WEBVTT - The Hottest New Trade Is the Most Boring 0:00:05.760 --> 0:00:06.520 Welcome a trillions. 0:00:06.519 --> 0:00:10.000 I'm Juel Weber and I'm Eric Blchunis. 0:00:10.560 --> 0:00:14.880 Eric. There's some interesting stuff happening in money market funds 0:00:14.960 --> 0:00:17.800 right now, and the flows are something that I really 0:00:17.880 --> 0:00:21.720 want to spend some time talking with you about, because man, 0:00:22.120 --> 0:00:24.840 it is just eye opening what's happening here. 0:00:25.320 --> 0:00:27.920 Yeah, I mean, money market funds have grown by well 0:00:27.960 --> 0:00:31.240 over half a trillion dollars in the first quarter. March 0:00:31.280 --> 0:00:34.240 in particular was ridiculous. Listen to this Statuel. If you 0:00:34.360 --> 0:00:38.240 ranked all mutual funds by March flows, the top twenty 0:00:38.280 --> 0:00:41.000 eight would be money market funds and seventy three out 0:00:41.040 --> 0:00:44.239 of the top one hundred. This is a stat that 0:00:44.479 --> 0:00:48.800 James Sayferd on my team found And again, think about this, 0:00:48.800 --> 0:00:51.880 this is basically what ETFs took in all of last year. 0:00:51.920 --> 0:00:54.840 So this is big boy flows and it's basically diverted. 0:00:54.840 --> 0:00:57.200 We're a bunch of ETF analysts, but we've been completely 0:00:57.240 --> 0:01:00.040 diverted over there because this is a big deal. And 0:01:00.080 --> 0:01:03.680 obviously the reason is because you can get four point 0:01:03.760 --> 0:01:07.840 seven four point eight percent would basically risk free when 0:01:08.440 --> 0:01:11.600 obviously contrasted with a lot of banks will only give 0:01:11.640 --> 0:01:15.080 you fifty sixty basis points in your savings or checking account. 0:01:15.200 --> 0:01:18.760 So that spread has become the story of the year. 0:01:18.840 --> 0:01:21.440 In my opinion, it does link to the whole bank story, 0:01:22.240 --> 0:01:25.080 and I do think banks are now going to have 0:01:25.120 --> 0:01:28.360 to probably raise their rates at some point. And also 0:01:29.160 --> 0:01:31.760 the appeal of a four point eight percent yield and 0:01:31.800 --> 0:01:34.720 a money market fund has actually taken away a lot 0:01:34.720 --> 0:01:37.400 of money from equity flows because there now is like 0:01:37.440 --> 0:01:41.000 an alternative, and so this has become again it's not 0:01:41.080 --> 0:01:44.240 just money markets impacted everything, and it's again it's diverted 0:01:44.280 --> 0:01:44.959 all of our attention. 0:01:45.959 --> 0:01:48.760 And to be clear here money market funds, we're talking 0:01:48.840 --> 0:01:53.240 about cash, right, like something that is like so basic 0:01:53.320 --> 0:01:55.400 and boring, right, but yet cash has become king. 0:01:56.000 --> 0:01:59.400 Yeah, sometimes cash is the sexy thing or the shiny 0:01:59.440 --> 0:02:01.840 object because other things are struggling. But what made Q 0:02:02.000 --> 0:02:05.200 one interesting to me is that equities were up seven percent, 0:02:05.600 --> 0:02:07.240 you know, unlike last year they were down, they were 0:02:07.320 --> 0:02:11.040 up this year. But the idea, I think equities now 0:02:11.120 --> 0:02:13.280 have to work much harder to get your money. So 0:02:13.400 --> 0:02:15.160 if they have another good quarter, I could see maybe 0:02:15.200 --> 0:02:18.640 some money shifting out. But again, almost a five percent 0:02:18.760 --> 0:02:22.880 yield guaranteed banked the nav stays at one dollar. That's 0:02:22.960 --> 0:02:26.440 really compelling, And what we also found was how lucrative 0:02:26.480 --> 0:02:29.600 this is for the asset managers. Unlike other areas, the 0:02:29.639 --> 0:02:31.560 vanguard effect isn't big here. A lot of these money 0:02:31.560 --> 0:02:34.839 funds charged thirty five forty basis points and they took 0:02:34.840 --> 0:02:37.560 in a ton of money. Vanguard does have one, but 0:02:37.720 --> 0:02:41.920 it's sort of an interesting area where the vanguard effect 0:02:41.960 --> 0:02:45.120 is not really in play as much, and we explored 0:02:45.160 --> 0:02:47.840 that too. So there's just so many interesting angles to 0:02:47.880 --> 0:02:48.320 this story. 