HEAD-TO-HEAD: Tianhong vs JP Morgan

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Yuebao has the higher yield of the two, but it comes with higher risk. Duration, for example, is longer than the JP Morgan fund.

Li believes that the Yuebao fund is riskier for investors largely due to the higher credit risk of the assets. It also drives China’s money market industry and any large movements in assets could have an impact on the mutual fund industry as a whole.

“Given the disproportionately large scale of Yuebao, which accounts for one fourth of the Chinese money market funds market, any large asset reallocation or sell-off by Yuebao could have impact on market liquidity and pricing, especially under market stress,” Li said.

Li acknowledged that Yuebao’s 325 million investors constitute a diversified investor base, which makes large-scale redemptions less likely. However, large redemptions could still arise in extreme circumstances, as retail investors generally have a herd mentality.

Regulators in China, however, have become aware of the risks and have issued rules to further strengthen the liquidity management of money market funds.

The China Securities Regulatory Commission (CSRC) in September issued new rules preventing money market funds from holding more than 10% of assets in instruments with a local credit rating below AAA.

Another regulation is that net assets of all money market funds managed by a single fund house must not exceed 200 times the firm’s provisions for risk.

For the JPM fund, although the institutional investor base is more concentrated, the fund is still highly liquid in accordance to US regulations, Li said.

Fitch does not rate the Yuebao fund but gives the JPM fund an “AAAmmf” the agency’s highest rating for a money market fund.

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