Vanguard money markets still a buck, but with potential for gates, fees

Largest mutual fund company announces its response to reforms intended to prevent a run

Jun 16, 2015 @ 12:34 pm

By Trevor Hunnicutt

Vanguard's retail money market funds will continue to quote a consistent share price of $1, but the largest mutual fund manager will leave open the possibility of imposing liquidity restrictions on investors during market stress, a spokesman said Tuesday.

The Vanguard Group Inc.'s announcement comes as its reaction to new rules facing money market funds next year that are intended to prevent a run on the products used by investors to keep cash safely while generating a return.

The manager said it would make seven of its existing funds, including its $133.4 billion Prime Money Market Fund (VMMXX) and six tax-exempt funds, “retail” under the new requirements. That allows them to consistently quote $1 a share for the fund, rather than letting that price float.

But the designation would allow the fund's boards to impose a fee on redemptions or to suspend them altogether in certain cases of extreme market stress.

Vanguard spokesman David Hoffman assured advisers that it is very unlikely that Vanguard will impose liquidity restrictions even in the wake of another market crisis.

“We do not expect to have to impose a fee or gate on a Vanguard [money market fund],” Mr. Hoffman wrote in an email. “Our [money market funds] are conservatively managed and have been since their inception.”

Vanguard is the latest in a series to announce their response to reforms passed by the Securities and Exchange Commission last year.

Those money managers — including Vanguard competitor Fidelity Investments — have fought to preserve their ability to quote $1 a share by designating their funds as “retail” or by restricting their underlying investments to a low-yielding, less-risky set of investments.

The firm will also make an option available for investors who want both a stable share price that does not have liquidity restrictions. Vanguard said it is reopening its $2.8 billion Federal Money Market Fund. That fund is exempt from the reform requirements because it invests almost entirely in cash and short-term U.S. government debt, which is considered virtually risk-free.

Those securities are expected to be in increasing demand because of the new reforms, pushing their razor-thin yields even lower.

Investors fled money funds in 2008 after the $62.5 billion Reserve Primary Fund, which was invested in Lehman Brothers debt, "broke the buck," falling below $1 a share when that investment bank collapsed.


What do you think?

View comments

Recommended for you

Reporter Ryan Neal discusses how investors inside and outside financial advice have become interested in the industry's technology, and introduces us to some top people fueling the trend.

Recommended Video


Latest news & opinion

These funds have gained more than 10% in just a month

And not all of the funds did it with tech stocks

As Finra elder-abuse rule takes effect, advisers will face awkward conversations

Regulation taking effect Monday requires reasonable effort to find trusted contact, allows brokers to stop fund disbursement.

As Trump prepares for State of the Union, 50% of advisers approve of his job performance

Percentage is 10.3 points higher than the general population approval rating.

Morgan Stanley said to be trimming 600 funds from platform

While not confirming the number of funds on the chopping block, the firm acknowledged it is culling its offerings.

As tax season gets underway, clients are looking ahead to how tax bill will affect 2018 returns

Advisers can put strategies in place now to make sure that there will be no hidden surprises this time next year.


Hi! Glad you're here and we hope you like all the great work we do here at arjuna-design. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Last News

what is the deadline for roth ira contributions 401k early retirement 55 vttvx review financial planner salaries 1099 social security tax jpmorgan access balanced fund ameritrade insured deposit account taxability of life insurance college savings plans nj prudential ira the ayco company l.p a goldman sachs company spartan global ex us index fund internal revenue code section 72 t wells fargo stable return fund ticker vanguard emerging markets select stock fund hewitt financial services self-directed brokerage account t rowe price 2020 retirement fund what qualifies as a charitable donation short term tax rate on stocks can you rollover a 401k to a roth ira puerto rico municipal bonds triple tax exempt pay back social security and restart t rowe price growth stock fund morningstar what is dow in stock market irs forms 1099 r aon hewitt financial advisors reviews virtus small cap core cash surrender life insurance highest rated life insurance companies templeton growth fund price how to choose funds for 401k cd rates wells fargo bank vanguard interest income fund merrill edge 529 review