0:02:48.560 --> 0:02:52.160 Also, Eric, I am not going to be here for 0:02:52.200 --> 0:02:54.440 the rest of the episode because I have to go 0:02:54.480 --> 0:02:56.160 to my brother's wedding in central Oregon. 0:02:56.720 --> 0:02:58.160 Yeah what are you running out to catch a flight 0:02:58.280 --> 0:02:58.680 right now? 0:02:59.240 --> 0:03:02.679 And not quite yet, but it's gonna happen soon. So 0:03:02.919 --> 0:03:05.960 you're gonna have some guests on and you're gonna do 0:03:06.000 --> 0:03:07.880 all this by yourself. You're a big boy. I'm sure 0:03:07.880 --> 0:03:08.600 you can figure it out. 0:03:09.160 --> 0:03:11.320 Uh. Yeah, I'll miss you, but I'll be okay. Is 0:03:11.360 --> 0:03:12.919 this your older or younger brother? 0:03:13.639 --> 0:03:15.840 Four years younger? First time getting married? 0:03:16.080 --> 0:03:17.400 Wow? Wow? 0:03:17.880 --> 0:03:20.280 Bend Oregon and. 0:03:20.280 --> 0:03:24.639 What happens there? I'm picturing like stage coaches for some reason. No, No, 0:03:25.280 --> 0:03:25.880 Oregon Trail. 0:03:26.000 --> 0:03:29.839 Hi, you played Oregon Trail. Yeah, it's high desert man. 0:03:30.440 --> 0:03:33.600 The air smells like juniper. The golf is great. When 0:03:33.600 --> 0:03:36.760 the weather's a little bit nicer, you'd you know, be 0:03:36.880 --> 0:03:39.560 river rafting or something. It's a super it's like an 0:03:39.560 --> 0:03:44.600 outdoor paradise. It's it's truly a special place. This time 0:03:44.640 --> 0:03:46.760 on Trillian's Cash is King. 0:03:48.320 --> 0:03:51.480 All right, So today here we have Katie Greyfield from 0:03:51.480 --> 0:03:55.440 Bloomberg News, Mike Reagan from Bloomberg News, and Nafeas Smith, 0:03:55.560 --> 0:04:00.200 Principal and head of taxable money Markets at Vanguard. Welcome everybody, 0:04:00.480 --> 0:04:00.840 Thank you. 0:04:00.800 --> 0:04:01.920 It's good to be with you this morning. 0:04:02.160 --> 0:04:02.760 Thanks for having me. 0:04:02.840 --> 0:04:04.080 Eric, I'm thrilled to be here. 0:04:05.040 --> 0:04:08.400 So Mike, let's start with you. There's a BusinessWeek cover 0:04:08.520 --> 0:04:11.280 you wrote the cover story. Our team was passing it around. 0:04:11.320 --> 0:04:13.200 We thought it was great. The cover has the number 0:04:13.200 --> 0:04:16.400 four and it's like jacked. It's got like a six pack. 0:04:16.440 --> 0:04:20.040 It's really strong, and it speaks to the four percent 0:04:20.120 --> 0:04:23.040 plus yields on money funds, as if all of a sudden, 0:04:23.120 --> 0:04:26.919 something that is usually boring is really interesting. And so 0:04:27.080 --> 0:04:29.800 just talk about your article and what you some of 0:04:29.839 --> 0:04:32.040 the conclusions you came to Yeah. 0:04:31.360 --> 0:04:34.960 This was one of those Joel ideas where I think 0:04:35.400 --> 0:04:37.919 he and his friends probably having the same conversation that 0:04:38.200 --> 0:04:40.760 me and my friends and everyone's having now these days, 0:04:40.920 --> 0:04:42.920 is that wait a minute, all of a sudden, you 0:04:43.000 --> 0:04:46.479 can get a nice little yield in something as simple 0:04:46.520 --> 0:04:49.440 as a money market fund, or, as my story focused on, 0:04:49.680 --> 0:04:52.920 just write your old bank savings accounts. You know, remember 0:04:52.960 --> 0:04:55.080 a couple of years ago you basically needed to buy 0:04:55.160 --> 0:04:58.440 junk bonds to get four percent yield, and now you 0:04:58.440 --> 0:05:02.440 can get them in something is theoretically as safe as 0:05:02.920 --> 0:05:06.440 a bank savings account. But what's I find very fascinating 0:05:07.560 --> 0:05:10.640 is that yield in this point in time is high 0:05:10.760 --> 0:05:15.039 enough that people it raises eyebrows and they're like, they're 0:05:15.040 --> 0:05:17.560 almost looking at it like a risky asset, and I'm like, no, 0:05:17.640 --> 0:05:19.799 this is a bank savings account. This is what banks 0:05:19.800 --> 0:05:23.400 are supposed to do. But we've been trained to not 0:05:23.520 --> 0:05:26.359 expect yield from these vehicles, whether it be you know, 0:05:26.680 --> 0:05:29.880 a simple savings account or a money market mutual fund, 0:05:29.880 --> 0:05:34.320 from that ultra long era of zero percent interest rates. 