The January issue of Crane Data's Money Fund Intelligence was sent out to subscribers Friday morning. The latest edition of our flagship monthly newsletter features the articles: "Money Fund Highlights of '14; Looking for Daylight in 2015," a review of the top MMF stories of the year, asset totals, highlights, and a look ahead to 2015; "JPMAM's Donohue & Linton Discuss Gates & Fees," an interview with J.P. Morgan Asset Management's John Donohue and Andrew Linton, who discuss gates and fees; and, "Top MMFs of 2014; Our 6th Annual MFI Awards," where we name the top-performing MMFs for the year. We also updated our Money Fund Wisdom database query system with Dec. 31, 2014, performance statistics, and sent out our MFI XLS spreadsheet this morning. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our December Money Fund Portfolio Holdings are scheduled to go out on Monday, Jan. 12. (Note: ICI also just announced a workshop on the new Money Market Fund Reforms scheduled for Feb. 4 in Washington.)
The latest MFI's "Money Fund Highlights of '14; Looking for Daylight in 2015" article comments, "Money market mutual funds endured not only sweeping regulatory reform in 2014, but another year of near zero interest rates -- their 6th in a row. And yet, MMFs not only survived, assets grew (slightly) for the third straight year. Modest consolidation continued and fee waivers remained a fact of life, but looking ahead, there is reason for hope. Banks are also feeling the regulatory squeeze, which could lead to outflows from bank deposits, and at long last, it finally appears that interest rate hikes will, in fact, be a reality in 2015. Never have so many worked so hard for so little, is the way we sum up the past few years. But maybe, just maybe, that hard work will pay off a little bit more in 2015."
It continues, "News coverage last year was dominated by the SEC's long-awaited and much-debated Money Market Fund Reforms, which were adopted in July. In short, the big change was that the SEC adopted the floating NAV and fees and gates for prime institutional and municipal MMFs only, both taking effect in 2016. However, reforms were not the only big story of 2014." It goes on to list the top 10 stories of 2014 from cranedata.com and explain how MMF assets surged in the latter half of 2014.
In our monthly MFI profile, we interview JP Morgan's John Donohue and Andrew Linton on the topic of gates and fees. We asked: How big a concern are gates and fees? Are they a bigger issue than the floating NAV? "Donohue: Clients are telling us that fees and gates are potentially more problematic than a floating NAV. That's simply because they are aware that if and when a gate actually happens it will be during a stressed market, which is precisely when they would most want access to their liquidity. Many investors use money market funds for liquidity, so to the extent that they think that a gate is potentially going to be utilized, there is a risk that they will look to move earlier than they otherwise may have to get money out of funds. So, at least initially, I think there is some risk of unintended consequences in the form of large outflows."
We asked: How do these issues differ from the current rules? "Linton: Ordinarily, U.S. open-end funds may not suspend the right of redemption, and may not postpone the payment of redemption proceeds for more than seven days following receipt of a redemption request. However, under the 2010 money market fund reforms, Rule 22e-3 permits money market funds to suspend redemptions and postpone payment of redemption proceeds in an orderly liquidation of the fund if, subject to other requirements, the fund's board determines that the deviation between the fund's amortized cost per share and its current net asset value per share may result in material dilution or other unfair results to investors or existing shareholders. Basically, under Rule 22e-3 you have to move to liquidate the fund. Under the new rule, you can suspend redemptions for up to 10 business days in a 90 day period. Also, you don't have to move to liquidation. We should point out, while we just went through the reasons why maybe there are some hidden dangers in the use of a gate, at the end of the day, the gates themselves can be a shareholder friendly protection."
The January MFI article on the MFI Awards says, "In this issue, we once again recognize some of the top‐performing money funds, ranked by total returns, for calendar year 2014, as well as the top-ranked funds for the past 5-year and past 10-year periods. We present the following funds with our annual Money Fund Intelligence Awards. These include the No. 1-ranked funds based on 1-year, 5-year and 10-year returns, through Dec. 31, 2014, in each of our major fund categories -- Prime Institutional, Government Institutional, Treasury Institutional, Prime Retail, Government Retail, Treasury Retail and Tax‐Exempt."
It continues, "The top-performing Taxable fund overall in 2014 and top among Prime Institutional funds was BlackRock Cash Inst MMF (BGIXX), which returned 0.11%. Among Prime Retail funds, Invesco Money Market Cash Reserve (AIMXX) and Schwab Cash Reserves Fund <b:>`_(SWSXX) had the best return in 2014 (0.06%). `BofA Govt Plus Reserve Capital (GIGXX), Morgan Stanley Inst Liquid Govt Inst (MVRXX) and Western Asset Inst Govt MM Inst (INGXX) won the Top Government Institutional fund award over a 1-year period with a return of 0.04%, while BofA Govt Plus Reserve Investor (BOPXX) and Morgan Stanley Inst Liq Govt Cash Mgmt (MSGXX) won the MFI Award for Government Retail Money Funds (1-year return). Morgan Stanley Inst Liq Treasury Inst (MISXX) and Western Asset Inst US Treasury Obligation MMF Inst (LUIXX) were No. 1 in the Treasury Institutional class, and Morgan Stanley Inst Liq Treasury Cash Mgmt (MREXX) ranked tops among Treasury Retail funds." Watch for more on our MFI Awards in coming days, or see the January MFI.
Crane Data's December MFI XLS with Dec. 31, 2014, data shows total assets increasing for the fifth straight month, rising $86.2 billion in December to $2.644 trillion, after rising $21.0 billion in November, $10.2 billion in October, $27.5 billion in September, and $34 billion in August. Our broad Crane Money Fund Average 7-Day Yield and 30-Day Yield remained at 0.02%, while our Crane 100 Money Fund Index (the 100 largest taxable funds) stayed at 0.03% (7-day and 30-day). On a Gross Yield Basis (before expenses were taken out), funds averaged 0.13% (Crane MFA, unchanged) and 0.17% (Crane 100, up from 0.16%) on an annualized basis for both the 7-day and 30-day yield averages. Charged Expenses averaged 0.12% and 0.14% for the two main taxable averages, up one bps from last month. The average WAM for the Crane MFA and the Crane 100 were 40 and 43 days, respectively. The Crane MFA WAM is down 4 days from last month while the Crane 100 WAM is down 3 days from the prior month. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
In other news, the Federal Reserve Board released the Minutes from its December 16-17 FOMC meeting (which we covered on Dec. 18 in our News, "Fed Takes Baby Steps Towards Hikes; Fed Funds Headed Higher in 2015). One of the more notable points relates to the Fed shelving previous talk of creating segregated cash accounts.
The minutes say, "The manager also provided an update on staff work related to potential arrangements that would allow depository institutions to pledge funds held in a segregated account at the Federal Reserve as collateral in borrowing transactions with private creditors and which could potentially provide an additional supplementary tool during policy normalization. After further review, staff analysis suggested that such accounts involved a number of operational, regulatory, and policy issues. These issues raised questions about these accounts' possible effectiveness that would be difficult to resolve in a timely fashion. It was therefore decided that further work to implement such accounts would be shelved for now."
