Money Market Funds Experience Record Q3 Inflows Amid Volatile Stock and Bond Markets

Key Insights

• Money market funds drew an impressive $184 billion in net inflows, nearly ten times more than the next highest category, intermediate core bond funds.
• The Federal Reserve’s inflation battle and interest rate hikes have boosted returns on low-risk money market investments.
• Higher interest rates have intensified competition for stocks, leading to net outflows from equity funds and ETFs during the quarter.

Amid turbulent stock and bond markets, U.S. investors seized the opportunity to park cash in money market funds during the third quarter, benefiting from increasingly attractive yields on virtually risk-free investments.

According to Morningstar data analyzed by YCharts, money market funds attracted $184 billion in net inflows—calculated as new fund purchases minus redemptions—in Q3. This figure is nearly tenfold the net inflows seen in the second-largest mutual fund category, intermediate core bond funds.

Overall, bond mutual funds and ETFs garnered $34.7 billion in net inflows, while other major fund categories experienced net outflows. Equity funds faced net redemptions totaling $17.6 billion during the same period.

Cash Reigns Supreme

The move toward cash, modest gains in bond funds, and declines in equities coincided with a 3.6% drop in the S&P 500 Index during the quarter. Simultaneously, bond yields rose, with the 10-year U.S. Treasury yield climbing 73 basis points to 4.57%, reflecting an inverse relationship with bond prices.

As market volatility persists, investors increasingly view cash as a safe haven.

The Federal Reserve’s aggressive inflation-fighting measures and interest rate hikes—the first in nearly 20 years—have significantly enhanced returns on simple cash holdings. Money market rates hit historic highs, with top U.S. rates reaching 5.5% annually in October.

Cash offers minimal risk and low volatility compared to stocks, making it an especially attractive option in the current environment.

Investors have recognized this trend well before Q3, with net inflows into money market funds totaling $876 billion over the past year. Additionally, earlier bank sector turbulence prompted some depositors to shift funds into money market vehicles.

Equity Funds Face Outflows

Higher interest rates have intensified competition for stock investments, resulting in net outflows from equity funds and ETFs during the quarter.

Specifically, U.S. stock funds and ETFs across Morningstar’s nine primary equity categories—which cover various market caps and investment styles—experienced $11.8 billion in net outflows.

However, large-cap blend equity ETFs attracted $42.1 billion in net inflows, the highest among ETFs and mutual fund categories aside from money market funds. Without this inflow, U.S. equity products would have seen net redemptions exceeding $50 billion.

Actively managed large-cap growth, value, and blend mutual funds continued to face net outflows totaling $60 billion, extending a long-term trend away from higher-cost active management toward passive ETFs. Over the past year, these three mutual fund categories have collectively lost $225 billion in assets.

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