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Minyan Mailbag: Subprime Exposure Hidden In Your Money Market Funds?


It may be entirely alright to have a blended backing--only time will tell--but Minyans should understand their positioning before any and all potential events.



After seeing the big boys flee the market and head for the security of T-Bills, I thought I would revisit my 401k investments and look for funds that were investing in the same. Our 401k is connected to the Oppenheimer funds, and, sure enough, they do have a fund titled "Oppenheimer Limited-Term Government Fund" (OLTCX). So, I then looked at their prospectus and huh, what!? This little blurb caught my eye:

"What does the fund mainly invest in? The Fund invests at least 80% of its net assets (plus borrowings used for investment purposes) in debt securities issued by the U.S. government, its agencies and instrumentalities, repurchase agreements on those securities and hedging instruments approved by its Board of Trustees.

The Fund may invest up to 20% of its net assets in mortgage-backed securities that are not issued or guaranteed by the U.S. government, its agencies or instrumentalities, asset-backed securities, investment grade corporate debt obligations (having a rating, at the time of acquisition by the Fund of at least "BBB" by Standard & Poor's Rating Service or "Baa" by Moody's Investors Service or a comparable rating by another nationally-recognized securities rating organization, or, if unrated, deemed by the Manager to have a comparable rating) and certain other high quality debt obligations."

Grrrr! You know, cash looks just fine. Oh, wait… here's that darn fine print again. This is for the "cash reserves fund".

"An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund."

It's only our retirement fund anyways. At least we'll have social security to fall back on. On second thought, that mattress was getting a little soft anyways. Perhaps it could use some "stuffing".

-Minyan Jim


This is precisely why I've been hammering this point home in my columns. A few weeks ago, I did the same type of analysis and found that my seemingly safe money market funds---the cash I stashed for a rainy day--had up to 20% exposure to the commercial paper market. What for? Oh, about 50 bips of annunalized return.

Suffice to say that I quickly swallowed that half-point and my cash stash is now fully backed by treasuries. Chicken Little Toddo? I really, truly hope so... but I do know this: I want to control the risk of the money I choose to put at risk.

I would venture to guess that 99% of those holding money markets have not read the fine print on their vehicles. It is further my hope that by sharing this mailbag, Minyans will be proactive enough to do just that. It may be entirely alright to have a blended backing--only time will tell--but Minyans should understand their positioning before any and all potential events.

Thanks for sharing,


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