SNOXX: A Money Market Fund That Invests in Treasury Securities

Jessy August 13, 2023

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Money market funds are a type of mutual fund that invest in short-term debt instruments, such as commercial paper, certificates of deposit, and treasury bills. They aim to provide investors with a safe and liquid place to park their cash, while earning a modest return. Money market funds are regulated by the Securities and Exchange Commission (SEC) and must follow strict rules regarding the quality, maturity, and diversification of their holdings.

One of the money market funds that is available to investors is the Schwab Treasury Obligations Money Fund – Investor Shares (SNOXX). This fund invests exclusively in securities backed by the full faith and credit of the U.S. government and repurchase agreements backed by such investments. The fund’s goal is to seek current income consistent with stability of capital and liquidity.

What are the benefits of SNOXX?

SNOXX offers several benefits for investors who are looking for a low-risk and convenient way to invest their cash, such as:

Safety: SNOXX invests in treasury securities, which are considered to be among the safest and most liquid investments in the world. Treasury securities are issued and guaranteed by the U.S. government, which has never defaulted on its debt obligations. The fund also maintains a stable net asset value (NAV) of $1 per share, meaning that investors will not lose their principal unless the fund breaks the buck, which is very unlikely.
Income: SNOXX pays a daily distribution to its shareholders, based on the interest income earned by the fund. The fund’s 7-day yield (with waivers) as of August 7, 2023 was 5.05%, which is higher than the average yield of other money market funds in the same category. The fund’s yield reflects the effect of all applicable waivers, which reduce the fund’s expenses and increase its net income. Without such waivers, the fund’s yield would have been lower.
Liquidity: SNOXX allows investors to access their money at any time, without any fees or penalties. Investors can buy or sell shares of the fund online, by phone, or by mail. The fund also has a high percentage of daily liquid assets (88.80%) and weekly liquid assets (100.00%) as of August 4, 2023, meaning that it can easily meet redemption requests from its shareholders.

What are the risks of SNOXX?

SNOXX is not without risks, however. Investors should be aware of some of the potential drawbacks of investing in this fund, such as:

Low return: SNOXX offers a low return compared to other types of investments, such as stocks, bonds, or real estate. The fund’s annualized return since its inception in 2012 was 0.74%, which is barely enough to keep up with inflation. Investors who are looking for higher returns may want to consider other options that suit their risk tolerance and time horizon.
Interest rate risk: SNOXX is sensitive to changes in interest rates, which affect the value and yield of treasury securities. When interest rates rise, the value of treasury securities falls, and vice versa. This means that the fund’s NAV may fluctuate slightly due to changes in market conditions. However, since the fund invests in short-term securities with an average maturity of 10.4 days and an average life of 35.1 days as of August 2023², its exposure to interest rate risk is minimal.
Credit risk: SNOXX is subject to credit risk, which is the risk that the issuer or guarantor of a security will fail to pay its obligations or default on its debt. Although treasury securities are backed by the full faith and credit of the U.S. government, there is no guarantee that the government will always be able to meet its financial obligations or maintain its credit rating. In addition, repurchase agreements are subject to counterparty risk, which is the risk that the party that sells a security to the fund and agrees to buy it back at a later date will fail to do so.

Conclusion

SNOXX is a money market fund that invests in treasury securities and repurchase agreements backed by such investments. The fund’s goal is to seek current income consistent with stability of capital and liquidity. SNOXX offers several benefits for investors who are looking for a safe and liquid place to park their cash, such as safety, income, and liquidity. However, SNOXX also has some risks that investors should be aware of, such as low return, interest rate risk, and credit risk. Investors who are interested in SNOXX should carefully read the fund’s prospectus and other regulatory documents before investing.