Fidelity shuts three money market funds to most new investors

By Herbert Lash

NEW YORK, March 31 (Reuters) – Fidelity Investments, one of the world’s largest asset managers, on Tuesday closed three money market funds to new investors to protect the return of existing shareholders after the Federal Reserve this month cut short-term interest rates to near zero.

Restricting the money flow into the three funds will help reduce the number of new Treasury securities paying lower yields that Fidelity will need to purchase and thereby halt the dilution of existing shareholder returns.

“Newer issues generally have lower yields than the funds’ current holdings, and as such they would affect the funds’ ability to continue to deliver positive net yields to shareholders,” Boston-based Fidelity said in a statement.

Fidelity Treasury Only Money Market Fund, FIMM Treasury Only Portfolio and FIMM Treasury Portfolio had a cumulative $85.5 billion as of Monday, said the closely-held asset manager best known for actively managed funds.

Yields already were low before markets plunged a month ago, making it more difficult to invest incremental capital after the Fed cut rates to near zero, Mike Terwilliger, portfolio manager of the Resource Credit Income Fund at Resource America said.

“That yield-starved environment is going to be looking a lot more challenging on a go-forward basis,” he said. “It underscores the challenges of traditional fixed income funds broadly.”

Fidelity said existing shareholders can add to their investments in the three funds, and 401(k)-type retirement plans that already offer the three funds also will accept new investors, Fidelity said in a statement.

Assets in the three funds had soared by more than $23 billion this month as investors rushed to turn other investments into cash as the market plunged, said the Financial Times, which earlier reported the closing of the funds. (Reporting by Herbert Lash Editing by Alistair Bell)

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