Money

T. Rowe Worth Is Pruning Its Cash Funds. Will It Cease There?

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Dream time

In another example of how zero interest rates damage money market fund space,

T. Rowe price group

announced this week that it would be Liquidation of a money fund and merge two others from existence.

The two funds to be incorporated into the T. Rowe Price (ticker: PTEXX) tax-free money fund on August 23 are T. Rowe Price New York Tax-Free Money (NYTXX) and T. Rowe Price California Tax-Free Money ( PCTXX). This should come as no surprise. “You can’t get zero income tax exemptions,” jokes Peter Crane, president of Crane Data, a money market tracking company. “The surprise is in the Muni room [T. Rowe] doesn’t quite come out. ”

Indeed, if you look at the returns on the $ 47 million New York Tax Free Money Fund on T. Rowe’s websiteYou will see that it only pays 0.01% after the fund’s fees are waived. Without this fee exemption, the return is -0.82%. The US $ 67 million California Tax-Free Money Fund is now has a return after fee of -0.73%. While the $ 535 million T. Rowe Price Tax-Exempt Money fund is larger and more flexible in finding Muni bonds with the highest yielding in any state, it would still yield -0.45 without a fee exemption Achieve%.

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Single-state money funds, which have the lowest returns and are expensive to operate on their own, are most likely to be liquidated recent closings the Vanguard Group’s monetary funds in Pennsylvania and New Jersey indicate this. Crane called such funds an endangered species. “ Given that T. Rowe is small potatoes – $ 47 billion in a $ 4.6 trillion money fund market dominated by giants like Vanguard,

BlackRock,

and Fidelity Investments – it’s hard to justify keeping these funds.

Regarding the mergers, T. Rowe spokesman Bill Benintende said in an email, “The restructuring is designed to enable all shareholders to capitalize on potential economies of scale and reduce inefficiencies. The three funds share the same portfolio manager. “But why would anyone want a Muni money market fund with a 0.01% return and fee waivers? “Some people just don’t want to pay taxes,” notes Crane, even when there is no income for taxes to be paid.

Liquidating the $ 21 million T. Rowe Price Institutional Cash Reserves (ICFXX), which it claims to be due on May 7, makes more sense, but only if you understand the specific rules of money market funds. There is another much larger retail stock class of Cash Reserves (TSCXX) with assets of $ 4.1 billion. Why not merge the two? While retail money funds have a stable price of USD 1 or a stable net asset value, institutional funds have a variable net asset value due to a regulatory change in 2016. Despite an identical strategy, the “Institutional Cash Reserves Fund” cannot legally be merged with the Cash Reserves Fund because it has a variable net asset value, ”says Benintende.

The good news is that at the same time as the institutional version is being wound up, T. Rowe is reducing the management fee for the cash reserve retail share class from 0.45% to 0.40%. In addition, the fee for the tax-free money fund will be reduced from 0.28% to 0.19%. Not that you’d notice it in a zero rate environment. After opting out, you will still receive 0.01%.

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