0:05:34.320 --> 0:05:38.560 So one really fascinating thing that I noticed in the 0:05:38.600 --> 0:05:42.680 reporting of the story is that last year deposits at 0:05:42.839 --> 0:05:46.320 US banks actually fell for the first time since like 0:05:46.360 --> 0:05:49.320 the nineteen forties. You know, they just tend to steadily 0:05:49.360 --> 0:05:52.440 go up year after year. Last year they fell. I think, 0:05:52.520 --> 0:05:54.680 you know, there's a few different explanations given. One is 0:05:54.720 --> 0:06:00.719 every you know, companies and regular consumers and pop types 0:06:00.760 --> 0:06:03.880 had built up a pretty big savings during the pandemic, 0:06:03.960 --> 0:06:06.400 so they're starting to draw that down. But the other 0:06:06.440 --> 0:06:08.880 issue for banks, obviously is these these yields on money 0:06:08.880 --> 0:06:13.039 market funds. So there is quite an interesting competition among banks. 0:06:13.160 --> 0:06:16.560 The ones that have the wherewithal to raise their rates 0:06:16.560 --> 0:06:19.400 are raising them. Not all are you know, your basic 0:06:19.480 --> 0:06:23.479 chase savings account is still at zero point zero one percent, 0:06:24.080 --> 0:06:27.240 But all of a sudden, these younger, newer banks come 0:06:27.279 --> 0:06:29.880 out four four and a half. I found one above 0:06:29.960 --> 0:06:33.839 five percent. Right as I turned the story in for edit, 0:06:33.960 --> 0:06:37.000 Apple and Goldman came out with their high yield savings 0:06:37.000 --> 0:06:41.240 account above four percent. So it's just amazing how dramatically 0:06:41.600 --> 0:06:46.480 the opportunity set has shifted for investors. You know, even 0:06:46.560 --> 0:06:48.599 just parking your money in the bank can earn you 0:06:48.600 --> 0:06:49.679 a decent yield these days. 0:06:49.839 --> 0:06:51.679 And before we get to the feasts on how money 0:06:51.680 --> 0:06:53.719 markets work and what it's like to run one, Katie, 0:06:53.800 --> 0:06:55.760 real quick. You and I have been covering this on 0:06:55.800 --> 0:06:58.359 the ETF angle, So there's been a flood of money 0:06:58.360 --> 0:07:01.760 into treasury ETFs almost before the money market thing happened. 0:07:01.800 --> 0:07:04.120 So just talk a little bit about the dynamics with 0:07:04.279 --> 0:07:05.279 cash like ETFs. 0:07:05.520 --> 0:07:07.359 It's been really interesting. I mean, I feel like for 0:07:07.440 --> 0:07:10.160 the past year we've been talking about all the billions 0:07:10.160 --> 0:07:15.680 of dollars going into ultrashort duration ETFs. The more interesting 0:07:15.760 --> 0:07:18.920 thing is that for really all of twenty twenty three, 0:07:18.960 --> 0:07:22.600 it's been the money market funds, the traditional old school 0:07:22.720 --> 0:07:25.679 mutual money market funds that have been getting the bulk 0:07:25.720 --> 0:07:30.000 of these inflows versus the ultrashort duration ETFs that you 0:07:30.040 --> 0:07:33.240 and I speak about all the time. But I mean, overall, 0:07:33.400 --> 0:07:37.440 what really catches my attention is that cash and money 0:07:37.440 --> 0:07:41.400 market funds and these ultrashort duration ETFs for so long, 0:07:41.840 --> 0:07:44.720 and for good reasons sort of, the reputation was this 0:07:44.800 --> 0:07:47.480 is a place to park your money, this is haven 0:07:47.720 --> 0:07:51.680 safety seeking behavior. But that's not the case now now people, 0:07:51.800 --> 0:07:53.120 this is a yield hunt. 0:07:53.280 --> 0:07:55.800 Cash is trash, as they used to say, this is 0:07:55.800 --> 0:07:56.239 a trade. 