- With the S&P 500 setting several all-time highs in recent weeks, investors appear to be in “risk on” mode. The growth in money market mutual funds—reaching $6.4 trillion at the end of 3Q, up from $5.9 trillion at the start of the year—might suggest significant cash poised to flow into riskier assets.
- Money market fund assets have grown at a 14.3% CAGR from the end of 2018 through 3Q24, outpacing the 13.6% CAGR of equity fund and ETF assets over the same period.
- However, money market fund assets aren’t unusually high compared to equity mutual fund and ETF assets. At the end of 3Q, money market fund assets were 29.3% of the size of equity funds, a lower proportion than in 2022 and 2023. Including bank deposits, Federal Reserve data shows household cash as a share of financial assets declined slightly between the end of 2021 and 2Q24.
- This cash on the sidelines shouldn’t be seen as dry powder for equity funds. Instead, many investors are likely allocating to money market funds over fixed-income funds, opting for low-risk yields while sacrificing potential capital appreciation. We expect this trend to continue as long as the inverted yield curve keeps money market funds’ yields competitive.
