cancel
Showing results for 
Search instead for 
Did you mean: 
     
Highlighted
Frequent Contributor

“Money market funds waive fees to stave off negative returns”

Solved or there is a best answer. Go to solution.
Excerpt:

Asset 
managers are cutting the fees they charge for money market funds after the dramatic decline in yields on the short-term debt they rely on threatened to leave clients with negative returns.

Federated Hermes, Fidelity and TIAA-CREF, which manage some of the largest money market funds, have already waived fees on several products. Vanguard, another large manager, said it has not yet needed to waive fees but remained committed to keeping investors’ returns positive.”

“We are closely monitoring the yields on our money market mutual funds,” said a spokesperson for Fidelity, adding that it had waived fees on some funds and was considering doing so on others.

 
Anybody know if they have cut fees on SPAXX* (0.42%) or FDRXX** (0.38%)?
 
 
0 Kudos
1 Accepted Solution or Best Answer

Accepted Solutions
Highlighted
Frequent Contributor

Re: “Money market funds waive fees to stave off negative returns”

Solved or there is a best answer. Go to solution.

For SPAXX, Gross ER = Net ER, so no fee waiver.

For FDRXX, there is a 1 bps fee waiver.

It seems that Fido just wants to keep 7-day SEC yield at 0.01% for now.

YBB

View solution in original post

15 Replies
Highlighted
Explorer ○

Re: “Money market funds waive fees to stave off negative returns”

Solved or there is a best answer. Go to solution.

I moved my money market account from Fidelity to Vanguard on April 9, just about the time that the yield at Fidelity dropped to 1/100 of 1%. The Vanguard Federal MM Fund (expense ratio 11/100 of 1%) was still yielding about 1/2 of 1% at the time. Since then the Vanguard fund yield has declined To 21/100 of 1%, so the Fidelity MM funds have got to be in the hole. Fidelity relies more heavily on daily Repos than Vanguard, so the Fidelity Funds have much shorter average maturities which explains why the Fidelity yields declined much faster than Vanguard yields. 

 

 

 

 

 

 

 

MM fund was still yielding about 1/2 of 1% at the time. 

Highlighted
Participant ○

Re: “Money market funds waive fees to stave off negative returns”

Solved or there is a best answer. Go to solution.

Hi.

As central banks rely on near zero (US) or negative (EU and Japan) interest rates to finance deficit spending, I do nor see MM accounts as anything I would be interested in. The math is really simple; keep some cash (zero return, but flexible) to cover the "bumps in the road" and own some equities to garner some long term return. 

 

Highlighted
Participant ○○○

Re: “Money market funds waive fees to stave off negative returns”

Solved or there is a best answer. Go to solution.

@chang,

Not that it helps,but

From the Financial Times.
"Fund managers do not have to publicly disclose incremental fee changes on funds, which can change daily. Instead, they disclose a yield that investors earn, which has expenses already deducted."

 

From cranedata.com

, "In another sign of negative rate fears for money market funds, Fidelity Investments in mid-March waived fees on several U.S. Treasury and U.S. government money market funds sold exclusively through intermediaries -- which tend to have higher expense levels than other funds -- in order 'to maintain positive net yields on those share classes.'"

This piece adds, "In another effort to protect money fund investors against negative yields, Fidelity announced in late March that it was closing three money market funds to new investors outside of retirement plans that had established that option by March 31.... Vanguard made the same decision for its Treasury Money Market Fund in mid-April, closing the fund to new investors because net new flows would threaten an even lower yield."

Fishingrod

Highlighted
Frequent Contributor

Re: “Money market funds waive fees to stave off negative returns”

Solved or there is a best answer. Go to solution.

For SPAXX, Gross ER = Net ER, so no fee waiver.

For FDRXX, there is a 1 bps fee waiver.

It seems that Fido just wants to keep 7-day SEC yield at 0.01% for now.

YBB

View solution in original post

Highlighted
Participant ○○○

Re: “Money market funds waive fees to stave off negative returns”

Solved or there is a best answer. Go to solution.

@yogibearbull,

I see that FDRXX 7 day yield is .01%

But the 7 day Yield without Reductions is negative -.01%

So that would mean .02 Fee waiver, correct?