0:07:56.280 --> 0:07:59.920 It's a tactical trade. And so Nafiez, you've seen your 0:08:00.040 --> 0:08:03.760 world get a lot of flows in the past, like 0:08:03.800 --> 0:08:06.360 in March twenty twenty. But again, as casey, that's normally 0:08:06.440 --> 0:08:09.760 a fear play. Now they're yielding something, I guess talk 0:08:09.800 --> 0:08:12.160 a little bit about what it's been like this, You know, 0:08:12.320 --> 0:08:15.280 hundreds of billions coming into money market funds. From your 0:08:15.320 --> 0:08:18.360 point of view, does it change anyway you invest? Are 0:08:18.400 --> 0:08:21.080 you holding the same things you did before? Give us 0:08:21.120 --> 0:08:21.960 some insight into that. 0:08:23.600 --> 0:08:25.880 Sure, Thank you again for the opportunity to speak with 0:08:25.880 --> 0:08:29.720 you all today. But as as noted, over the past month, 0:08:29.800 --> 0:08:33.079 we've seen tremendous inflows into money market funds. So as 0:08:33.080 --> 0:08:35.959 an industry we're up about three hundred and seventy five 0:08:36.000 --> 0:08:39.040 billion since March to ninth in terms of, you know, 0:08:39.080 --> 0:08:42.560 the way we're investing. The industry as a whole continues 0:08:42.600 --> 0:08:46.880 to maintain relatively short weighted average maturities when you consider 0:08:47.320 --> 0:08:50.760 how quickly interest rates have increased since the beginning of 0:08:51.000 --> 0:08:54.120 twenty twenty two. The Fed's been on this journey to 0:08:54.200 --> 0:08:57.360 combat inflation, which has been at a forty year high. 0:08:57.880 --> 0:08:59.679 You have to go back really to like the eighties 0:08:59.720 --> 0:09:02.760 or nine to find as a fast of a rate 0:09:02.800 --> 0:09:06.240 of change in short terms short term interest rates. So 0:09:06.280 --> 0:09:09.440 as a result, there's been this enormous incentive to keep 0:09:09.480 --> 0:09:14.000 money market funds relatively short in terms of interest rate risk. 0:09:14.640 --> 0:09:18.200 And I think that is true across the industry in 0:09:18.280 --> 0:09:20.640 terms of you know, what we've been buying. If you 0:09:20.640 --> 0:09:24.040 look across the industry and money market portfolios, you'll see 0:09:24.520 --> 0:09:29.800 some treasury securities. You'll see repo or repurchase agreements collateralized 0:09:30.040 --> 0:09:34.640 by treasury securities. Typically you'll see a heavy dose of 0:09:35.640 --> 0:09:39.480 US agency securities. This is primarily the federal home loan 0:09:39.520 --> 0:09:43.760 banking system. It's the big issuer in our marketplace. And 0:09:44.320 --> 0:09:47.959 prime products, which are you know, a little bit riskier 0:09:47.960 --> 0:09:50.360 than say a government fund or treasury fund. You'll see 0:09:50.800 --> 0:09:54.680 some short term credit like commercial paper or CDs. The 0:09:54.720 --> 0:10:00.000 opportunity set hasn't necessarily evolved throughout this recent time period. 0:10:00.240 --> 0:10:02.360 Given a rule to a sevens or rule to a 0:10:02.440 --> 0:10:05.920 seven is that the regulatory the sec regulatory framework that 0:10:05.960 --> 0:10:09.680 all money funds a bide buy and those rules are 0:10:09.679 --> 0:10:12.280 pretty prescriptive in terms of what a money fund can 0:10:12.559 --> 0:10:15.800 and cannot do. So you haven't really seen the opportunities 0:10:15.840 --> 0:10:18.359 that evolve over this recent. 0:10:18.080 --> 0:10:21.040 Period and fs, it's great to have you, and I 0:10:21.040 --> 0:10:24.160 think it really speaks to this unique situation that we're 0:10:24.160 --> 0:10:27.800 in that we're talking about mutual funds on what is 0:10:27.840 --> 0:10:31.000 an ETF podcast, and I feel like this whole episode 0:10:31.040 --> 0:10:34.160 has really sort of brought into the light the differences 0:10:34.200 --> 0:10:36.480 between these structures that Okay, Eric and I have been 0:10:36.520 --> 0:10:40.560 talking about ultra short duration ETFs, but that's different from 0:10:40.600 --> 0:10:43.600 a money market mutual fund. I'm hoping that you can 0:10:43.679 --> 0:10:46.000 just walk us through some of the key differences and 0:10:46.280 --> 0:10:48.920 when we talk about money market funds, what we're actually 0:10:48.920 --> 0:10:49.920 talking about. 