There is about $3 trillion sitting in US money market funds, and the 30-year Treasury was yielding more when this was recorded than at any time since June 2007.
Most conversations about that gap are about whether bonds are cheap. Michael Batnick's argument was about the other side of the trade: the people in cash are being paid to wait and are not pricing what happens when the payment stops.
"They're getting too comfortable with cash because..."
Brandon Clark runs the ETF business at Federated Hermes, an asset manager with about $900 billion under management that made its name in money market funds and has been selling ETFs for about five years. He has worked on ETFs for almost 20 years.
I listened to the full episode so you can skip it. 33 minutes of audio, 15 minutes of reading.
Here are the 14 takeaways that matter.
👤 Guest: Brandon Clark, ETF business director at Federated Hermes, where he runs the firm's ETF business
🎙️ Hosts: Michael Batnick of Ritholtz Wealth Management, who writes The Irrelevant Investor; and Ben Carlson of Ritholtz Wealth Management, who writes A Wealth of Common Sense
📰 Published: 31 August 2026 on Animal Spirits Podcast · recorded 17 August 2026
🟢 Spotify | 🟣 Apple Podcasts | ⏱️ 33 min | ✅ Time saved: 18 min
Key Takeaways
The danger in a money market fund is not the yield, it is how fast that yield resets
Clark: money markets reprice faster than anything further out the curve
Investors are being paid enough to wait, which is exactly why Batnick thinks they will wait too long
He said savers would have taken a 4.7% 10-year and a 5.3% 30-year without hesitating six or seven years ago
Income is judged in nominal dollars, and neither host thinks that will change
A 3.25% cash yield against roughly 3% inflation is 25 basis points, and Batnick said people do not count it that way
Single-stock option funds advertise a distribution rate, not a return
Clark's objection is that the equity exposure underneath is unchanged
Return of capital went from something a fund apologized for to something buyers ask for
Twenty years ago Clark says the term was a negative; the tax treatment is now part of the pitch
Selling a call and buying a further-out call caps the loss when the index keeps rising
That is the difference between Federated Hermes' PAYR and a plain covered-call fund
The 2022 bond drawdown is still setting client behavior four years later
Both the guest and the hosts described advisers managing that memory rather than the math
1. Too Comfortable in Cash
Batnick and Carlson opened alone, before the interview, and Batnick set out the position he wanted tested.
His complaint is not that investors are reaching for risk. Carlson asked whether they are pushing out on the risk curve and was told the opposite
"They're getting too comfortable with cash because..."
"My read on the situation is that investors are thinking too much about income and not enough about what might happen if the economic and market environment shifts."
The behavior he described is treating a rate environment as permanent. "So people have gotten comfortable in a rising rate in... environment essentially, that they're pretend, they're investing like that is going to last much longer than it might, essentially."
He gave the counterfactual as a question. "If you would have said six or seven years ago, hey, the 10 years is going to be at 4.7 and the 30 year is going to be at 5.3. Would you lock that in now?" Carlson's answer was to take all of it
"Everyone would have said, yes, and now we're there." The reaction he hears now is a worry that the 30-year goes to 6% and the 10-year to 5.5%
"People want to catch the top or the bottom in this case, I suppose."
He was explicit about what he is not saying. He is not telling anyone to move out of cash into 30-year bonds; his objection is to an all-or-nothing position
"And all of it being in cash is probably not the right approach."
2. What a Fed Cut Would Cost
The trigger does not have to be a recession. Carlson raised a slowdown; Batnick said a fall in inflation would do it
"It could just be inflation slows and the Fed cuts rates because they're worried about AI bubble bursting or whatever it is."
Carlson's point is that the reaction comes too late. "By that point, it's probably too late and you miss the moving bonds." The investor is then sitting in cash that pays less
Carlson separated the option-income products from the cash question. "And the people who are in the option income stuff, that's a different type of risk, obviously. There's an equity-related risk there."
3. $900B, Mostly Money Markets
Batnick introduced the guest by noting the firm had not been on the show before, and by ruling out the obvious confusion: the asset manager is "not to be confused with the luxury brand", the French fashion house Hermès.
"We're a global asset manager focused on active strategies." Clark put the firm at "about $900 billion in assets under management" and inside the top 10 measured against mutual fund managers
The business is almost 70 years old and built on money market funds, where he said most of the assets are concentrated
It has been sold through intermediaries, which is what the ETF business changes. The firm entered ETFs about five years ago
"So where most firms, I'll say traditional asset managers have gotten into this business, if they have been intermediary sold, the ETF world is just kind of opens up the entire investable universe in terms of clients."
4. Two Years and In
Asked what advisers are actually bringing to him, Clark named uncertainty first — geopolitics, rates, inflation — and then a maturity.
"Definitely on a fixed income side, kind of two year and in space, having some attractiveness in terms of your risk of return opportunities."