7-Day Yield 4

0.01%

4/30/2020

 

Fishingrod

0 Kudos
Highlighted
Frequent Contributor

Re: “Money market funds waive fees to stave off negative returns”

Solved or there is a best answer. Go to solution.

@Fishingrod wrote:

@yogibearbull,

I see that FDRXX 7 day yield is .01%

But the 7 day Yield without Reductions is negative -.01%

So that would mean .02 Fee waiver, correct?

7-Day Yield 4

0.01%

4/30/2020

 

Fishingrod


That is correct for FDRXX as of 4/30/20.

I had looked at reported Gross ER and Net ER and I see now that those are stale data.

I went back and rechecked SPAXX and there is no fee waiver there.

Thanks.

YBB
0 Kudos
Highlighted
Participant ○○○

Re: “Money market funds waive fees to stave off negative returns”

Solved or there is a best answer. Go to solution.

Here is another quick read from Fidelity that covers some info on negative rates.

https://www.fidelity.com/learning-center/trading-investing/market-volatility-money-market

I have read elsewhere that fee reductions from certain providers could be recouped later. Vanguard has stated that they would never recoup fee reductions.

Fishingrod

0 Kudos
Highlighted
Frequent Contributor

Re: “Money market funds waive fees to stave off negative returns”

Solved or there is a best answer. Go to solution.

 

SPAXX.jpg

FDRXX.jpg

3.The current yield reflects the current earnings of the fund, while the total return refers to a specific past holding period. The 7-Day Yield is 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.

4.The 7-Day Yield Without Reductions is the yield without applicable waivers or reimbursements. Absent such waivers or reimbursements, the returns would have been lower. Voluntary waivers and/or reimbursements may be discontinued any time.

The 7-day period just ended and yields were updated.

With longer-maturity funds, the 30-day SEC yield reported abnormally high yields based on the price drops earlier this year. Investors have been "piling in" at the previous-months reporting data. The monthly period ends tomorrow, and I think nearly all investment grade yields will be revised downward. There may be some gnashing of teeth.

For OEF investors, prudence would suggest investing (or not) after the report date if you don't have another way of calculating yield.  I use a spreadsheet with the average weight coupon, and average maturity that calculates yield mid-month. I made it for individual bond investing, but have adapted it to OEF's.

Decreases in yield will increase duration.  While the FFR, and the 10-year yields should hold reasonably well until the recession begins to wane, there will be significant interest rate risk at some point down the road .... maybe months, maybe years.

These are just a few of the many reasons I tend to bristle at the idea of back-testing bond funds by price and passing it off as forward-looking "analysis" if no other context is provided.

A very strong argument can be made for high-quality hold-to-maturity ladders.  Make your own MM fund. I have twelve 1-year CD's and one matures each month near the 15th. It is part of my emergency fund and each rung has more than enough to cover monthly expenses.

Holiday

 

 

0 Kudos
Highlighted
Participant ○○○

Re: “Money market funds waive fees to stave off negative returns”

Solved or there is a best answer. Go to solution.

@Holiday,

Can't agree more about the ladder idea.

I am fortunate enough to have a five year CD ladder which I started long ago, with three rungs at 3.0% at this time. I will be rolling over one of those this year losing a 3 percenter.

Fishingrod

Highlighted
Frequent Contributor

Re: “Money market funds waive fees to stave off negative returns”

Solved or there is a best answer. Go to solution.

@Fishingrod wrote:

@Holiday,

Can't agree more about the ladder idea.

I am fortunate enough to have a five year CD ladder which I started long ago, with three rungs at 3.0% at this time. I will be rolling over one of those this year losing a 3 percenter.

Fishingrod


I have 25% of my emergency fund laddered, and 100% of my retirement distributions (inflation indexed) for the next 10 years laddered.  All of my stocks have a long time-horizon. All of my ladders make up less than 25% of my bond allocation.

The market can misbehave, and I don't feel any pressure to react. Life is beautiful. 

Although, there is one possibility that deeply concerns me.

