The new year will be a bad year for fund investors, according to a doomsaying column on MarketWatch.
Money market funds are in danger of repeating the debacle of the Reserve Funds’ Primary Fund breaking the buck, not because of junk bond holdings but because of redemptions as interest rates rise, according to the opinion piece. This will happen as interest rates rise and corporate treasurers move to the exits in tandem. As rates rise, they will look to redeem their shares and obtain more attractive rates, leaving those who have not yet cashed out with less-attractive paper.
Further, because money market funds have been strained due to the low rates, many will close their doors in 2010, the column attests.
And the flight to safety of bonds that dominated 2009, with $400 billion moving into bond funds last year, will burn investors as rates inevitably rise in 2010 and prices fall.
Lastly, the outlook for absolute-return, real-return and commodities funds is bleak, with the column painting them as mere marketing hype that appealed to risk-averse investors in 2008 and 2009.