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Crane Corporate News

Aug 11

Crane Data's latest Money Fund Intelligence Family & Global Rankings, which rank the market share of managers of money market mutual funds in the U.S. and globally, will be sent out to subscribers later this week. The August edition, with data as of July 31, 2015, shows asset increases for the majority of US money fund complexes in the latest month, as well as over the past 3 months. Assets increased by $49.9 billion overall, or 1.9%, in July; over the last 3 months, assets are up $94.1 billion, or 3.8%. For the past 12 months through June 30, total assets are up $122.2 billion, or 5.0%. Below, we review the latest market share changes and figures. (Note: Crane Data's August Money Fund Portfolio Holdings will be released later on Tuesday, and our August Money Fund Intelligence was released last Friday.)

The biggest gainers in July were Goldman Sachs, JP Morgan, Fidelity, Federated, BofA, and Dreyfus, rising by $10.3 billion, $7.3B, $7.2 billion, $5.6B, $4.9B, and $4.5B, respectively. JP Morgan, Goldman Sachs, Fidelity, BlackRock, Federated, and Morgan Stanley had the largest increases over the 3 months through July 31, 2015, rising by $16.6 billion, $15.8B, $15.6B, $10.2B, $10.2B, and $9.9B, respectively. (Our domestic U.S. "Family" rankings are available in our MFI XLS product, our global rankings are available in our MFI International product, and the combined "Family & Global Rankings" are available to our Money Fund Wisdom subscribers.)

Our latest domestic U.S. money fund Family Rankings show that Fidelity Investments remained the largest money fund manager by far with $410.3 billion, or 15.9% of all assets (up $7.2 billion in June, up $15.6 billion over 3 mos., and up $5.6B over 12 months). Fidelity was followed by JPMorgan's $257.2 billion, or 10.0% (up $7.3B, up $16.6B, and up $25.9B for the past 1-month, 3-months and 12-months, respectively). BlackRock remained the third largest MMF manager with $209.5 billion, or 8.1% of assets (up $3.7B, up $10.2B, and up $27.9B). Federated Investors was fourth with $206.3 billion, or 8.0% of assets (up $5.6B, up $10.2B, and up $9.4B), and Vanguard ranked fifth with $174.0 billion, or 6.7% (down $644M, up $1.7B, and up $2.6B).

The sixth through tenth largest U.S. managers include: Dreyfus ($170.9B, or 6.6%), Goldman Sachs ($156.0B, or 6.0%), Schwab ($155.9B, 6.0%), Morgan Stanley ($125.2B, or 4.9%), and Wells Fargo ($110.0B, or 4.3%). The eleventh through twentieth largest U.S. money fund managers (in order) include: Northern ($79.7B, or 3.1%), SSgA ($77.2B, or 3.0%), BofA ($55.7B, or 2.2%) which moved ahead of Invesco, Invesco ($55.3B, or 2.1%), Western Asset ($43.2B, or 1.7%), First American ($41.8B, or 1.6%), UBS ($36.8B, or 1.4%), Deutsche ($30.1B, or 1.2%), Franklin ($24.5B, or 1.0%), and American Funds ($15.0B, or 0.6%). Crane Data currently tracks 69 U.S. MMF managers, down one from last month. (Reich & Tang was liquidated last month.)

Over the past year through July 31, 2015, BlackRock showed the largest asset increase (up $27.9B, or 15.4%), followed by JP Morgan (up $25.9B, or 11.2%), Morgan Stanley (up $23.8B, or 23.5%), Goldman Sachs (up $21.0B, or 15.6%), Dreyfus (up $17.5B, or 11.4%), and Federated (up $9.4B, or 4.8%). Other asset gainers for the year include: BofA (up $7.4B, or 15.3%), Fidelity (up $5.6B, or 1.4%), First American (up $5.2B, or 14.3%), Franklin ($4.8B, 24.3%), and Northern (up $3.8B, 5.0%). The biggest decliners over 12 months include: SSgA (down $4.8B, or -5.9%), RBC (down $4.3B, or -22.8%), Schwab (down $3.6B, or -2.3%), Deutsche (down $3.0B, or -9.2%), American Funds (down $2.9B, or -16.2%), and T. Rowe Price (down $1.3B, or -8.1%). (Note that money fund assets are very volatile month to month.)

