Ok, everyone, time to go Treasury-only MMFs

Discussion of the Cash portion of the Permanent Portfolio

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Libertarian666
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Re: Ok, everyone, time to go Treasury-only MMFs

Post by Libertarian666 » Sat Apr 04, 2020 5:16 pm

jhogue wrote:
Sat Apr 04, 2020 5:05 pm
Libertarian666 wrote:
Fri Apr 03, 2020 8:31 pm
MangoMan wrote:
Fri Apr 03, 2020 8:08 pm
mathjak107 wrote:
Fri Apr 03, 2020 5:38 pm
Fidelity closed fdlxx to new investors on March 30th .....
Because there aren't enough Tbills to go around? :o
Probably not. It's because with 0 yields, it costs Fidelity money to maintain those accounts because they won't charge the customers for expenses.
Investors who have recently joined the rush into FDLXX, Fidelity’s Treasury Only Market Fund, might want to read the firm’s note, “Money Market Mutual Funds and Market Conditions, March 26, 2020,” a list of FAQs.
https://www.fidelity.com/bin-public/060 ... itions.pdf

This note preceded the fund’s closure to new investor at the end of the first quarter of 2020, just five days after this note. Fidelity will likely not explicitly say so, but I am fairly certain that the answer to why they closed the fund can be found in two FDLXX charts:

1. Net Shareholder Flows (Daily) chart of FDLXX:
https://fundresearch.fidelity.com/mutua ... /31617H300

This chart shows the massive rush into the fund that took place in March; a classic flight-to-safety scenario of market participants buying up T-bills as the stock market crashed.


2. Daily Market value chart of FDLXX:
https://fundresearch.fidelity.com/mutua ... /31617H300

Note the spike in the price of the fund as market liquidity evaporated. Can’t operate a money market fund without liquidity; hence the need to slam the door shut. The expense ratio that the fund charges is set independently of the overall yield of the T-bills in its portfolio.
The expense ratio is set independently only insofar as Fidelity isn't absorbing those expenses.
Are they going to reduce the NAV of FDLXX to pay expenses?
Because that's what would be needed with a 0% yield on the T-Bills unless Fidelity is absorbing those expenses.

Ok, maybe that's not how they would handle it. Apparently they would just start charging a fee.
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Re: Ok, everyone, time to go Treasury-only MMFs

Post by jhogue » Thu Apr 09, 2020 1:03 pm

An article about FDLXX (Fidelity's Treasury Only Money Market Fund) that expands on its closure to new investors, 31 March 2020. I currently keep FDLXX as cash for both taxable and tax-deferred accounts. Apparently, lots of other investors have suddenly awakened to the singular quality of US Treasury-backed securities in the midst of the biggest market panic since 1929.

https://theconservativeinvestordaily.co ... investors/
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: Ok, everyone, time to go Treasury-only MMFs

Post by jhogue » Sun Apr 19, 2020 8:58 am

Libertarian666 wrote:
Mon Mar 16, 2020 6:46 am
Fidelity has FDLXX, which contains only T-Bills and Treasury coupons.
You can keep all your cash in it even though it isn't eligible to be a core account; you just have to buy and sell it when you need money.
I've just entered orders to do that at the open.
The money markets are going to be in turmoil.

Stay safe.

(Edited because apparently it doesn't trade intra-day. However, you can still withdraw funds and they will sell whatever is needed at the end of the day.)
Investors who bought FDLXX because it contains ONLY T-bills and coupons should be aware that the fund has now begun buying a significant chunk of TIPS for its portfolio (7.2%), according to the 3.31.2020 Monthly Holdings Report which it has to file with the SEC. I have owned FDLXX in taxable and tax deferred accounts for over 5 years and do not recall seeing any TIPS in the fund's portfolio until now.

While TIPS are Treasury-issued securities, as mandated by the fund's prospectus, they do not behave in the same manner as T-bills. Their yield can go negative in an environment of falling interest rates and they have a different tax treatment. Long time members of this forum may recall that TIPS were craig's least favorite bond, for those among other reasons.

