Asset growth of money market mutual funds has picked up steam in recent weeks amid growing fears that a stock market correction is under way.
In the five weeks from July 9 to Aug. 12, some $45 billion poured into money market funds, according to data from the Investment Company Institute, Washington. That translates to an annual growth rate of 38.9%, far stronger than the 26.7% rate for the year to date.
In the week that ended Aug. 12, money fund assets jumped 0.74%, to $1.242 trillion, the institute said. That followed a 1.8% increase in the week ended Aug. 5.
Observers say that while there are many reasons for the increase, there's no question market turbulence has figured into the surge.
"The inflows are above trend now, and the market certainly is playing a factor in that," said Peter G. Crane, managing editor of IBC's Money Fund Report, a weekly publication that tracks more than 1,300 money market mutual funds.
Traditionally, money market funds have been viewed as a safe haven for investors seeking higher returns than a savings accounts, but less volatility than the stock market. That's because, unlike stocks or mutual funds, share prices remain constant. To safeguard the principal invested, money market funds trade at a net asset value of $1 per share; yields, however, vary from week to week.
The money market fund business is an important one for banks, which manage about a third of the assets. Bank-managed money funds held $388 billion at midyear, according to Lipper Analytical Services, Summit, N.J.
Observers caution that it's too soon to know exactly how big a role sales of stocks and mutual fund shares have played in the recent run-up in money market balances. That will become somewhat clearer later this summer when the institute releases data on sales and transfers of long-term mutual funds.
To be sure, the stock market isn't the only source of new assets for money market funds. David Wyss, chief economist at Standard & Poor's DRI, Boston, said that over the last few months, investors have transferred money from certificates of deposit to money market funds, which offer fatter yields.
Mr. Crane said other factors, such as the time of year, also contribute to higher than usual numbers. In August consumers "tend to build up cash in anticipation of big-ticket payments like college tuition in the fall," he said.
Inflows to money market funds from no-load mutual fund companies such as Fidelity Investments and Charles Schwab & Co. were particularly strong over the past week, Mr. Crane said.
Unlike banks, which tend to attract conservative clients and few market timers, some "no-load customers will shoot first and ask questions later," he said.
Some large banks said they had not detected greater than usual amounts of money pouring into money market accounts.
"You would think if investors were concerned enough to move money that they would have done it in August," said a spokeswoman for Banc One Investment Advisors, a unit of Banc One Corp., Columbus, Ohio. The company managed $13.8 billion in money market funds at midyear, according to Lipper.
"We're hoping that what this means is that investors are comfortable enough with their long-term plans and willing to sit tight," the spokeswoman said.
Banks could see more money flowing into money market funds if the market continues to nose-dive, said Bradford S. Adams, vice president of Northern Trust Co., Chicago, who handles the investment management of the bank's money market funds.
It's "something to watch for if the stock market exhibited persistent weakness," he said. The bank's parent, Northern Trust Corp., managed $13.5 billion of money market funds at midyear, Lipper's data show.