The conversations he is having are about the income sleeve of a portfolio rather than about a view on rates
The second demand is the covered-call category. "We also see a lot of people, and we've seen this in the industry, we see a lot of people looking at this covered call derivative income category." He said money is being moved into it out of both the fixed-income and the equity side of a portfolio
5. Nobody Wants the 30-Year
Batnick cited a newspaper as the setup and then made the observation himself.
The show's own citation was a Wall Street Journal article. "There was an article in the Wall Street Journal talking about how individual investors don't want to get off cash. There's $3 trillion in money market funds, and they don't find the opportunity set attractive in bonds."
His explanation for it: "I think a lot of that is PTSD from 2022."
The yield he was pointing at was recorded, not published. "So we're recording this on Monday, August 17th." On that day, he said, "We haven't been at 5.295% since June 2007."
The contradiction is the whole segment. "I do find it interesting that the income on long-dated bonds, as I just mentioned, is at the highest level it's been in a long, long time, and nobody seems to want any part of it."
He conceded the counter-argument against himself: "Now, I understand that you could have said this for the last year, last five years, and there's been negative returns, a lot of all, all volatility to no upside."
The part of the case he says nobody is making is the price return. "At some point do they become attractive because I know we're going to talk about income, but I feel like the potential price appreciation on bonds is something that I'm not hearing anybody talk about."
"Like, recessions do exist. It's possible that you get a boost from bonds if the economy softens."
6. 2022 Is Still in the Room
Clark's answer starts with the drawdown, not the yield. He described a traditional 60/40 portfolio that worked for most people until 2022, when rates rose and fixed income posted negative returns
He acknowledged which side of the flow his firm sits on. Money going into money market funds is not the worst outcome for a manager whose assets are concentrated there
His argument to advisers is that waiting is itself a decision. "You're not going to be able to necessarily catch the bottom on a lot of this stuff."
The obstacle he named is client behavior rather than portfolio math. "And so advisors have the challenge of trying to have their clients stay the course." The risk he described is a client moved further out the curve, watching rates rise again, and asking to go back to cash
7. Income Counted Nominally
Batnick's claim is that investors do not deflate the number. "I don't know what the level is where people stop thinking in real terms, but I found that people think about income nominally."
His worked example: "my cash is giving me 3.25%, but inflation's still running at three or whatever it is", which leaves "25 basis points above inflation"
"People love nominal income."
He did not present it as an error to be corrected. He said it is a fact about how people behave, whether or not it is rational
Clark agreed and tied it to financial planning. The target is a dollar figure — "I need to generate $200,000 a year to meet my retirement goals" — and the nominal number is what the plan is built on
"You do have to budget, 100%. And people budget nominally."
8. Single-Stock Payouts
The category Clark singled out is the single-stock option fund. "We've seen the single stocks which have these mind-boggling distribution payouts." Batnick put a number on it: "Yeah, 80% income."
His objection is that a distribution rate is not a return. "Because you can generate a lot of distribution yield, but you're still exposed to the equity." He said he thinks about these products on a total-return basis
He described the buyer as chasing the distribution rather than choosing a strategy, and said it may or may not be right for them
9. Return of Capital
Batnick asked what the ETF wrapper has done to the income business, given that selling calls and puts for income is not new.
Clark's answer is that the tax label changed meaning. "And as an example, 20 years ago, as I was getting in the ETF world, you know, return of capital seemed to be a very negative term when it came to paying out return of capital from a fund."
Return of capital is a distribution that hands an investor back part of what they put in, rather than paying out income the fund earned
He said buyers now seek it out rather than treat it as a warning sign
What makes it possible is the wrapper's tax machinery. "So I think the ETF world being able to manage capital gains, being able to manage taxes, having all these different levers at its disposal, you have the ability to potentially take distributions and turn them into return of capital."
He described three waves of product. Funds that simply paid out income; then funds built to convert that income into return of capital; then funds that change the equity holdings underneath the option overlay rather than sitting on the S&P 500 or the Nasdaq
His framing for the wrapper itself is a toolkit. "I always think about ETFs have become much more of a. toolkit." The user tilts a portfolio toward fixed income, equity or an alternative sleeve to hit an outcome
He has been in the business long enough to have watched the sequence. "So I've been in the ETF business for almost 20 years."
10. Who Actually Spends It
Batnick asked what share of the holders of these option-income funds draw the income rather than reinvest it, and said in advance that he did not think the question could be answered.
Clark said he does not know, and would not pretend to. "So obviously don't know. I mean, it's very hard to put a finger on it."
What he offered instead was the shape of the client feedback. There is a cohort using the products for income, and another treating them as a way to get closer to a retirement they have not reached yet
Batnick set a line rather than take an answer. "All right, Ben Carlson, I'll set the over under for you. 30%." Carlson declined to take the bet
11. Notes Against Options
The hosts disagreed with each other before the answer arrived. Batnick argued the end investor does not think about the tax on this income; Carlson said taxes matter, and pointed out that Clark's client is the adviser rather than the retail buyer.
