Finding Shadow NAVs for Money Market Funds

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Money market funds always seek to maintain a published stable net asset value (NAV) of $1.00. If it drops even to $0.99, known as “breaking the buck”, people start to panic. Funds are allowed us book values and then round to the nearest penny ($0.995 becomes $1.00), so small fluctuations can be hidden from investors. On January 31st, the SEC started requiring money market funds to disclose their “shadow” NAV, which is the value of their holding at actual market prices out to four decimals places (i.e. $0.9995 or $1.0003). However, you only get to see them with a 60-day lag and by looking through SEC filings.

Shadow NAV Definition

The net asset value per share most recently calculated using available market quotations (or an appropriate substitute that reflects current market conditions), including the value of any capital support agreement, to the nearest hundredth of a cent.

How Do I Find The Shadow NAV For a Specific Fund?
These shadow NAVs are not widely publicized, although if a major money market fund had an abnormally low one, the financial media would probably pick up on it. To find the latest shadow NAV for a specific fund:

  • Visit the SEC EDGAR Search page and enter the ticker symbol.
  • Filter the big list of results by entering “N-MFP” under Filing Type.
  • The highest result should be the most recent N-MFP filing. Click on the “Documents” button, followed by clicking on the red link for “primary_doc.html”.
  • Scroll down to “Item 18. Shadow Price of the Series” for your fund.

As an example, here is the latest N-MFP filing for the Fidelity Cash Reserves Fund (FDRXX) with a Shadow NAV of $1.0003 as of 1/31/11.

What Is A Dangerously Low Shadow NAV?

Mutual fund companies including Vanguard have been quick to point out that tiny variations are normal. However, the consensus appears that be that anything lower than $0.999 would be out of the ordinary. The ratings agency Standard & Poor’s asks for daily pricing reports whenever a fund dips below $0.9985. Via Businessweek:

According to Krasner and Peter Crane, president of money fund research firm Crane Data, companies are right in most cases to tell investors not to fret. Shadow NAVs could reveal a small number of troubled funds. “Anything below $0.999 will be an outlier,” Crane says.

George “Gus” Sauter, Vanguard’s chief investment officer, says barring a normal dip after an interest rate hike, a shadow NAV below $.998 is a red flag.

Poor Warning Signal?
However, before you start checking in on your fund every month, consider this commentary from Crane Data. Basically, they say that money market funds hold investments with such short maturities that a 60-day lag won’t be much of a warning. By the time you see the abnormally low shadow NAV, the fund will either have moved to fix the problem or it would be too late anyway.

Money market funds breaking the buck remain rare. Only two funds have done so, and their final NAVs were $0.96 and $0.97. (More funds might have had problems if it wasn’t for the Treasury offering a guarantee in 2008.)

These days, interest rates are so low there is little reason to use money market funds in the first place. In my opinion, if you are holding a money market fund the best advice may be simply to hold them with firms that have the ability and willingness to cover any losses that do occur to protect their reputations. According to Businessweek, Charles Schwab and T. Rowe Price spent $132 million and $17 million, respectively, in late 2010 on their funds in order to avoid showing shadow NAVs of under $1.00 on January 31st.

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  1. I’ve always wondered how Vanguard would cover losses in their MM funds, given their coop ownership structure. I.e., is there equity somewhere that Vanguard could put to such a purpose; or might Vanguard borrow the needed money (but would all Vanguard funds then be on the hook for repayment?) I’ve asked the question of Vanguard, but have never gotten an answer.

  2. Very interesting read,
    After reading this, one part that I do not understand is why NAV of MoneyMarket fund varies, who fixes its value say, we hold Vanguar Money Market Fund ?.

  3. Tips,

    Securities inside a Money Market Fund (MMF) change in value continously. However, because most of the securities held by MMF have a short maturirty/duration, are liquid, and have a strong credit rating, the change in price of these securities is very very small. Unless, a mayor “credit” or “liquidity” event happens, the change in price of the securitis is hardly distinguishable.

    Simliar to a stock, a bond, a t-bill, or a CD have an active market where invetsors buy and sell these securities; therefore, creating liquidity for the instruments and providing a “price” for them as well.

    So, when a credit/liquidity event (like the one in 2008) hit the fixed income market, the prices of many of these securities goes down; hence, the NAV of the MMF goes down.

    Hope this helps. There are many other issues related to how to measure the NAV of a MMF and that there is a lag between the prices used to calculte the NAV of a fund and the actual price of the funs, but that is a whole other issue.

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