When European and "offshore" money fund assets -- those domiciled in places like Dublin, Luxembourg, and the Cayman Islands -- are included, the top 10 managers match the U.S. list, except for Goldman moving up to No. 4 (dropping Vanguard to 7), and Western Asset appearing on the list at No. 10 (displacing Wells Fargo from the Top 10). Looking at the largest Global Money Fund Manager Rankings, the combined market share assets of our MFI XLS (domestic U.S.) and our MFI International ("offshore"), the largest money market fund families are: Fidelity ($416.9 billion), JPMorgan ($382.3 billion), BlackRock ($308.7 billion), Goldman Sachs ($235.4 billion), and Federated ($214.6 billion). Dreyfus/BNY Mellon ($195.3B), Vanguard ($174.0B), Schwab ($155.9B), Morgan Stanley ($143.9B), and Western ($119.4B) round out the top 10. These totals include offshore US Dollar funds, as well as Euro and Pound Sterling (GBP) funds converted into US dollar totals. (Note that big moves in the dollar have recently caused volatility in Euro and Sterling balances, which are converted back into USD.)

Finally, our August 2015 Money Fund Intelligence and MFI XLS show that yields went up for many indexes in July. Our Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 842), remained at 0.02% for both the 7-Day Yield and the 30-Day Yield (annualized, net) Average. The Gross 7-Day Yield and 30-Day Yield were 0.16% (unchanged). Our Crane 100 Money Fund Index shows an average 7-Day Yield and 30-Day Yield of 0.04%, up from 0.03% last month. Also, our Crane 100 shows a Gross 7-Day Yield of 0.20% (up from 0.19%) and a Gross 30-Day Yield of 0.19% (same as last month). For the 12 month return through 7/31/15, our Crane MF Average returned 0.02% and our Crane 100 returned 0.03%.

Our Prime Institutional MF Index (7-day) yielded 0.05% (unchanged), while the Crane Govt Inst Index was at 0.02% (unchanged). The Crane Treasury Inst, Treasury Retail, and Crane Govt Retail Index Indexes all yielded 0.01%, while Prime Retail yielded 0.02% (up from 0.01%). The Crane Tax Exempt MF Index also yielded 0.01%. The Gross 7-Day Yields for these indexes were: Prime Inst 0.24% (up from 0.23%), Govt Inst 0.13% (same as last month), Treasury Inst 0.08% (same), and Tax Exempt 0.12% (down from 0.13%) in July. The Crane 100 MF Index returned on average 0.00% for 1-month, 0.01% for 3-month, 0.02% for YTD, 0.03% for 1-year, 0.03% for 3-years (annualized), 0.04% for 5-year, and 1.41% for 10-years. (Contact us if you'd like to see our latest MFI XLS or Crane Indexes file.)

Jul 13

Crane Data released its July Money Fund Portfolio Holdings Friday, and our latest collection of taxable money market securities, with data as of June 30, 2015, shows a big jump in holdings of Repo and a sizable drop in Other (Time Deposits), par for the course for quarter-end. Money market securities held by Taxable U.S. money funds overall (those tracked by Crane Data) increased by $58.3 billion in June to $2.494 trillion (note: we added the huge internal Vanguard Market Liquidity Fund to our collection this month, which inflated the numbers by $51.7 billion). MMF holdings assets increased $31.6 billion in May, but dropped $49.3 billion in April, $19.2 billion in March, and $52.1 billion in February. Repos remained the largest portfolio segment, ahead of CDs. Treasuries stayed in third place, followed by Commercial Paper. Agencies were fifth, followed by Other (mainly Time Deposits) securities, then VRDNs. Money funds' European-affiliated securities represented 19.3% of holdings, down from 28.8% the previous month. Below, we review our latest Money Fund Portfolio Holdings statistics.

