of different settlement times, often one cannot do an exchange between two MMFs even of the same family.
Also, in a taxable account, Treasury funds can provide better after-tax returns - some or all of their dividends may be state tax exempt. Percentage varies from fund to fund.
https://fundresearch.fidelity.com/mutual-funds/view-all/316175108
New money market reforms will eliminate the current distinction between the government and retail-prime m-mkt funds with $1 NAV. Institutional-prime with floating NAVs are another matter.
Be careful with Treasury m-mkt funds - Treasury-only m-mkt hold Treasuries directly, but Treasury-obligations m-mkt hold lots of Treasury Repos.
Government Money-Market Funds Are Hot. There’s a State-Tax Catch, WSJ, Sept 8, 2023.
(not paywalled)
But how did you conclude from that Schwab statement that calculations were net of all expenses? (Not trying to argue, @msf, simply been burned on such legalese one too many times.)
I think I'll get something stronger...:)Actually, turns out to be a fairly easy read. (I wish IRS had hired the people who drafted N-1A.) You are right, it's all spelled out pretty clearly in Item 26, assuming 'deductions' in 26(a)(1) are the same as 'fees' in 26.1(b) (for non-exempt funds).
If you compute returns without considering all expenses, but still including the effect of the waiver, then you're increasing the yield by 0.3%.
For example, if gross yield (before considering expenses or waivers) is 5.0% and expenses are 0.5%, then net yield is 4.8% including the effect of waivers. If we include only the effect of waivers and not the effect of expenses, then the yield is 5.3%. That makes no sense.
Or, just look at the SEC definition as Yogi suggests. https://institutional.fidelity.com/app/proxy/content?literatureURL=/9903527.PDF
https://www.sec.gov/files/33-11211-fact-sheet.pdf
So ISTM that SEC-imposed redemption restrictions are a non-issue. In practice, these restrictions were never a real concern. MMFs managers were so focused on not triggering a restriction that they managed their funds too conservatively. That was part of the SEC's rationale in getting rid of these restrictions.
If you're really time-sensitive, then you'll want to use funds that settle same day. The settlement date for some (not all) of the MMFs at Merrill can be found under Cash Management Solutions if you have a Merrill login.
https://olui2.fs.ml.com/Mutualfunds/MFBDCashManagement.aspx
Of note is that Merrill requires sell orders to be submitted well before 4PM for most of these funds, even if they don't settle until the next day. Merrill also notes that some of these funds price multiple times daily but that if you go through Merrill you'll only get the day end price. If intraday access to your cash is important to you, you'll likely have to invest in these MMFs directly with the distributor.
Is it fair to assume that after (extended) market purchases in a T+1 regime may require one to keep more money in same day settle MM funds (sweep accounts) to avoid margin interest?
Are all Fidelity MM funds at Fidelity same day settlement funds? I rely on them to draw from my Treasury only MM fund and keep 0 in sweep account.