Whether this new development in the fund's strategy poses a problem for HBPP investors remains to be seen, but we will certainly want to scrutinize the fund's holdings going forward.
Last edited by jhogue on Sun Apr 19, 2020 9:16 am, edited 6 times in total.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: Ok, everyone, time to go Treasury-only MMFs

Post by mathjak107 » Sun Apr 19, 2020 9:00 am

fidelity is propping up fdlxx or it would be minus now
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Re: Ok, everyone, time to go Treasury-only MMFs

Post by jhogue » Sun Apr 19, 2020 9:25 am

mathjak107 wrote:
Sun Apr 19, 2020 9:00 am
fidelity is propping up fdlxx or it would be minus now
That would be one interpretation, and it would align with Fidelity's abrupt decision to close the fund to new investors.

On the other hand, rather than buying short duration TIPS for the fund, Fidelity could also have voluntarily waived some of its fee (+0.42%), which is one of the highest in the industry, as I recall. With $1 trillion in money market funds alone under management, the firm could have easily absorbed some fees, rather than resorting to this sleight-of-hand-- which it did without notifying its retail investors like you and me.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: Ok, everyone, time to go Treasury-only MMFs

Post by jhogue » Sun Apr 19, 2020 10:07 am

We need not worry ourselves that Fidelity will look after its own profits.

What I am suggesting is that they might have practiced a bit more enlightened self-interest.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: Ok, everyone, time to go Treasury-only MMFs

Post by Libertarian666 » Sun Apr 19, 2020 11:08 am

jhogue wrote:
Sun Apr 19, 2020 8:58 am
Libertarian666 wrote:
Mon Mar 16, 2020 6:46 am
Fidelity has FDLXX, which contains only T-Bills and Treasury coupons.
You can keep all your cash in it even though it isn't eligible to be a core account; you just have to buy and sell it when you need money.
I've just entered orders to do that at the open.
The money markets are going to be in turmoil.

Stay safe.

(Edited because apparently it doesn't trade intra-day. However, you can still withdraw funds and they will sell whatever is needed at the end of the day.)
Investors who bought FDLXX because it contains ONLY T-bills and coupons should be aware that the fund has now begun buying a significant chunk of TIPS for its portfolio (7.2%), according to the 3.31.2020 Monthly Holdings Report which it has to file with the SEC. I have owned FDLXX in taxable and tax deferred accounts for over 5 years and do not recall seeing any TIPS in the fund's portfolio until now.

While TIPS are Treasury-issued securities, as mandated by the fund's prospectus, they do not behave in the same manner as T-bills. Their yield can go negative in an environment of falling interest rates and they have a different tax treatment. Long time members of this forum may recall that TIPS were craig's least favorite bond, for those among other reasons.

Whether this new development in the fund's strategy poses a problem for HBPP investors remains to be seen, but we will certainly want to scrutinize the fund's holdings going forward.
Thanks for the heads up. 7% isn't enough to make me too nervous but if it gets much higher I'll probably just buy T-bills with most of those funds.
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Re: Ok, everyone, time to go Treasury-only MMFs

Post by jhogue » Fri Apr 24, 2020 2:07 pm

jhogue wrote:
Sun Apr 19, 2020 9:25 am
mathjak107 wrote:
Sun Apr 19, 2020 9:00 am
fidelity is propping up fdlxx or it would be minus now
That would be one interpretation, and it would align with Fidelity's abrupt decision to close the fund to new investors.

On the other hand, rather than buying short duration TIPS for the fund, Fidelity could also have voluntarily waived some of its fee (+0.42%), which is one of the highest in the industry, as I recall. With $1 trillion in money market funds alone under management, the firm could have easily absorbed some fees, rather than resorting to this sleight-of-hand-- which it did without notifying its retail investors like you and me.
This just in:

Fidelity has just posted a supplement to its prospectus for its Treasury Only Money Market Fund (FDLXX) prospectus dated 22 April 2020 that cuts its management fee from 0.42% to 0.25% and states the following:

"In order to avoid a negative yield, FMR may reimburse expenses or waive fees of Fidelity® Government Money Market Fund. Any such waivers or expense reimbursement would be voluntary and could be discontinued at any time. There is no guarantee that Fidelity® Government Money Market Fund will be able to avoid a negative yield."


