Friday, August 17, 2007

A 33-year WAM is not sufficient to call it a "Money Market Fund"

by Ken Houghton

Much fooforah yesterday about Sentinel's 33-year Weighted-Average Maturity "Money Market Fund." The record begins to straighten out:
Stocks fell after CNBC referred to Sentinel Management Group Inc.'s fund for commodity traders as a "money market mutual fund." In fact, the troubled fund is not a money market mutual fund and the distinction is very important.

Sentinel's fund is set up for pros, and was paying about 7 percent in interest to compensate commodities traders for the risks they were taking in it.

How Sentinel used to market it is another question.
How is Sentinel different from a money market mutual fund?

Most importantly, clients have immediate access to their cash, regardless of market conditions. (A mutual fund is allowed to postpone redemptions up to five business days in unstable market conditions.)

Second, through Sentinel, clients know exactly what they own. Sentinel sends daily emails (or faxes, if preferred) to each client reporting the total amount invested, the interest earned, and supporting securities. In contrast, mutual funds are typically sent statements on a monthly basis at most, and report assets owned by the fund only quarterly or semiannually, often two to three months following the reporting date.

If Sentinel is not a mutual fund manager, what is Sentinel's role?

Sentinel acts as an agent for its clients. Clients sign an Investment Management Agreement appointing Sentinel as a discretionary investment advisor to supervise and direct the investment of assets in the account on behalf of the client in accordance with the risk parameters agreed upon.

How frequently can I deposit or withdraw cash?

Sentinel clients can withdraw 100% of their cash daily. Sentinel accepts deposits of any amount daily. A cutoff time of 4:00PM (eastern time) applies for notification of intent to redeem or make deposits same day.

What if I don't need daily liquidity?

Clients who do not need daily liquidity for the entire amount of their investment can authorize Sentinel to invest for longer periods. This gives Sentinel the flexibility to seek slightly higher yields when the short-term yield curve is more steeply sloped.

The good news is that money market funds remain money market funds. The bad news follows in the next post.

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