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Vanguard Reopens, Reorganizes Money Market Funds

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Vanguard announced changes to its money market funds Thursday, including the reopening of its Treasury Money Market Fund, which it closed to new investors earlier this year.

The changes announced by the mutual fund giant with $6.3 trillion in global assets include:

  • Reorganizing its $125.3 billion Prime Money Market fund [VMMXX] into a government money market fund and renaming it the Cash Reserves Federal Money Market Fund in late September;
  • Dropping the fund’s investment minimum to $3,000 from $5 million; and
  • Reopening the $40 billion Treasury Money Market Fund [VUSXX] to new investors.

Vanguard closed the Treasury Money Market Fund to new investors in mid-April to protect existing shareholders from high levels of cash flow that risked accelerating declines in the fund’s yield, it said at the time, noting that this risk was tied to the fund’s increasing new flows in combination with extremely low Treasury yields.

Earlier this year, investors rushed into money market funds in a flight to safety as stocks plummeted and corporate and municipals experienced extremely choppy trading in March before the Fed aggressively intervened to support the bond market.

Year to date, the VUSXX has returned 0.44% through July 31 vs. the iMoney MFR Treasury Funds benchmark average of 0.27%.

With the Prime Money Market Fund, the fund giant aims to enhance credit quality and liquidity levels by investing “almost exclusively” in U.S. government securities, cash and repurchase agreements collateralized solely by the U.S. government.

Due to the low interest rate environment and tight credit spreads, Vanguard has already increased its exposure to government securities while at the same time reducing investment in commercial paper, it says.

Since the beginning of the year, the VMMXX has returned 0.52% through July 31, while the average benchmark has returned 0.35%.

“Vanguard investors prioritize capital preservation for their money market investments, and we believe that the rewards of even the most conservatively managed prime funds are no longer worth the risk,” Vanguard Chief Investment Officer Greg Davis explained in a statement.

“We are committed to structuring and managing our money market funds prudently while preserving their safety and liquidity, and are confident these changes will best position the fund to continue to meet the expectations of our clients, while still providing a competitive yield over the long term,” Davis added.

Vanguard’s Fixed Income group oversees some $1.9 trillion in assets worldwide, including about $391 billion in money market assets. Nafis T. Smith, who joined the company in 2003, is head of taxable money markets and the portfolio manager of the above funds.

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