Of further interest, Fidelity left themselves added another line that allows them to charge up to 0.17% in "Other Expenses" (which it declined to specify in greater detail).
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: Ok, everyone, time to go Treasury-only MMFs

Post by jhogue » Fri Apr 24, 2020 2:23 pm

jhogue wrote:
Fri Apr 24, 2020 2:07 pm
jhogue wrote:
Sun Apr 19, 2020 9:25 am
mathjak107 wrote:
Sun Apr 19, 2020 9:00 am
fidelity is propping up fdlxx or it would be minus now
That would be one interpretation, and it would align with Fidelity's abrupt decision to close the fund to new investors.

On the other hand, rather than buying short duration TIPS for the fund, Fidelity could also have voluntarily waived some of its fee (+0.42%), which is one of the highest in the industry, as I recall. With $1 trillion in money market funds alone under management, the firm could have easily absorbed some fees, rather than resorting to this sleight-of-hand-- which it did without notifying its retail investors like you and me.
This just in:

Fidelity has just posted a supplement to its prospectus for its Treasury Only Money Market Fund (FDLXX) prospectus dated 22 April 2020 that cuts its management fee from 0.42% to 0.25% noting the following:

"In order to avoid a negative yield, FMR may reimburse expenses or waive fees of Fidelity® Treasury Only Money Market Fund. Any such waivers or expense reimbursement would be voluntary and could be discontinued at any time. There is no guarantee that Fidelity® Treasury Only Money Market Fund will be able to avoid a negative yield"


Of further interest, Fidelity added a new line that now allows them to charge up to 0.17% in "Other Expenses" (which it declined to specify in greater detail).
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: Ok, everyone, time to go Treasury-only MMFs

Post by jhogue » Fri Apr 24, 2020 2:51 pm

I suppose it is understandable that Fidelity might suddenly close FDLXX to new investors. They are worried they can't handle a flood of too much new money chasing too few Treasurys -- which may also add downward pressure on the fund's yield. That could be construed to be in the interests of the pre-existing investors.

The sudden addition of short-dated TIPS to the portfolio and the publication of a revised expense schedule-- the one coming right after the other-- is beginning to look fishy to me. I think they are afraid of being caught carrying a ludicrously high expense money market fund sporting a potentially negative interest rate.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: Ok, everyone, time to go Treasury-only MMFs

Post by Tortoise » Fri Apr 24, 2020 3:23 pm

jhogue wrote:
Fri Apr 24, 2020 2:51 pm
I suppose it is understandable that Fidelity might suddenly close FDLXX to new investors. They are worried they can't handle a flood of too much new money chasing too few Treasurys -- which may also add downward pressure on the fund's yield.
My understanding is that the main reason why companies sometimes close their Treasury MMFs to new investors is because they don’t want to dilute the fund’s existing (higher-yielding) T-bills with newly purchased (lower-yielding) T-bills.

In other words, I think the company is concerned about new investors’ effect on its own fund, not on their effect on overall Treasury market supply and demand (“too much new money chasing too few Treasurys”).
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Re: Ok, everyone, time to go Treasury-only MMFs

Post by jhogue » Sat Apr 25, 2020 3:44 pm

Sorry that my choice of words was not clear. I did not mean to imply that Fidelity believes it could alter the price or yield of the Treasury secondary market by its actions.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: Ok, everyone, time to go Treasury-only MMFs

Post by sophie » Sun Apr 26, 2020 8:43 am

I noticed the same thing about the change in ER.

I actually applaud Fidelity for this announcement. It looks like they are going to great lengths to keep the yield from going negative, including taking a haircut on the expenses. And, I would rather see them add a small slice of TIPS than make like Vanguard and start resorting to repurchase agreements.
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Re: Ok, everyone, time to go Treasury-only MMFs

Post by jhogue » Sun Apr 26, 2020 10:15 am

Sophie,
I am presently of two minds regarding the management of FDLXX. Some of their actions appear to be protective of the interests of the pre-existing shareholders- like closing the fund to new investors in the midst of the recent panic-driven flight to quality.

On the other hand, FDLXX’s managers are charging some of the highest fees in the industry. That in turn generates a whopping $21 million annually (based on their roughly $5 billion in assets in FDLXX alone). SPAXX is even larger and still more lucrative. Doesn’t seem like much of a “haircut” to me.

