Why Investors Are Flocking to Money Market Funds

The war in the Middle East is now in its fifth week. While stocks have surged in the past two days on hopes of an early resolution, there’s still a lot of uncertainty as to whether the worst is over.

Investors had very few places to hide over the past month because traditionally defensive areas of the market—like gold and government bonds, which usually offer some protection during uncertain periods—also sold off.

Many investors have piled into funds that invest in low-risk, extremely liquid securities. These include ultra-short-term bond funds and money market funds.

Assets in money market funds have now topped $8 trillion, as these products remain popular with both institutional and retail investors due to their perceived safety and still-attractive short-term interest rates.

Earlier, there were concerns that these products might lose some appeal if the Federal Reserve continued on its rate-cutting path in 2026. But now traders expect that the Fed may not cut interest rates at all—or may even raise interest rates—so investors are preferring to stay in the shortest duration of the yield curve and remain cautious about longer-duration bonds due to long-term inflation concerns.

Even the Oracle of Omaha has accumulated a record amount of cash in Berkshire Hathaway BRK.B, which is mostly invested in Treasury bills.

This ETF category has attracted significant interest since Texas Capital launched the first money market ETF, driven primarily by lower expense ratios compared with mutual funds and investors’ preference for the ETF structure. BlackRock and other providers quickly followed with their own money market ETFs.

Most money market mutual funds are required to maintain a net asset value (NAV) of $1 per share. Although their shares do not appreciate, investors receive regular dividends, and their investments grow over time.

Government money market funds invest in Treasury bills and agency bonds, including those issued by Fannie Mae and Freddie Mac. Prime money market funds hold corporate and government securities.

Municipal money market funds are particularly appealing to high-income investors, as the interest earned is generally exempt from federal income tax and often from state income tax as well.

ProShares recently launched the first money market ETF designed to meet the stringent requirements of the GENIUS Act, making it eligible for investment as stablecoin reserves. This fund has quickly gathered over $22 billion in assets, as it is used as a cash management tool in some of ProShares’ ETFs, including the ultra-popular ProShares UltraPro QQQ TQQQ.

To learn more, please watch the short video above.

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This article originally published on Zacks Investment Research (zacks.com).

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