Why Money Market ETFs Haven’t Lost Popularity, Yet

Core Insights - Money market funds continue to attract significant inflows, with $20 billion added last week, bringing total assets to approximately $7.4 trillion, while interest in money market ETFs is also growing [1] - Major financial institutions like JPMorgan, Vanguard, and Schwab are launching their own money market ETFs despite a low interest-rate environment, indicating a strong market interest [1] - The appeal of money market funds is attributed to relatively high yields of around 4% with perceived low risk, making them an attractive option for investors [2] Investment Characteristics - Money market funds are considered a safe investment due to their conservative holdings, which must have an average maturity not exceeding 60 days, as per SEC Rule 2a-7 [3] - However, most money market ETFs do not comply with Rule 2a-7, with only five such ETFs adhering to these regulations, highlighting a gap in the market [3] - The total assets in money market ETFs are over $5 billion, which is relatively small compared to traditional money market funds [3] Market Dynamics - Institutional investors hold $4.4 trillion, while retail investors have $3 trillion invested in money market funds, indicating broad market participation [4] - Government money market funds account for $6 trillion of the total investments, while prime money market funds represent approximately $1 trillion [4] - Predictions suggest that interest in money market funds may eventually decline as interest rates continue to fall, particularly with an anticipated 25 basis-point cut in December [3]