Investors looking for a safe place to stash their money while waiting out the turmoil on Wall Street and exchange traded funds (ETFs) might not be finding it in certain money market funds these days, either.
Yesterday, the Reserve Primary Fund became the first money market fund in 14 years to expose investors to losses after writing off $785 million of debt issued by Lehman Brothers (LEH). The net asset value of the fund fell below $1 a share to $.97 a share. On Wall Street, this is known as “breaking the buck,” reports Christopher Condon for Bloomberg. Investors have redeemed more than 60% of the funds assets in the last two days, and redemptions have now been suspended for as long as seven days.
Today investors look to money market funds for safety first and yield second.
Standard & Poor’s lowered its rating for the fund from “AAAm” to “Dm,” and they placed nine other Reserve Funds on its credit watch list.
Charles Schwab, Fidelity, BlackRock Inc., Federated Investors Inc., Invesco Ltd., Janus Capital Group Inc., Vanguard and Legg Mason have all reported that their money market funds are not affected by the Lehman situation. Jonathan Ratner for the National Post says that Franklin Resources Inc. and T Rowe Price Group Inc. don’t appear to have any, but no blanket disclosure was issued. Eaton Vance Corp. does have Lehman exposure at 0.25%, and should be able to avoid breaking the buck.
Money Markets are considered the safest investments after cash, treasuries and bank deposits. The only other money market fund to break the buck was the Community Bankers Mutual Fund in Denver, back in 1994.
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.