Among all taxable money funds, Repurchase agreements (repo) increased $140.5 billion (26.6%) to $667.9 billion, or 26.8% of assets, on the traditional quarter-end spike in Fed RRP usage, after increasing $10.7 billion in May, decreasing $113.6 billion in April and increasing $98.7 billion in March. Certificates of Deposit (CDs) were up $21.8 billion (4.2%) to $502.3 billion, or 20.1% of assets, after rising $10.8 billion in May, jumping $1.7 billion in April, and dropping $37.4 billion in March. Treasury holdings increased $12.5 billion (3.1%) to $421.3 billion, or 16.9% of assets, while Commercial Paper (CP) dropped $10.4 billion (2.7%) to $379.8 billion, or 15.2% of assets. Government Agency Debt increased $24.2 billion (7.3%) to $355.8 billion, or 14.3% of assets. Other holdings, primarily Time Deposits, fell $83.3 billion to $146.9 billion, or 5.9% of assets. VRDNs held by taxable funds decreased by $3.3 billion to $20.2 billion (0.8% of assets).

Among Prime money funds, CDs represent almost one-third of holdings at 32.8% (down from 34.5% a month ago), followed by Commercial Paper at 24.7%. The CP totals are primarily Financial Company CP (14.4% of total holdings), with Asset-Backed CP making up 5.6% and Other CP (non-financial) making up 4.7%. Prime funds also hold 7.6% in Agencies (up from 6.7%), 4.2% in Treasury Debt (unchanged), 11.1% in Treasury Repo, 2.1% in Other Instruments, and 5.0% in Other Notes. Prime money fund holdings tracked by Crane Data total $1.541 trillion (up from $1.520 trillion last month), or 61.8% of taxable money fund holdings' total of $2.494 trillion.

Government fund portfolio assets totaled $458 billion, up from $441 billion in May, while Treasury money fund assets totaled $494 billion, up from $475 billion in May. Government money fund portfolios were made up of 52.2% Agency Debt, 18.7% Government Agency Repo, 3.7% Treasury debt, and 25.0% in Treasury Repo. Treasury money funds were comprised of 68.9% Treasury debt, 30.8% Treasury Repo, and 0.2% in Government agency, repo and investment company shares. Government and Treasury funds combined total $952 billion, or 38.2% of all taxable money fund assets.

European-affiliated holdings fell $222.1 billion in June to $480.1 billion on the quarter-end shift from time deposits to Fed repo (among all taxable funds and including repos); their share of holdings fell to 19.3% from 28.8% the previous month. Eurozone-affiliated holdings decreased $114.9 billion to $263.4 billion in June; they now account for 10.6% of overall taxable money fund holdings. Asia & Pacific related holdings increased by $14.2 billion to $305.6 billion (12.3% of the total). Americas related holdings increased $264.0 billion to $1.704 trillion, and now represent 68.3% of holdings.

The overall taxable fund Repo totals were made up of: Treasury Repurchase Agreements (up $164.5 billion to $438.1 billion, or 17.6% of assets), Government Agency Repurchase Agreements (down $22.3 billion to $142.4 billion, or 5.7% of total holdings), and Other Repurchase Agreements ($87.4 billion, or 3.5% of holdings, down $1.7 billion from last month). The Commercial Paper totals were comprised of Financial Company Commercial Paper (down $6.9 billion to $221.9 billion, or 8.9% of assets), Asset Backed Commercial Paper (up $2.4 billion to $86.2 billion, or 3.5%), and Other Commercial Paper (down $6.0 billion to $71.8 billion, or 2.9%).

