US money market funds end 2011 on a high
0Institutional assets have been pouring in to US money market funds holding domestic government backed securities according to new data from research firm, Lipper. The last two months of 2011 saw inflows of $91.7bn into the funds as investors continue to avoid exposure to non-US credit.
As the Eurozone crisis limps on into the new year and sentiment towards a US recovery gathers momentum, investors appear to be making a return to US money market funds, en masse, despite the recent downgrading of US debt by Standard & Poor’s and warnings to that effect from both Moody’s and Fitch.
UK local authorities are understandably cautious, however, about holding downgraded sovereign debt and few treasurers are currently looking to increase their allocations to non-specified investments, such as those not denominated in sterling, but is there a case to be made here for a missed opportunity?
The answer to that question lies in the relative likelihood of US and UK defaults. Neither, to be fair, seems very likely so diversifying assets across high quality funds with little or no exposure to the potential Eurozone fallout would seem a prudent strategy. However, as long as ‘quality’, or the perception thereof, is inextricably linked to ‘ratings’, prudence may not always win the day.
