As exchange traded fund (ETF) investors seek safety from volatile markets into money market funds, there is now the question of how safe are these investments? These funds generally are considered the safest investment tool as the manager works to keep a consistent share price at $1.00. They do so by selling short term debt and and using the money to purchase higher yielding long-term securities.
However, the money market funds are getting hit by the recent credit crunch. "Structured Investment Vehicles", or SIVs, have filtered into the funds and are experiencing the brunt of the market turmoil because of the difficulty in selling them. Shefali Anand for The Wall Street Journal reports that around a dozen money market funds are holding securities recently put on review for a possible downgrade by Moody’s Investors Service.
Some of the fund companies included on the list include Barclays, Charles Schwab, UBS, Deutsche Bank, BNY Hamilton and Morgan Stanley. Although the exposure to SIVs is small, about 1-2%, there is still the risk that the fund may "break the buck." To be sure, no money market has wavered from it’s $1.00 share value.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.