Evaluating Your Taxable Money Market Funds Amid Increased Market Risks
Background on Current Market Risks
Recent news reports have focused on U.S. taxable money market funds’ potential exposure to market volatility, specifically their holdings in European financial institutions’ short-term debt.1
Turmoil in Greece and other European nations, which has been ongoing for approximately 18 months, has investors concerned that a default on debt in a country like Greece or Portugal could have a ripple effect on U.S. money market funds and potentially cause them to “break the buck,” or fall below the $1 threshold. A Fitch Ratings report released in mid-June relates that, on average, 50% of U.S. money market fund assets are in some way exposed to European banks.
According to Fitch’s June 21 report and as corroborated by Raymond James Mutual Fund Research, the largest U.S. money market funds in fact have no direct exposure to Greece, Ireland or Portugal, and only have moderate exposure, if any, to Spain and Italy. This includes the JPMorgan Prime Money Market Fund, of which Eagle Class shares are offered to Raymond James clients as an option for the transfer, or “sweep,” of available cash balances (from securities transactions, dividend and interest payments, and other activities) in their brokerage accounts. The short-term nature of money market funds also allows managers the flexibility to adjust the portfolio to add liquidity or take off risk as conditions change.
Recommended Action
If you are currently invested in U.S. taxable money market funds, we urge you to re-evaluate each of these investments with your financial advisor to ensure they are still appropriate for your level of risk tolerance.
Direct Money Market Investments
If you are seeking alternatives to your current money market investments, you may want to consider funds that exclusively invest in Treasuries, or other short-term U.S.-government-issued obligations. But take note: As Congress weighs the fate of raising the U.S. debt ceiling, even these traditional shelters garner some concern in the short term. If you would like to make changes to your investment portfolio, please consult with your financial advisor.
Investment through a Cash “Sweep” Option
If you have concerns about your balance in the Eagle Class shares of the JPMorgan Prime Money Market Fund cash sweep option, please contact your financial advisor to discuss what alternative is best for your account. Other options that may be available to you include the Raymond James Bank Deposit Program and the Client Interest Program.
1As a reminder, though money market funds seek to preserve the value of your investment at $1 per share, it is possible to lose money by investing in money market funds. Investors should carefully consider the investment objectives, risks, charges and expenses of money market funds before investing. The prospectus contains this and other information about the funds. The prospectus is available from your financial advisor and should be read carefully before investing.