Given the enormous size of their money market assets under management Fidelity should be charging the lowest expense ratio in the industry, not the highest. By law, Fidelity is required to manage the fund in the interest of its investors—who are also shareholders. Are they doing that?

I hope your sentiments are right and mine are wrong.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: Ok, everyone, time to go Treasury-only MMFs

Post by mathjak107 » Mon Apr 27, 2020 5:35 am

actually if fidelity was not supporting the treasury money markets they would be negative . fzfxx shows without being propped up it would be at minus .07%
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Re: Ok, everyone, time to go Treasury-only MMFs

Post by jhogue » Mon Apr 27, 2020 7:13 am

According to Fidelity's own website, FZFXX also has a gross expense ratio of 0.42% and current assets under management of $28 billion. That yields the firm about $118 million in profits annually. The question is, do you think the fund's shareholders are well-served by its present fee structure in exchange for trading relatively simple securities that have no principal risk?

By the way, as of 3/31/2020, FZFXX contained 66.49% repos, which are not protected by FDIC but do have a systemic risk that Permanent Portfolio investors in T-bills are trying to avoid.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: Ok, everyone, time to go Treasury-only MMFs

Post by mathjak107 » Mon Apr 27, 2020 11:58 am

jhogue wrote:
Mon Apr 27, 2020 7:13 am
According to Fidelity's own website, FZFXX also has a gross expense ratio of 0.42% and current assets under management of $28 billion. That yields the firm about $118 million in profits annually. The question is, do you think the fund's shareholders are well-served by its present fee structure in exchange for trading relatively simple securities that have no principal risk?

By the way, as of 3/31/2020, FZFXX contained 66.49% repos, which are not protected by FDIC but do have a systemic risk that Permanent Portfolio investors in T-bills are trying to avoid.
Yes ,,, don’t forget 3 and 6 month t bills had turned negative ...the funds were kept positive
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Re: Ok, everyone, time to go Treasury-only MMFs

Post by jhogue » Mon Apr 27, 2020 2:51 pm

mathjak,

I don't think that you substantively addressed my question in my previous post.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: Ok, everyone, time to go Treasury-only MMFs

Post by mathjak107 » Mon Apr 27, 2020 3:43 pm

I have no problem with fidelity and their expenses on the cash ....I don’t hold much cash in a money market and I like the convince of having everything centralized ...I tend to use cash like etfs like shv or bil.

The day I have to worry about a fraction of a point on cash more or less is the day I have to review my portfolio strategy ....when it comes to cash I go with what is easiest to use
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Re: Ok, everyone, time to go Treasury-only MMFs

Post by jhogue » Tue Apr 28, 2020 7:10 am

mathjak,

What you just posted here is inconsistent with what you said in another thread three weeks ago:

“Re: How do you invest the Cash portion?
• Quote
Post by mathjak107 » Sat Apr 04, 2020 4:55 am
we are holding a lot of cash now , most being reinvested in drips and drabs .

we have about 1 million in fdlxx , and 500k in gov't money markets and banks . these are the highest cash levels i can ever remember having ...

with bond funds that are not treasuries being beat up i pulled about 1/2 out of total and corporate bond funds and prefer cash , until i re-deploy it all .. “

Holding $1.5 million in money market funds, even in the short term, seems reason enough to “worry about a fraction of a point on cash.”
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: Ok, everyone, time to go Treasury-only MMFs

Post by mathjak107 » Tue Apr 28, 2020 3:56 pm

Most of that cash has been reinvested since then .....both in the pp on the dips and my other models...cash is a fraction of what it was ..

The bond funds stabilized and stopped plunging and I was able to rebuy less than I sold pocketing the difference.

. I also took advantage of a good deal citi bank had ...we got 1100 bucks for opening an account for 90 days plus 1.50% interest..
I got 700 for 50k in an account in my name , 15k in an account in my wife’s name got 300 and they gave me 100 bucks for referring my wife....

Crazy deal .. I think they still have it going ...plus if anyone says someone with an account does it they give them a hundred dollar referral bonus ....someone on another forum mentioned my name when they did it and I got 100 bucks
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