ETF Safe Havens: Stickier Than Money Markets

A whopping $69 billion came out of money market funds during the week ending April 19, according to the latest data from the Investment Company Institute. It was the biggest one-week drop in money market assets since July 2020. 

But that decline isn’t what it seems. The deadline for filing tax returns was April 18, so the drop in money market assets reflects people taking cash out of the funds to pay the IRS rather than a bigger fundamental shift in where people are putting their money to work.  

Last year, money market funds shed $61 billion during the week of the tax filing deadline, while they lost $87 billion the year before.  

Still, the outflows from money market funds contrast with the steady state of the assets in ultra-short-term bond ETFs.  

These funds, which are the closest thing to money market funds in an ETF wrapper, saw outflows of only $73 million during the week ending April 20.  

Granted, ultra-short-term bond ETFs haven’t seen nearly the inflows of money market funds in 2023 as a whole (around $12 billion versus $474 billion), and they have only a fraction of the assets ($161 billion versus $5.2 trillion). 

But maybe this is an indication that the assets in the ETFs might be a little bit stickier than the assets in the money market funds? 

Both of these investment vehicles have been in demand, with interest rates at 16-year highs, and they’re offering very similar returns for savers.  

The iShares 0-3 Month Treasury Bond ETF (SGOV) has a 30-year SEC yield of 4.69%, while the Vanguard Cash Reserves Federal Money Market Fund Admiral Shares (VMRXX) has a seven-day SEC yield of 4.78%. 

Both are great options for investors seeking to take advantage of today’s high yields.