Not only that, but prime funds can no longer be used as “sweep” accounts that accept regular deposits from investors, or as settlement accounts to handle to proceeds and expenses of trading.
Thus, prime money market funds are no longer a good analogue for a cash position, says Swenson, adding that advisors should use government funds instead.
Yet government money market funds typically have lower yields than their institutional and retail prime cousins, which is why investors may also want to consider buying ultra-short term bonds with a portion of what would normally be their “cash” position.
“We also look for short- and ultra-short duration products that will yield between 1 and 1.8 percent,” says Swensen. “That gives people a chance to gain a little return from the risk they’re taking, and there’s additional income with little additional risk to be found on the yield curve if you move just beyond the money market fund space.
“Ultimately, a product that was around for 20 years is gone on Oct. 14. The prime fund as we knew it is dead. Government money market funds and ultra short bonds are the future of your cash allocations.”