JPMorgan Chase & Co. and a U.S. unit of the French bank Natixis SA are each offering money market mutual funds aimed at wooing back customers spooked by the financial crisis into moving their money to federally insured deposits.
The funds promise to keep the average maturity of their holdings at 10 days or fewer, one-fourth that of competing funds, according to the companies and the Westborough, Mass., researcher Crane Data LLC. Shorter maturities allow managers to shift more quickly out of a troubled issuer and into other securities or cash.
"They are aimed squarely at the paranoid cash manager," said Peter Crane, the president of Crane Data, which tracks the $2.79 trillion industry.
Money market funds lost their place as the top destination for short-term corporate investments after the $62.5 billion Reserve Primary Fund collapsed in September 2008, spurring a run on funds that buy corporate debt.
Company treasurers moved cash to the safety of insured bank deposits, which for more than a year have also provided more income than money funds because of historically low interest rates on short-term government and corporate bonds.
The portion of short-term investments corporate treasuries held in bank deposits rose to 42% from 25% two years earlier, according to a survey published in June by the Association for Financial Professionals in Bethesda, Md. Money market funds dropped to 25% from 39%.
The JPMorgan Current Yield Money Market Fund, opened at the beginning of October, will maintain an asset-weighted maturity on holdings of 10 days or fewer under "normal market conditions," according to the prospectus. Current Yield is a prime fund, meaning it invests in corporate debt as well as government instruments.
Robert Deutsch, head of global liquidity at JPMorgan Chase, said the fund's short duration also will allow it to move quickly into higher-yielding bonds when the Federal Reserve eventually raises interest rates.
RNT Natixis Liquid Prime Portfolio, a prime fund run by Reich & Tang Asset Management LLC that opened Nov. 30, will maintain an asset-weighted average maturity of nine days or fewer, said Tom Nelson, head of sales and marketing at the New York firm.
The average maturity of holdings in prime funds was 43 days at Nov. 30, according to Crane.
"Managing funds that short is not a novelty, but promising never to go above 10 days is unique," said Peter Rizzo, senior director of fund services at Standard & Poor's in New York, in a phone interview. "It could be a new niche."
Liquid Prime provides shareholders with a daily disclosure of its portfolio, while most money funds reveal holdings monthly or quarterly. It also discloses a list of approved issuers from which the fund can buy.
"The focus is less on the absolute level of yield than on making sure clients can understand what's in the portfolio and can see what could be in the portfolio," Nelson said.
Reserve Primary became the second money market fund in the four-decade history of the industry to expose investors to a principal loss after it wrote down to zero $785 million in debt from the bankrupt Lehman Brothers Holdings Inc.
Clients pulled out $230 billion from funds in the week that ended Sept. 19, 2008.