The 20 largest Issuers to taxable money market funds as of May 31, 2015, include: the US Treasury ($421.3 billion, or 16.9%), Federal Reserve Bank of New York ($361.4B, 14.5%), Federal Home Loan Bank ($234.8B, 9.4%), Wells Fargo ($70.7B, 2.8%), Bank of Nova Scotia ($61.0B, 2.4%), JP Morgan ($59.5B, 2.4%), RBC ($57.2B, 2.3%), Bank of Tokyo-Mitsubishi UFJ Ltd ($55.5B, 2.2%), Bank of America ($54.1B, 2.2%), BNP Paribas ($51.8B, 2.1%), Toronto-Dominion Bank ($47.7B, 1.9%), Sumitomo Mitsui Banking Co ($44.1B, 1.8%), Federal Farm Credit Bank ($42.6B, 1.7%), Federal Home Loan Mortgage Co. ($42.2B, 1.7%), Credit Suisse ($38.8B, 1.6%), Bank of Montreal ($37.9B, 1.5%), Mizuho Corporate Bank Ltd. ($37.4B, 1.7%), Credit Agricole ($33.3B, 1.3%), Federal National Mortgage Association, ($33.0B, 1.3%), and Svenska Handelsbanken ($32.4B, 1.3%).

In the repo space, the Federal Reserve Bank of New York's RPP program issuance (held by MMFs) remained the largest program with $361.4B, or 54.1%, up from $137.6B a month ago. The 10 largest Fed Repo positions among MMFs on 6/30 include: JP Morgan US Govt ($20.7B), Vanguard Prime MMkt Fund ($14.3B), Fidelity Inst MM MMkt ($14.0B), Fidelity Inst MM Prm ($14.0B), JP Morgan US Govt ($20.7B), Federated Trs Oblg ($13.4B), Morgan Stanley Inst Lq Gvt ($12.7B), JP Morgan Prime MM ($11.5B), Vanguard Market Liquidity Fund ($11.0B), Fidelity Cash Reserves ($10.4B), and Federated Gvt Oblg ($9.0B).

The 10 largest Repo issuers (dealers) (with the amount of repo outstanding and market share among the money funds we track) include: Federal Reserve Bank of New York ($361.4B, 54.1%), Bank of America ($40.9B, 6.1%), Wells Fargo ($35.8B, 5.4%), JP Morgan ($27.1B, 4.1%), BNP Paribas ($24.2B, 3.6%), Citi ($21.1B, 3.2%), Bank of Nova Scotia ($18.9B, 2.8%), Credit Suisse ($17.3B, 2.6%), RBC ($17.0B, 2.5%), and Goldman Sachs ($12.1B, 1.8%),

The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: Bank of Tokyo-Mitsubishi UFJ Ltd ($49.7B, 5.5%), Sumitomo Mitsui Banking Co ($44.1B, 4.9%), Bank of Nova Scotia ($42.1B, 4.7%), RBC ($40.2B, 4.5%), Toronto Dominion Bank ($36.8B, 4.1%), Wells Fargo ($34.8B, 3.9%), Bank of Montreal ($32.6B, 3.6%), Skandinaviska Enskilda Banken AB ($32.4B, 3.2%), Mizuho Corporate Bank Ltd ($32.4B, 3.6%), and JP Morgan ($32.1B, 3.6%).

The 10 largest CD issuers include: Sumitomo Mitsui Banking Co ($38.1B, 7.6%), Bank of Tokyo-Mitsubishi UFJ Ltd ($36.5B, 7.3%), Toronto-Dominion Bank ($32.9B, 6.6%), Mizuho Corporate Bank Ltd ($31.5B, 6.3%), Bank of Montreal ($30.3B, 6.1%), Bank of Nova Scotia ($30.0B, 6.0%), Wells Fargo ($25.8B, 5.2%), RBC ($20.1B, 4.0%), Canadian Imperial Bank of Commerce ($19.6B, 3.9%), and Sumitomo Mitsui Trust Bank ($18.4B, 3.7%).

