The sky has changed, and a large number of money market funds have been redeemed, is it really a change in the direction of investment? How can investing in money market funds reduce risks?
Money market funds were redeemed in large quantities, and banks participated in the reminder action
In the first half of this year, fund redemptions accelerated. However, I have been focusing on active equity funds, but I did not expect that at the end of the second quarter, the dark cloud of "fund redemption" also drifted into the field of money market funds.
Since the beginning of this year, the momentum of money market funds has soared, from 11.22 trillion at the beginning of the year to a maximum of 1.367 billion. In March, due to a small retraction of the central bank's interest rate cuts, it turned around again in June, ushering in large-scale redemptions.
As of the end of June, the share of money market funds in the 31 trillion public funds shrank to 13.19 trillion from a high of 13.6 trillion in May, and the net redemption reached 482.2 billion.
Source: Wind;
Money market funds mainly invest in low-risk assets such as short-term bonds and bank certificates of deposit, and the yield has also fallen sharply as the central bank cuts interest rates, once falling below 2%.
At the end of July, the 10-year Treasury rate had broken through the 2.20% mark, the lowest since 2003, and the 30-year Treasury rate had also broken through the key level of 2.40%.
Source: Wind;
What is different from the past is that this redemption is not just a spontaneous act of investors, and the bank also deliberately reminds investors to redeem by sending messages to avoid losses.
However, the behavior of banks is understandable, and long-term interest rates continue to fall, constantly refreshing lows. In this case, the bank's profit side continues to narrow and may not be profitable.
The fund's loss is suspicious, and the reason for the redemption is revealed
However, investors also put a question mark on the topic that money market funds will not lose money.
Objectively speaking, since the birth of the money market fund, there are only two situations in which money market funds will really lose money -
Short-lived slight loss
In layman's terms, it is very rare to lose a little money in one or two days. However, this kind of small loss can generally recover within a few days, and it will not affect the settlement income of the fund.
A blogger called "Lazy Cat's Harvest Day" has made a very comprehensive statistics: among the more than 700 money market funds in China, only 23 have suffered short-term losses in history, and the largest loss is only 0.06%, that is, the maximum loss of 10,000 yuan is 6 yuan. Most of the losses can be earned back in 1-2 days, and the longest 17 days are also earned.
Data source: Lazy Cat's Harvest Day - "Money Market Fund Also Loses";
Money market funds mainly invest in treasury bonds, central bank bills, and bank deposits, which basically belong to the state's credit. Therefore, there will only be a short period of small losses, and it will definitely not get out of control.
Significant losses
It stands to reason that the IMF will not suffer large losses, but some extreme cases cannot be ruled out, such as one during the 2008 financial crisis in the United States.
At that time, the money fund suffered a large loss due to the holding of Lehman Brothers' commercial paper, and the net value fell below $1, which directly broke people's belief in the safety of the money fund and triggered a frenzied fund redemption wave in the entire money fund industry, resulting in the paralysis of the United States financing market and the complete collapse of the entire financial system. Eventually, the United States Treasury stepped in and made a guaranteed commitment to the yield of the monetary fund, and the shock gradually subsided.
Image source: Internet; Lehman Brothers went bankrupt;
But this is an extreme case after all, and combined with the mainland's long-standing control of the investment market, the possibility of such large-scale losses is extremely small.
At present, the reason for the large redemption of money market funds is most likely to be the lower yield, which is less attractive to investors. At the same time, there are other types of wealth management products to seize market share.
For example, the "Semi-annual Report on China's Banking Wealth Management Market (2024)" released at the end of last month shows that as of the end of June this year, the scale of the bank wealth management market reached 28.52 trillion yuan, an increase of 12.55% year-on-year; The number of investors holding wealth management products reached 122 million, a year-on-year increase of 17.18%. The year-on-year growth rate of the two important data has reached double digits, and it is not difficult to see the asset shift of investors.
In addition, the average yield of wealth management products in the first half of 2024 is 2.80%, which is much higher than the overall yield of money market funds.
How to avoid losses There are many ways to invest in patterns
According to the above, as a representative of low-risk investment, money market funds can adjust and recover in the short term even if they incur small losses. But how can you avoid losses as much as possible?
Diversification.
Diversification is a cliché in the investment world. If the investment amount is large, it is not recommended to put it in one place, and if the interest rate is about the same, you can put some on multiple platforms to reduce the risk of stepping on thunder.
Choose products from large fund companies.
When a huge redemption occurs and liquidity support is needed, large companies have stronger financial strength and capital turnover capacity for themselves and their shareholders.
The list of the top 10 fund companies in terms of AUM is as follows and is for reference only.
Data source: Brokerage China;
When investing in money market funds, you need to pay attention to one point: money market funds are also risky, don't treat them as deposits. With basic risk awareness and some risk control measures, you can basically sit back and relax.
*This article is for learning and exchange purposes only, and the types of funds and stocks in the content are for illustration purposes only and do not constitute any investment advice. Investment is risky, and you need to be cautious in your choice.