0:10:50.440 --> 0:10:52.800 Sure a money market fund is it's a type of 0:10:52.880 --> 0:10:56.959 mutual fund that generally seeks to preserve an investor's principle 0:10:57.040 --> 0:10:59.800 and pay some level of income. Therefore, when we think 0:10:59.800 --> 0:11:02.800 of money funds, we typically think of them as having 0:11:02.880 --> 0:11:06.080 lower risk compared to like a fixed income ETF or 0:11:06.080 --> 0:11:10.000 fund or in equity mutual fund. Money market funds, as 0:11:10.000 --> 0:11:13.360 I mentioned, typically invest in high quality, short term debt 0:11:13.440 --> 0:11:17.439 securities that pay income that reflect prevailing interest rates in 0:11:17.600 --> 0:11:20.840 the marketplace. So money market fund rates typically will be 0:11:20.880 --> 0:11:25.080 more responsive to changes in voluntary policy than say like 0:11:25.120 --> 0:11:28.040 a bank deposit rate. In the US, as I mentioned, 0:11:28.520 --> 0:11:30.959 you know, money market funds are governed by Rule to 0:11:31.000 --> 0:11:33.960 A seven under the Investment Company Act of nineteen forty. 0:11:34.800 --> 0:11:38.760 Rule cha A seven dictates limits on many different things 0:11:38.760 --> 0:11:41.600 that money market funds can engage, and they put a 0:11:41.640 --> 0:11:43.720 limit on how much interest rate risk one can take, 0:11:43.960 --> 0:11:46.280 how to define liquidity, how much liquidity a money market 0:11:46.280 --> 0:11:49.080 fund can hold. And there's a whole host of duties 0:11:49.640 --> 0:11:51.440 that are listed in Rule to A seven that are 0:11:51.840 --> 0:11:54.719 money a money market fund manager must comply with. These 0:11:54.800 --> 0:11:58.280 rules have evolved over recent history to make the industry 0:11:58.880 --> 0:12:02.000 you know, much more transparent, much more resilient, which is 0:12:02.040 --> 0:12:04.400 one of the reasons why money market funds are so popular, 0:12:04.440 --> 0:12:07.719 particularly when the market is experiencing turmoil like it did 0:12:07.760 --> 0:12:10.200 back in in March of this year, or back during 0:12:10.240 --> 0:12:11.720 the pandemic. 0:12:12.320 --> 0:12:15.000 You know, Nephiez. As you point out, people turn the 0:12:15.040 --> 0:12:19.040 money market funds to preserve capital, often in times of 0:12:19.280 --> 0:12:22.640 stress in other parts of the market, and their reputation 0:12:23.080 --> 0:12:26.800 is pretty spotless as far as safety. You know, the 0:12:26.840 --> 0:12:29.120 only sort of example I can think of is the 0:12:29.160 --> 0:12:31.840 reserve fund back in the financial crisis that you know, 0:12:31.960 --> 0:12:35.160 quote unquote broke the buck, meaning the share price actually 0:12:35.160 --> 0:12:37.559 dipped slightly below one dollar. I think it was like 0:12:37.640 --> 0:12:41.800 ninety nine point whatever. So regardless of you know, a 0:12:41.840 --> 0:12:46.640 bank account having FDIC insurance, a money market fund doesn't, 0:12:46.679 --> 0:12:51.160 but still comes with it that reputation for being more 0:12:51.280 --> 0:12:54.360 or less riskless. But the one thing I'm wondering is, 0:12:55.280 --> 0:12:58.360 how are you thinking about this debt ceiling issue as 0:12:58.360 --> 0:13:01.360 it approaches. Is that sort of the one risk that 0:13:01.400 --> 0:13:03.920 could threaten a money market fund? 0:13:05.360 --> 0:13:07.800 So I think that the debt sailing of absolutely something 0:13:07.840 --> 0:13:12.320 that we pay attention to. It's something that is on 0:13:12.400 --> 0:13:16.560 the minds of a lot of market participants. Ultimately, our 0:13:16.640 --> 0:13:18.960 base case is that disc gets resolved in the market, 0:13:19.400 --> 0:13:20.199 we'll move past it. 0:13:28.320 --> 0:13:32.360 Let's go over that dollar nave. Why is that so important? 