The 10 largest CP issuers (we include affiliated ABCP programs) include: JP Morgan ($23.6B, 7.4%), Westpac Banking Co ($18.0B, 5.7%), Commonwealth Bank of Australia ($17.4B, 5.5%), RBC ($15.7B, 5.0%), National Australia Bank Ltd ($13.4B, 4.2%), BNP Paribas ($13.1B, 4.2%), HSBC ($11.2B, 3.5%), Australia & New Zealand Banking Group Ltd ($11.2B, 3.5%), Bank of Nova Scotia ($10.9B, 3.4%), and Bank of Tokyo-Mitsubishi UFJ Ltd ($8.9B, 2.8%).

The largest increases among Issuers include: Federal Reserve Bank of New York (up $223.8B to $361.4B), Federal Home Loan Bank (up $25.9B to $234.8B), US Treasury (up $12.5B to $421.3B), Svenska Handelsbanken (up $9.7B to $32.4B), Toronto-Dominion Bank (up $3.8B to $47.7B), Bank of Nova Scotia (up $3.6B to $61.0B), Bank of Montreal (up $2.6B to $37.9B), Australia & New Zealand Banking Group Ltd (up $2.5B to $19.5B), Citi (up $2.0B to $31.5B), and Bank of America (up $1.9B to $54.1B). The largest decreases among Issuers of money market securities (including Repo) in June were shown by: Credit Agricole (down $37.3B to $33.3B), Barclays PLC (down $31.2B to $11.7), DnB NOR Bank ASA (down $27.8B to $7.6B), Natixis (down $17.8B to $25.4B), Swedbank AB (down $16.3B to $15.9B), Skandinaviska Enskilda Banken AB (down $15.7B to $16.8B), Societe Generale (down $14.3B to $19.4B), BNP Paribas (down $12.1B to $51.8), ING Bank (down $3.6B to $24.1B) and General Electric (down $2.9B to $7.1B).

The United States remained the largest segment of country-affiliations; it represents 58.2% of holdings, or $1.450 trillion (up $252B). Canada (10.1%, $251.7B) moved up to second place followed by Japan (7.5%, $186.0B). France (5.8%, $145.2B) fell to fourth place, while Australia (3.6%, $90.6B) rose to fifth place and Sweden (3.2%, $80.4B) rose to sixth. The U.K. (2.9%, $71.9B) dropped down to seventh, while The Netherlands (2.6%, $65.5B), Switzerland (2.3%, $56.7B), and Germany (1.9%, $46.7B) round out the top 10 among country affiliations. (Note: Crane Data attributes Treasury and Government repo to the dealer's parent country of origin, though money funds themselves "look-through" and consider these U.S. government securities. All money market securities must be U.S. dollar-denominated.)

As of June 30, 2015, Taxable money funds held 26.3% of their assets in securities maturing Overnight, and another 15.5% maturing in 2-7 days (41.8% total matures in 1-7 days). Another 20.9% matures in 8-30 days, while 13.2% matures in 31-60 days. Note that three-quarters, or 75.9% of securities, mature in 60 days or less, the dividing line for use of amortized cost accounting under the new pending SEC regulations. The next bucket, 61-90 days, holds 11.1% of taxable securities, while 10.2% matures in 91-180 days and just 2.9% matures beyond 180 days.

Crane Data's Taxable MF Portfolio Holdings (and Money Fund Portfolio Laboratory) were updated late Friday, and our MFI International "offshore" Portfolio Holdings and Tax Exempt MF Holdings will be released later this week. Visit our Content center to download files or visit our Portfolio Laboratory to access our "transparency" module. Contact us if you'd like to see a sample of our latest Portfolio Holdings Reports or our new "Holdings Reports Funds Module." The new file allows user to choose funds (pick a fund then click its ticker) and show Performance alongside Composition, Country breakout, Largest Holdings and Fund Information.