Clark sided with Carlson. "So I do think people, look, I think we can all collectively say everybody cares about taxes, right?" He said the flows into the category are themselves evidence
The first generation of these funds used equity-linked notes. "So equity-linked notes are basically, I'll say coupon payments, bond payments out of a portfolio. When that comes out, it's income. So it's treated as income."
His firm took the options route instead, in a fund whose ticker he spelled out. "So payer, P-A-Y-R is the ticker."
"The benefit of options is you have the ability to take that option income and treat it as return of capital"
The use he described is a retirement drawdown problem. An adviser sequencing withdrawals across a Roth account, an individual retirement account and a taxable account, watching required minimum distributions and income thresholds
"That's a very powerful tool when it comes to planning in retirement, this decumulation phase, right?"
12. Dividends and a Call Spread
The base portfolio is high-dividend stocks, not the index. "So we have, again, we start with a high dividend yielding portfolio." He said it comes from a mutual fund dividend strategy the firm has run for decades
"This is just a high-dividend blue chip portfolio. We then use index options to generate additional distributions"
The reason for dividend stocks is volatility, not yield. Asked by Batnick whether the point was to avoid stocks that get called away, Clark said the calls are not written on the individual holdings
"We don't write them on the underlying strategy, but the benefit of using those is they do tend to have a lower beta to the portfolio, right? So they have less volatility."
The overlay is a spread rather than a plain sold call. "So what we've done is we actually, we sell calls and then turn around, we run a call, we'll call it a call spread, right? So we're basically selling calls and then buying calls a little bit further out to target a certain amount of income."
The bought call is what stops the loss growing once the index passes the strike they sold: "The benefit of writing calls and then buying calls is the S&P continues to go higher."
13. From Junk Bonds to 5%
Batnick's own history is the argument for why this environment is different.
The 2013 meeting he remembers was a pitch to buy junk bonds instead of stocks. "I remember early in my career, we took a meeting in 2013 with somebody who was talking to us about not buying stocks, about buying junk bonds as a way to like dip our toe back into stock market water."
"And I feel like we are so far on the other side of that environment."
The move that hurt bondholders cannot repeat at the same scale. "The Fed funds rate went from the lower bound at basically zero, up to 5%. That environment is over."
"So it's not to say that the price of bonds can't hurt you again, but there's a big difference between going from 4.8 up to 5.2, then 0 to 5."
Clark agreed and drew the same conclusion for policy. "But I would agree with you. That's 0 to 5, highly unlikely, that we are going to... to go from five to ten in rates right"
"We seem to always struggle to get off of zero for the longest time."
"Right now, I think the Fed has some dry powder now if we have any kind of additional rate shot or any kind of additional systemic shocks that they have to manage"
Batnick's aside on adviser psychology: "And it's funny how advisors, investors feel burned by bonds at the time where you should be looking for opportunities, I think."
14. Short Duration as a Core
Carlson's closing question was whether short and intermediate bond funds have become a permanent holding rather than a parking place.
He put both cases to the guest. Either investors now treat the position as a hedge against rising rates and inflation, or the money leaves for higher yields the moment the Fed cuts to something like 2%
Clark said the movement is already visible, and it is outward. "There's that move into that ultra short space. There's a move a little bit further out to curve."
The reason he gives advisers is the reset speed. "And again, money markets are the quick, they're going to be the quickest to reset."
"So the more you can get a little further out the curve and start to lock those in is net net better for investors"
He described it as a behavioral job rather than an analytical one, getting clients to accept that holding cash carries a risk of its own
Bonus Insights
Neither host would give the guest the last word on the tax question. Batnick's line was that the industry gives investors too much credit — "But I think you might be giving investors too much credit." — and Carlson's answer was that the adviser, not the end investor, is the one doing the tax planning
Clark's description of what the firm sells is a problem, not a product. He said the strategies are built around solving something for an adviser's client, which is the frame he returned to when asked about growth
The uncertainty list he gave was deliberately broad. "I think right now there's a lot of uncertainty." He named the geopolitical climate, rates and inflation without ranking them
The bottom line both sides arrived at is that the choice is no longer between yield and no yield — it is between a yield that resets in days and one that is locked in, and the case for locking it in gets weaker the longer an investor waits for a better entry point.
Products, Companies & Tools Mentioned
Federated Hermes (The guest's firm: about $900 billion under management, almost 70 years old, built on money market funds and in ETFs for about five years)
PAYR (Federated Hermes' enhanced income ETF: a high-dividend blue chip portfolio with an S&P 500 call spread written over it)
S&P 500 and the Nasdaq-100 (The two indices Clark says most derivative income funds sit on, and the exposure the newer products are trying to change)
The Wall Street Journal (Source of the article Batnick cited on individual investors refusing to leave cash, with $3 trillion in money market funds)
Ritholtz Wealth Management (The firm both hosts work for, named in the show's own disclosure)
Books & Resources Mentioned
The Irrelevant Investor – Michael Batnick (The host's own publication, which the show points listeners to for its written notes)
A Wealth of Common Sense – Ben Carlson (The other host's publication, and the other half of the show's notes)
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