0:13:32.400 --> 0:13:36.400 Because especially if this isn't the money going into money 0:13:36.400 --> 0:13:39.360 market funds now, isn't for safety where you'd be like, 0:13:39.440 --> 0:13:41.200 I need that dollar nav, I'd just have to sleep 0:13:41.240 --> 0:13:43.880 at night. It's a yield play. So why is the 0:13:43.920 --> 0:13:46.360 dollar nav so important? Because when you look at the 0:13:46.360 --> 0:13:48.839 flows in the first quarter, as you said, there were 0:13:49.000 --> 0:13:52.600 hundreds of billions going into money market mutual funds versus 0:13:52.600 --> 0:13:56.760 say forty billion into treasury ETFs. Many of the treasure ETFs, 0:13:56.760 --> 0:13:59.800 I got to say, are cheaper. I mean, yours are comparable, 0:13:59.800 --> 0:14:02.160 but most money market funds are more expensive. We'll get 0:14:02.160 --> 0:14:04.480 to that in a minute. But why And also with 0:14:04.520 --> 0:14:08.240 the ETF you get interroday liquidity and arguably better tax efficiency. 0:14:08.520 --> 0:14:11.160 Is the dollar the stable dollar really that big of 0:14:11.200 --> 0:14:13.760 a deal when it's just a trade to get yield. 0:14:14.960 --> 0:14:17.760 So it depends on your objective, Right, are you after 0:14:17.880 --> 0:14:21.800 capital preservation or are you after a higher return that 0:14:21.880 --> 0:14:26.200 comes typically with additional risk, right, like duration risk or 0:14:26.200 --> 0:14:29.200 credit risk. The stable nav is important, right, even with 0:14:29.240 --> 0:14:31.760 short term debt securities. Right, there's interest rate risk and 0:14:31.760 --> 0:14:34.440 the potential to see your market value drop in the 0:14:34.440 --> 0:14:38.080 event of unexpected increase in short term interest rates. Given 0:14:38.120 --> 0:14:41.480 that we remain in this heightened inflationary environment, it seemed 0:14:41.480 --> 0:14:44.160 to be far from the all clear from the FED 0:14:44.200 --> 0:14:46.440 in terms of getting inflation back down to the fed's 0:14:46.600 --> 0:14:49.880 two percent target. There's a lot of value in the 0:14:49.880 --> 0:14:53.120 capital stability of a money market fund. This is particularly 0:14:53.160 --> 0:14:56.920 true for investors who may not have the clarity, if 0:14:56.960 --> 0:14:59.480 you will, as to when they'll need the cash that 0:14:59.520 --> 0:15:01.920 they have on and you don't necessarily want to be 0:15:01.920 --> 0:15:05.440 stuck with cash on hand and a floating navy product 0:15:05.520 --> 0:15:08.240 right after short term interest rates have gone up. That said, 0:15:08.240 --> 0:15:11.440 for investors who are willing to stomach the chance of 0:15:11.480 --> 0:15:16.240 some capital depreciation or appreciation, there's plenty of ultra short 0:15:16.360 --> 0:15:18.600 and fixed income options that offer a bit more yield 0:15:18.640 --> 0:15:23.440 and potential for capital growth. For example, we've seen investors 0:15:23.800 --> 0:15:28.880 gravitate toward our ultra short term bond ETF VUSB, which 0:15:28.920 --> 0:15:31.920 currently yields roughly twenty basis plants more than our treasury 0:15:32.320 --> 0:15:36.000 money market portfolio. But it's an actively managed fund, right 0:15:36.040 --> 0:15:39.680 and that fund seeks to perform its benchmark, whereas a 0:15:39.720 --> 0:15:43.720 money market fund. Money market funds designed for capital preservation. 0:15:43.800 --> 0:15:47.120 So I think it ultimately depends on what are your objectives. 