Why you may want to cheer for money-market funds

livemint.com:

Subscribe to enjoy similar stories. Cash might be a trash asset to some risk-loving traders. But it’s a pretty good thing to have sloshing around the economy.

U.S. money-market fund assets have so far through mid-December grown by over $800 billion in 2024, bringing the nearly-two-year gain since the end of 2022 to roughly $2 trillion, according to Investment Company Institute data. This continuing flow may be a surprise to some.

At points in 2024, it often seemed that Federal Reserve interest rate cuts, plus a bullish tilt to equity markets, would push more investors out of cash. Or, at the very least, lead them to begin to lock in some duration by moving from very short-term money markets to somewhat longer-term bond funds. But for one, thinking of investment flows as a zero-sum game is often not quite right, since every buyer of an asset is sending cash to the seller.

In fact, even with U.S. money-market fund assets at nosebleed levels, north of $6.7 trillion, according to ICI’s latest weekly figure, investors are quite aggressively positioned: The cash allocation level in Bank of America’s Global Fund Manager Survey was recently at its lowest since the survey began in 2001. Instead, what is going on may be more about a shift in where cash lives.

“Money funds are gaining market share from bank deposits, that is the big driver," says Peter Crane, president of Crane Data. He further notes that a growing economy and government spending also play a role. Money-market funds offer an appealing return, at a 4.39% 7-day annualized net yield as of Dec.

19 in Crane Data’s index of 100 money funds. That will likely come down with the latest Federal Reserve rate cut. But by contrast the national average annual yield for a bank