MARKET BUZZ
Money Market's Survival Is No Revival
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Three months after the government stepped in to prop up reeling money-market funds, the $3.8 trillion industry is largely healthy again, with money flowing back to the safe-harbor investments.
But there's a problem: Yields for the safest category of funds, those that invest in Treasury bills, have sunk to near zero. That means fund companies' returns are barely enough to offset expenses to run the funds.
Dropping yields at Treasury-only money-market funds aren't expected to trigger investor losses, and money-market funds -- including higher-yielding prime funds that invest in corporate debt -- remain safe.
"If Treasury funds yielding zero is your biggest problem in these markets, congratulations," said Peter Crane of Crane Data, publisher of the newsletter Money Fund Intelligence.
But that's eating away at returns. The average yield for funds investing exclusively in T-bills stands at 0.20 percent, according to iMoneyNet, another money fund research firm. That means an investor with $1,000 in a Treasury-only fund would see a return of $20 after a year. To protect those slim returns:
· Watch the fees: Monitor any disclosures about new fees to offset the hit fund companies may be taking from near-zero yields and their earlier moves to temporarily waive management fees. "You might see a new account fee, or higher wire transfer fees," Crane said.
· Compare expenses: Higher expenses charged to run the fund loom larger when the yield dwindles. "The money-market funds that you'll see getting squeezed in this environment will be the higher-cost providers, because that expense ratio is deducted directly from your yield," said Christine Benz of fund-tracker Morningstar.
She advises looking for money funds with expense ratios of 0.5 percent or less -- and "as rock bottom as it can be" for funds investing in T-bills.
· Consider more risk: If you want a little more return than you'll get from a low-yielding Treasury fund, consider moving to other categories of funds.
"This is an excellent opportunity for people who overreacted in the first place and went into Treasuries to now take a baby step out on the risk curve, and move into government funds or prime funds," Crane said.
-- Associated Press
