Prime Money Market Funds Gaining Favor Again

Investors had previously shown more interest in government funds due to money market fund regulation.

Long-term mutual funds and exchange-traded products (ETPs) experienced net deposits of $79.4 billion in February, an increase from the $58 billion in net new flows seen in January, according to Strategic Insight, parent company of PLANADVISER.

Passive strategies continued to lead demand among long-term funds with inflows of $65.6 billion (including $43.5 billion to ETPs). Active long-term funds reversed the aggregate outflows they had experienced in recent months with net deposits of $13.8 billion in February, compared to $13.8 billion in net redemptions in January.

Taxable Bonds experienced the highest net deposits among long-term funds at $37.6 billion. Taxable Bond funds experienced net inflows across both passive ($17.8 billion) and active ($19.8 billion) funds. Tax-Free Bond funds experienced minor inflows of $2.1 billion in February.

Domestic Equity led among Equity funds in February and saw a significant improvement in net deposits at $24.6 billion, compared to $5.4 billion in January. International Equity funds experienced a similar level of net deposits last month, seeing $15.1 billion in February and $15.3 billion in January. Among Domestic Equity funds, outflows were concentrated in active products ($9.1 billion), while International Equity funds saw net inflows across both passive ($14.2 billion) and active ($864 million) segments.

Money Market funds continued to experience net redemptions in February, but at a more favorable level of $2.0 billion compared to $44.6 billion of outflows in January. Among Taxable Money Market funds, prime funds led inflows at $9.9 billion, while treasury and government funds saw outflows of $4.5 billion and $7 billion, respectively. Bifurcation in demand within this space had previously favored government funds, driven by money market fund regulation.