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".
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,
Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter