Even customers who continue to wait it out by investing in bank deposits or directly in cash-like securities may come back to money funds, because of their stability and attractive yields, some experts say. They offer a diversification of counterparties; a wide-ranging pool of underlying investments; and, in the case of almost all short-term European funds, triple-A ratings.
Given the low interest-rate environment in Europe, there are few places where corporates can park their cash safely. “We’re not seeing cash leaving money market funds into bank deposits,” said Robert O’Riordan, institutional business development director at BNY Mellon’s Insight Investment, a specialist asset manager. Clients with large cash balances are increasingly looking to diversify away from single counterparty exposure to a few relationship banks,” he adds.
Post-reform, investors have a new mix of choices for their money fund investments, including a new one called a short-term low volatility net asset value fund, whose price should remain stable under normal conditions but can fluctuate within a 20 basis point collar before investors experience a change in value on their shares. If that collar is breached, the fund’s price must be expressed in four decimal places instead of two.
The low-volatility net asset value (LVNAV) funds generally replaced another category called short-term “prime” constant net asset value (CNAV) funds, for investing in corporate and government debt. Meanwhile, short-term Treasury CNAV funds are now categorized as “Public Debt” constant net asset value (CNAV) funds and they must invest the vast majority of their holdings in government debt.
A third option, available before and after reform, is variable net asset value (VNAV) funds. These funds’ prices may fluctuate daily and must always be displayed out to four decimal places.
Both the short-term low volatility funds and public debt funds are subject to the most conservative daily and one-week liquidity minimums, as well as liquidity fees or temporary gates on withdrawals if a fund’s liquidity and/or redemption levels meet certain thresholds. By contrast, variable NAV funds are not subject to these new provisions.