Investors have poured into low-risk money market funds as they seek a refuge from recent tumult on Wall Street sparked by US President Donald Trump’s tariffs, sending the industry’s assets under management to $7tn.
More than $51bn flowed into money market funds over the past week, pushing the total to a record $7.03tn as of Wednesday, according to the Investment Company Institute, a trade group.
Trump’s approach to imposing, withdrawing or delaying levies on major US trading partners, including China, Canada and Mexico, has knocked Wall Street stocks in recent weeks. The blue-chip S&P 500 dropped almost 2 per cent on Thursday and is poised to notch up its worst week since September.
Investors looking for havens are finding an attractive alternative in money market funds, which offer consistent yields and high liquidity by investing primarily in relatively safe short-term government debt.
Money market funds were benefiting from the recent struggles affecting equities and increasing uncertainty, which gave investors a “good excuse to take some chips off the table”, said Peter Tchir, head of macro strategy at Academy Securities.
The Vix, a popular measure of expected volatility in US equities often known as Wall Street’s “fear gauge”, has risen from about 16 a month ago to nearly 25 on Thursday, the highest level since mid-December.
“Recent strong inflows may be a response to the spike in volatility in the financial markets we’ve seen lately,” said Shelly Antoniewicz, chief economist for the ICI. “With short-term interest rates still at elevated levels historically, money market funds — which pass earned interest on to their shareholders — are relatively more attractive to both institutional and retail investors.”