Investors flooded US-based money market funds with the most cash in nearly five years in the latest week, seizing an opportunity to reap richer yields while taking less risk, Lipper data showed on Thursday. The funds, where investors park cash, pulled in nearly $34.9 billion during the seven days through June 6, according to the research service.
Trade tensions, euro-zone strife and an unwind in emerging markets threaten to shake a near-decade of relatively ideal market conditions and profitable bets. "People are really quite concerned with China. I think they became very concerned when the United States decided to put tariffs on their largest trading partners," said Tom Roseen, head of research services for Thomson Reuters' Lipper unit. "Some people are taking their foot off the pedal even though we had phenomenal returns."
The US Federal Reserve's interest rates hikes have helped money market funds, which invest in relatively safe short-term corporate and municipal debt. Money fund yields averaged 1.41 percent at the end of May, up from just 0.49 percent a year ago, according to Crane Data LLC, an industry resource.
Money market funds were shunned in recent years, with clients spooked by declines during the 2008 global financial crisis and by changes to how the funds were regulated in the years since. The Fed pushed rates lower in response to the crisis, and the rock-bottom yields sent clients to riskier investment options with higher returns.
Money funds could be competing for cash with other safe-haven assets. Precious metals commodity funds, for instance, posted $1.1 billion in withdrawals over the most recent seven days, their largest week of outflows since November 2016, Lipper said. US-based stock funds invested in emerging markets gathered just $4.8 million during the week, only a week after the largest withdrawals in more than 18 months, while their debt counterparts posted $521 million in outflows, the most since February.
The Lipper data does not include flows during an emerging markets selloff on Thursday, when Brazilian stocks tanked. Emerging markets face threats from rising US interest rates and oil price volatility as well as trade tensions and a stronger US dollar that makes debt denominated in the currency more expensive to repay.
But investors were more optimistic about market-leading technology stocks in the United States. Sector funds focused on tech pulled in $1.2 billion, the most since March, according to Lipper.