0:15:48.000 --> 0:15:50.600 And one thing I looked at when I dissected the 0:15:50.600 --> 0:15:53.040 money market mutual fund flows, and it was a little 0:15:53.040 --> 0:15:55.960 bit of surprise to me, was that the quote Vanguard 0:15:55.960 --> 0:15:59.160 effect as I call it, really that the physics don't 0:15:59.160 --> 0:16:01.360 work there when you look at cash like ETFs or 0:16:01.400 --> 0:16:04.160 treasure ETFs, all the money goes to the cheapest products 0:16:04.200 --> 0:16:06.600 like it's basically the asset weighted fee is probably like 0:16:06.680 --> 0:16:09.240 seven to ten basis points when you look at the 0:16:09.280 --> 0:16:11.400 money market mutual fund space, and I know you probably 0:16:11.400 --> 0:16:14.360 love this question because you guys are almost alone in 0:16:14.400 --> 0:16:16.680 your cheapness. You have a thinkers as nine basis points, 0:16:17.120 --> 0:16:19.000 But the one that took in the most money was Fidelity, 0:16:19.040 --> 0:16:23.280 which is forty two basis points JP Morgan and Goldman. Again, 0:16:23.400 --> 0:16:27.240 this isn't really expensive, but when you have ETFs and 0:16:27.280 --> 0:16:31.400 your fund that's below ten BIPs, it just seems like 0:16:31.440 --> 0:16:35.040 the physics don't work the same here. Why are those 0:16:35.120 --> 0:16:37.760 money market funds able to sort of still command that 0:16:37.800 --> 0:16:41.760 fee and largely be immune from the Vanguard effect. 0:16:42.280 --> 0:16:46.600 There's probably a few reasons for this. One may simply 0:16:46.640 --> 0:16:49.360 be the fact that many investors don't think of cash 0:16:49.440 --> 0:16:53.440 as a traditional investment and therefore aren't applying and necessary 0:16:53.920 --> 0:16:56.600 or the same cost focus on that part of their 0:16:56.600 --> 0:17:00.280 portfolios as they would you know, bond fund or aquity 0:17:00.320 --> 0:17:04.760 fun In addition, for much of the last say fifteen years, 0:17:04.800 --> 0:17:07.800 and I think this point was made during the opening, 0:17:07.840 --> 0:17:11.960 money market funds have earned close to nothing right or 0:17:12.000 --> 0:17:14.800 have had their fees waived where all of a sudden, 0:17:14.840 --> 0:17:17.399 now in an environment where that is not the case, 0:17:18.320 --> 0:17:22.240 so might require some additional focus by investors on the 0:17:22.240 --> 0:17:25.439 fact that yields are higher and costs are lower at 0:17:25.440 --> 0:17:27.960 a place at a place like Vanguard. So only in 0:17:27.960 --> 0:17:30.400 the last twelve months or so has Vanguard's cost advantage 0:17:30.400 --> 0:17:34.760 really become apparent to investors once again. So assuming cash 0:17:34.800 --> 0:17:37.919 return stay positive for some duration of time, we do 0:17:38.000 --> 0:17:42.520 hope that investors will allocate tower, lower cost, higher quality 0:17:42.520 --> 0:17:43.400 solutions over time. 0:17:43.880 --> 0:17:45.840 I want to talk a little bit about Mike was 0:17:45.880 --> 0:17:48.679 speaking about at the beginning that you've had this impulse 0:17:48.760 --> 0:17:52.159 for people to take money out of banks, deposits to 0:17:52.240 --> 0:17:55.760 leave banks and go into likes of money market funds, which, 0:17:56.000 --> 0:17:58.160 to your point, it's a place you go where if 0:17:58.160 --> 0:18:01.240 you want to preserve capital. But we've talked a little 0:18:01.240 --> 0:18:04.439 bit about the difference between ETFs and money market funds. 0:18:04.480 --> 0:18:07.840 Maybe you can talk a little bit about whether people 0:18:07.920 --> 0:18:11.280 should be treating money market funds like they're a bank. 0:18:13.080 --> 0:18:15.280 So I think there's a strong argument to be made 0:18:15.400 --> 0:18:19.160 if you're talking about a specific type of money market 0:18:19.160 --> 0:18:23.480 fund and I'm thinking of US treasury funds or government funds. 0:18:24.359 --> 0:18:26.880 So treasury funds will typically invest, you know, at least 0:18:26.920 --> 0:18:28.439 ninety nine and a half percent of their assets. And 0:18:28.440 --> 0:18:32.879 treasury securities right or repot collateralized by treasuries you know, 0:18:32.920 --> 0:18:36.000 government funds will invest at least ninety nine and a 0:18:36.040 --> 0:18:38.440 half percent, and treasuries US agency debt, you know, repo 0:18:38.560 --> 0:18:42.680 collateralized by treasuries. I think we're talking about those types 0:18:42.720 --> 0:18:46.920 of instruments. There's a strong argument that the risk profile 0:18:46.960 --> 0:18:50.360 of those products is very similar to a bank deposit. 