In this case, it’s not really a waiver but a deferral of fees and, as stated in the last sentence of the footnote, applying these additional deferred fees on the fund could well have the affect of keeping the interest paid to investors down for a lengthy period.
Stable value funds are soap box racers that now face constraints that will limit their top speed. Our money market funds will soon have the performance attributes of a pinewood derby car dressed up as a turtle, with a smallish piano on its back. I haven’t read the official pinewood derby rule book as of yet, but this does not sound like a winning configuration.
A number of money market funds already post their actual daily asset values. Floating NAV money market funds have been in place for several years in Europe. As this latest reform essentially only involves about a third of the money market universe (prime funds) and will be phased in over two years it is hard to predict what impact this will have – particularly with the dearth of available options for those looking for what they believe to be a risk-free rate of return.
When the potential upside of a stable value fund – versus a money market fund — was 1.5%, it was easier to justify the complexity of the investment.
If you find you’ve now run afoul of the equity wash restrictions, there is, by design, little you can do to avoid them. Here are a few ideas that may be worth considering…
The takeaway for investors is that the paranoia on the part of the stable value managers has resulted in real life limitations. Many employers will offer only a stable value or money market option – not both. If there is no competing option, then there is no need for an equity wash.
I think I should clear up some misconceptions about this Treasury Money Market Guarantee Program and what it actually means.
Stable value and money market funds have more differences than similarities. These differences do not necessarily make one better than the other but it is fair to say that the average stable value fund should credit a higher rate of interest than the average money market fund over the long haul.