Holiday

0 Kudos
Highlighted
Participant ○○

Re: “Money market funds waive fees to stave off negative returns”

Solved or there is a best answer. Go to solution.

After TIAA announced recently that there was a possibility of negative returns in the MMF by the end of 2020, I reduced my holding in the MMF by about 50%. My MMF is the immediate source of monthly RMD withdrawals that are sent to my bank (credit union).

The MMF currently holds about 2-years of future RMD's, and is topped up in part by the annual TPA's that I'm taking from TIAA Traditional and in part by transfers from other investments.  I had let the MMF bloom especially when I closed out my position in TREA (TIAA Real Estate Acct.) in early April. Now I've taken away that bloom and transferred the cash into bond funds.

My overall TIAA holdings now are 50% in equities (TRLGX, VINIX, VIEIX, RERGX and others). So I'm not all fixated on fixed income. Furthermore, in my Fidelity accounts (brokerage and IRA) I have a diverse investment portfolio. The Fidelity account is worth about 20% of my combined TIAA-Fido investments.

0 Kudos
Highlighted
Contributor ○

Re: “Money market funds waive fees to stave off negative returns”

Solved or there is a best answer. Go to solution.

We are at zero fed fund rates just as we were before 2017.   Current Commercial paper yields are not lower than those during those earlier times.  So, there is no excuse for negative rates on MM funds now, but I expect them to go to 0.1% or so yield, similar to those earlier times.   Online savings are still yielding at 1.3%.  Overall, the zero MM yields will force everybody to go out on the risk spectrum: rate or credit.   

The alternative is to buy individual bonds and hold to maturity.

0 Kudos
Highlighted
Frequent Contributor

Re: “Money market funds waive fees to stave off negative returns”

Solved or there is a best answer. Go to solution.

@Anitya wrote:

We are at zero fed fund rates just as we were before 2017.   Current Commercial paper yields are not lower than those during those earlier times.  So, there is no excuse for negative rates on MM funds now, but I expect them to go to 0.1% or so yield, similar to those earlier times.   Online savings are still yielding at 1.3%.  Overall, the zero MM yields will force everybody to go out on the risk spectrum: rate or credit.   

The alternative is to buy individual bonds and hold to maturity.


Retail prime m-mkt funds use commercial paper but those can have gates and/or redemption fees.

Government m-mkt funds don't have gates or redemption fees and have almost nil rates. If you look at short-term Treasuries/agencies rates and subtract ERs of 0.35-0.50%, you can see negative rates without fee waivers. TIAA has said that its fee waiver will be only to 12/31/20 and then negative rates are quite likely.

Several Treasury m-mkt funds have been closed to new investors.

YBB
0 Kudos
Highlighted
Contributor ○

Re: “Money market funds waive fees to stave off negative returns”

Solved or there is a best answer. Go to solution.

Less than 0.25% of my PV is in MM funds, half of which is in a deferred comp account and would clear in three months.  The other half of MM fund holdings is for the convenience of not needing to call a broker when I want to sell an OEF and buy another OEF at Fidelity and not be out of the market.  This can be avoided if I move the Fidelity account to Schwab or TD but the opportunity cost of leaving the account at Fidelity is not high enough and there are some advantages to the Fidelity account.

I will be researching individual bonds to hold to maturity if I am inclined to lower the risk of my portfolio. 

0 Kudos
Highlighted
Participant ○

Re: “Money market funds waive fees to stave off negative returns”

Solved or there is a best answer. Go to solution.

Hi.

I am too old to be trying to follow the math on this thread. So, I will revert to "KISS" and take a long hard look at a glass jar with a good plastic lid buried in my back yard. No social distancing required, easy access, and I can walk there. No need to do a lot of math to get through the "spin", to see how much I have gained/lost, just hope the chipmunks have not found it. When I say "cash", this is actually a bunch of CD's laddered over 3 year periods. Being in my 80's, I did not go to 5. There is enough in my checking - savings (+25 basis points) to get through now and the end of year one. These CD's are from 1 to 2.something %. To many of you, I may be crazy, but I am at least at peace with myself and not worrying about whether A or B is a better MM account. There are none.

0 Kudos
Announcements