Government money market mutual funds include funds that only invest in U.S. Treasury securities, funds that invest in both U.S. Treasury securities and repurchase agreements collateralized by such securities, and the broadest type of funds, those that invest in U.S. Treasury securities, collateralized repurchase agreements and other government securities. Government money market funds are commonly favored by investors who are more concerned with minimizing risk than with reaching for maximum yield, because these funds carry minimal credit risk and maximum stability and also because they are an extremely liquid and convenient investment vehicle for investors to park cash in.
Nearly all mutual fund providers offer one or more government money market funds. Among the most widely held funds in this category are those offered by the two mutual fund giants, Fidelity Investments and Vanguard. However, one of the top choices also comes from American Century, who helped to popularize the investments.
American Century Capital Preservation Fund (CPFXX)
The American Century Investments Capital Preservation Fund Investor Class (CPFXX) was launched by American Century in 1972, and had $2,063,453,981.36 in total assets under management (AUM), as of October 2018. The fund's primary investment goal is maximum safety and liquidity. The fund also aims for the highest possible yield return consistent with its primary goal and asset mix, which consists of cash and Treasury bills, bonds or notes. Ordinarily, the fund is invested solely in short-term U.S. Treasury money market securities. The weighted average maturity of the Fund’s portfolio holdings is 45 days.
The gross annual expense ratio for the Capital Preservation Fund was 0.48% as of October 2018. Its one-year total return as of October 17, 2018 is 1.15%. This mutual fund is appropriate for investors whose current investment goals align with those of the strategy and who are seeking a pure play government money market fund that invests exclusively in U.S. Treasury securities.
Fidelity Government Money Market Fund (SPAXX)
Fidelity launched the Fidelity Government Money Market Fund (SPAXX) in 1990. The fund has $107,515.56 million in total assets, making it one of the most widely held funds in this category. The investment goal of this mutual fund is essentially the same as that of the American Century Capital Preservation Fund: the highest possible yield return consistent with the assets the fund holds and with a maximum capital preservation and liquidity strategy. The fund is typically 99.5% or more invested in cash or cash equivalents in the form of short-term U.S. government securities or repurchase agreements that are fully collateralized by cash or such securities. Some U.S. government securities are issued by duly authorized government agencies but are not directly issued nor guaranteed by the U.S. Treasury. In selecting the fund's investments, the Fund’s management team focuses on maintaining a stable $1 net asset value (NAV) share price and on liquidity and income. The weighted average maturity of the portfolio holdings is 36 days.
As of October 2018, the Fund’s top holdings included the following: U.S. Government Repurchase Agreements 48.62% ,Agency Floating-Rate Securities 25.81%, Agency Fixed-Rate Securities 14.52% and U.S. Treasury Bills 8.72%. The Fund’s expense ratio is 0.42%. It has a dividend yield of 1.18%. Its one-year total return with the dividend is 1.25%. This fund is well-suited for investors who prefer the broader range of investments included, such as U.S. government agency securities and repurchase agreements.
Vanguard Federal Money Market Fund (VMFXX)
Vanguard launched the Vanguard Federal Money Market Fund (VMFXX) in 1981. Total AUM as of October 2018 is $102.5 billion. This fund has the same investment aims of providing capital preservation and current income through investing in high-quality, short-term U.S. government securities. Vanguard states that this is one of its most conservative funds of any type and, therefore, it is well-suited for investors whose primary concern is risk avoidance and preservation of capital. As of September 30, 2018, the Fund’s top allocation was to U.S. Treasury bills at 56%. The average maturity of the portfolio holdings was 56 days. The expense ratio for the Vanguard Federal Money Market Fund is 0.11%. The dividend yield is 1.49%. The one-year total return is 1.55%.
The Bottom Line
The search for money market mutual funds can at times be challenging. Investors often use money market mutual funds as an alternative to standard checking and savings accounts. Across the risk spectrum they generally have no risk (albeit the disasters of the financial crisis) and their returns will typically fall between a standard large bank savings product and the options for certificates of deposit and high yield savings accounts. Across the industry some money market accounts and funds can come with withdrawal or check writing features that add to their liquidity appeal. Similar to the search for other low-cost products, some of the best low-cost money market funds can be ones that are marketed and invested in directly from brokerage platforms like Vanguard, Fidelity and Schwab.