- In what could be a preview of things to come in the money market industry, Fidelity last week converted three of its so-called prime funds into government funds which will invest only in Treasurys. The industry's largest fund, the $112B Fidelity Cash Reserves (MUTF:FDRXX) will be among those affected.
- The move was prompted by new D.C. regulations set to take effect next year whose purpose - says the government - is to cut the potential for runs on money-market funds in some future financial crisis. Certain funds for institutional investors will have to forego a $1 share price for one that floats in value, and retail funds would be allowed to impose redemption fees and/or "gates" on withdrawals for up to ten days.
- Such rules, naturally, would not apply to funds owning paper issued by the Uncle Sam, hence Fidelity's switch (with others sure to follow). For investors, it means lower yields. For the government? Moody's Ram Sri-Saravanapavaan figures an additional $100B-$200B could be converted from prime funds to government.
- ETFs of interest: MINT, NEAR, RAVI, ULST, FTSD, FTSM, HOLD, GMTB, ICSH