Money market mutual funds hit record low in April

The average yield for money market mutual funds hit a record low in April, according to Crane Data LLC.

The Crane 100 Money Fund Index, which is an average of the 100 largest taxable money funds’ latest seven-day yields, found that the average yield fell to 0.38% in April, net of fees, from 0.43% the previous month.

“Yields cannot get much lower,” said Pete Crane, president of Crane Data, a Westboro, Mass.-based research firm focused on money funds.

The Crane Money Fund Average Index, which comprises 886 taxable money funds, also fell 5 percentage points and hit a record low of 0.21%.

The yields are tied into the interest rates set by the Federal Reserve Bank, Mr. Crane said.

Prior to the Federal Reserve’s recent rate cuts, which began in the fall of 2007, the Crane 100 Money Fund Index had an average yield of 4.98% April 2007.

The Crane 100 had a one-year return of 1.6% and average annualized returns of 3.68% for the three-year period and 3.23% for the five-year period.

The only other time period when yields were close to the latest low was in 2003 and 2004 when yields reached as low as 0.5%, Mr. Crane said.

Yields on money funds will rise when the Federal Reserve boosts the interest rates, he said. Whether that happens in 2009 is a matter for debate, Mr. Crane said.

In spite of the low yields, the need for fund firms to waive management fees is not likely widespread in the industry, he said.

In April, the average gross yield for the Crane 100 Money Fund Index was 0.75%, and the average expense ratio was 0.37%, according to the data.

“The funds with expense ratios of more than 0.75% are the ones waiving fees, and those funds are few and far between,” Mr. Crane said.

“The issue of fee waivers is not enough to push people out of this business.”