Investments by MMF

What kind of instruments do triple-A rated money market funds invest in?

Triple-A rated money market funds invest in short-term, high-quality money market instruments.  Typically these instruments include short-term government securities, repo, time deposits, certificates of deposit, commercial paper and floating rate notes. Strict credit criteria apply to the selection of these instruments as well.

Data showing the average Prime fund composition as at June 2010 can be found here.

Are triple-A rated funds guaranteed?

No.  For all three credit ratings agencies offering money market fund ratings (Fitch, Moody's, S&P), the triple-A fund rating reflects the ability of a fund to preserve capital rather than guarantee it.  Just as corporate issuers with a triple-A rating may be downgraded or default, funds with a triple-A rating are not guaranteed.

Do triple-A rated funds only invest in triple-A rated securities?

No. Triple-A rated funds are deemed to offer the highest level of capital preservation, but this is achieved through investment in securities which are short-term, high-quality and well-diversified.  Taking these three factors into consideration, fund managers can construct portfolios to satisfy the strict criteria necessary to qualify for a triple-A fund rating.

What are the diversification requirements for a triple-A rated fund?

UCITS funds may not have an exposure of more than 5% of the fund's assets to a single issuer, though this limit is raised to 10% in certain domiciles.  The total allocated to individual issuers whose exposures are in excess of 5% of the fund's assets should not be greater than 40% of the assets of the fund. 

For triple-A funds, credit rating agencies regularly review the diversification of fund investments in addition to verifying the aforementioned legal limits.

What benchmarks are used by triple-A rated funds?

Money market funds use different benchmarks to compare the performance of funds, though these are generally short-term interest rates.  The main indices are EONIA, LIBID and SONIA.