Money Market Fund Assets on the Rise

Chart of the Week for June 23-29, 2006

The graph shows the monthly net new cash flows to money market funds and the average monthly total return of retail money market funds over five years. Cash flows generally follow the pattern of returns. As we can see from the chart, cash flowed out of money market funds in the low return period from late 2002 to early 2005. Because money market funds invest mostly in short-term fixed income securities, their returns benefit from Fed interest rate hikes. As the return became more attractive, cash started to flow back to money market funds. Assets of money market funds increased by $6.21 billion in the week ended June 21, according to the Investment Company Institute. That took total assets to $2.11 trillion, up about 10% from the level a year earlier.

A money market fund is a traditional safe harbor for investment. In the recent fall of the stock market, these funds look more attractive to investors because of their higher returns. However, as we see in the above graph, returns of money market funds fluctuate with the market interest rate. Investors should keep their portfolio diversified, while enjoying the current return of money market funds.

This illustration was compiled by information from outside sources. These companies are not affiliated with ICMA-RC. This information is being provided for educational purposes and is not intended to be construed as or relied upon as investment advice. ICMA-RC does not offer specific tax or legal advice. Individuals are advised to consider any new investment strategies carefully prior to implementing.

Investment information can change rapidly and the changes can be significant particularly in volatile markets. For this reason “as of”’ dates are provided for specific data where applicable. The information should not be considered current after the dates provided.

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The performance data quoted represents past performance. Past performance is no guarantee of future results. Investment returns and principal value will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data illustrated. For performance data current to the most recent month end, contact ICMA-RC Services, LLC by calling 800-669-7400 or by writing to 777 North Capitol Street, NE, Washington, DC 20002-4240. Para asistencia en Español llame al 800-669-8216. Performance data current to the most recent quarter end is available by visiting www.icmarc.org.