0:18:51.040 --> 0:18:53.200 You think about, you know, for a treasury right, it's 0:18:53.240 --> 0:18:55.520 backed by the full faith and credit right of the 0:18:55.560 --> 0:18:58.960 United States. So I think that making the argument that 0:18:59.119 --> 0:19:02.840 the risk profile while certain types of products is similar 0:19:02.840 --> 0:19:05.119 to a bank deposit, I think you can make that argument. 0:19:05.920 --> 0:19:10.199 Nafiz, I'm wondering. So often, when you see a deluge 0:19:10.320 --> 0:19:13.199 of inflows into money market funds, at least back in 0:19:13.280 --> 0:19:16.680 the low interest rate environment, a lot of people took 0:19:16.720 --> 0:19:18.960 that as sort of a bullish sign for the stock 0:19:19.000 --> 0:19:22.919 market and other risky assets, in that there was a 0:19:22.960 --> 0:19:25.560 lot of dry powder sitting on the sidelines. If there 0:19:25.640 --> 0:19:28.400 was a correction in the stock market, maybe that would 0:19:28.400 --> 0:19:30.920 all come back. I wonder if this time is different 0:19:31.160 --> 0:19:34.639 in your mind, you know, with people actually parking it 0:19:34.680 --> 0:19:38.440 there in many cases for the yield rather than the safety. 0:19:38.960 --> 0:19:41.679 Are those flows a little bit more sticky this time 0:19:42.119 --> 0:19:45.480 compared to say, the previous ten years after the financial crisis, 0:19:45.520 --> 0:19:50.159 when it really was just a capital preservation play. 0:19:50.119 --> 0:19:53.600 Yeah, I think it depends on how things evolve here 0:19:54.080 --> 0:19:56.320 in the short term. When you think about what's on 0:19:56.359 --> 0:20:00.960 the horizon, many economists are forecasting for, you know, mild 0:20:00.960 --> 0:20:04.560 recession at some point this year possibly and too early 0:20:04.840 --> 0:20:07.520 next year. You know, when that's on the horizon, that 0:20:07.560 --> 0:20:10.560 creates an incentive right to stay short, to kind of 0:20:10.560 --> 0:20:14.920 focus on capital preservation. So I would say that I 0:20:14.960 --> 0:20:19.560 would expect money marketphone assets to generally be sticky here 0:20:19.640 --> 0:20:21.520 on the short term, and then really it just depends 0:20:21.960 --> 0:20:24.840 on how the economic environment evolves over the next six 0:20:24.880 --> 0:20:25.720 to twelve months. 0:20:26.480 --> 0:20:29.040 So besides people who are short the market, you must 0:20:29.080 --> 0:20:35.159 be one of the rare people actually rooting for FED hikes. 0:20:36.080 --> 0:20:38.159 I think the FED should do whatever they think is 0:20:38.440 --> 0:20:40.680 in the best interests of economic conditions. 0:20:40.760 --> 0:20:43.000 All right, Your PR guys signed off on that one. 0:20:43.359 --> 0:20:49.800 Well done, interestingly, So I researched a Bogel intensely for 0:20:49.840 --> 0:20:52.160 a book I wrote recently, and one of the things. 0:20:52.160 --> 0:20:53.879 I didn't really cover this in my book too much, 0:20:53.920 --> 0:20:56.680 but when I read his book, Character counts give speeches, 0:20:57.480 --> 0:20:59.320 it's all his speeches over the years in like eighty 0:20:59.359 --> 0:21:03.000 two eighty three, Vanguards like has no money. Basically they're 0:21:03.080 --> 0:21:05.680 very small, but their money market funds start to become 0:21:05.680 --> 0:21:08.600 an early hit for them, and he says, I quote, 0:21:09.240 --> 0:21:12.000 the banks want their money back, they don't like it, 0:21:12.520 --> 0:21:16.120 and so that's when banks started launching mutual funds. Vanguard 0:21:16.200 --> 0:21:18.359 was about to steal like a lot more money, but 0:21:18.359 --> 0:21:21.040 they obviously got smart and came out with those themselves. 0:21:21.520 --> 0:21:25.119 So I guess in that whole reputation or I guess 0:21:25.320 --> 0:21:29.000 history of challenging the banks for their money. As Mike's 0:21:29.080 --> 0:21:32.520 question just alluded to, do you think the pressures on 0:21:32.640 --> 0:21:34.920 them to raise their rates? What do you think those 0:21:34.920 --> 0:21:38.399