Jul 08

The July issue of Crane Data's Money Fund Intelligence was sent out to subscribers Wednesday morning. The latest edition of our flagship monthly newsletter features the articles: "Vanguard Goes Pure Retail; UBS, SSgA, MS Reveal Plans," which explains what several of the largest managers have said recently on money fund reforms; "Anticipation, Change Focus of 7th Money Fund Symposium," which recaps the highlights of our record breaking conference last month in Minneapolis; and "Responding to MM Reform Questions at Crane MFS," which features commentary from the SEC's Sarah ten Siethoff and other attorneys on reform FAQs. It also discusses recent fund liquidations. We have also updated our Money Fund Wisdom database query system with June 30, 2015, performance statistics, and sent out our MFI XLS spreadsheet earlier this a.m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our July Money Fund Portfolio Holdings are scheduled to ship Friday, July 10, and our July Bond Fund Intelligence is scheduled to go out on July 17.

The lead article in MFI says, "In June, a wave of fund companies announced how they plan to adapt to the new money fund rules, including one of the biggest, Vanguard. UBS, SSgA and Morgan Stanley also made MMF announcements. Of note, Vanguard became the first to decline to offer institutional floating rate Prime or municipal money funds, though every other large complex had pledged to offer these to date."

It continues, "A press release entitled, "Vanguard To Designate Prime And Tax-​Exempt Money Market Funds For Individuals," explains, "Vanguard plans to designate its $133.4 billion Prime Money Market Fund and its six tax-exempt funds (one national and five state municipal money funds) as "retail funds," meaning that individual investors will continue to have access to these funds at a stable $1 NAV. In addition, Vanguard announced two name changes, effective December 2015: Institutional Shares of Vanguard Prime MMF will be renamed Admiral Shares. Vanguard Admiral Treasury MMF will be renamed Vanguard Treasury Money Market Fund."

In our "profile" this month, we review the highlights of our Money Fund Symposium. It reads, "Crane's 7th Annual Money Fund Symposium, which was held in Minneapolis in late June, is now in the books, and it goes down as our largest conference ever. We had a record number (501) of attendees, and we also had what many have called our best program ever. Thanks to those that participated! Below, we review some of the highlights."

MFI explains, "The conference kicked off with a welcome address and Q&​A featuring Karla Rabusch, President of Wells Fargo Advantage Funds. Rabusch said, "We are focused on clients first, that's why we are all here. Sometimes it feels like we're focused on regulators first because we're responding so much to [them]. But we need to make sure that we're fitting our clients' needs into the regulatory framework. There is always going to be a place for money funds. We'll see how they transition -- how much [shifts] to government funds, how much stays in prime, how it all works. There are obviously going to be opportunities, and we're all going to find ways to meet the needs of our clients."

It adds, "Day 1 also featured a session on the "State of the Money Fund Industry" with Crane Data's Peter Crane, Federated Investors' Deborah Cunningham, and JP Morgan Securities' Alex Roever. Crane said, "Money funds still hold $2.6 trillion; it's amazing that the base is still there. So while people predict where the money might flow in 2016, I take the 'under' on this. I think assets will be pretty much where they are today, because they have been flat for the last 4 years. If the money hasn't gone elsewhere by now, what in God's name is it waiting for?" Roever added, "We've got fund sponsors like Federated, Fidelity, Blackrock, etc., who are who are making all sorts of plans about what to do as reform approaches.... The missing piece in all this is the shareholders, and actually that's the most important piece. Where do they move their money and are they going to have the ability to actually move?" Predicting fund flows out of prime or bank deposits and potentially into government funds is "the biggest parlor game.""

The third article says, "One of the featured speakers at Crane's Money Fund Symposium in Minneapolis, June 24-26, was Sarah ten Siethoff, Senior Special Counsel at the Securities & Exchange Commission, who elaborated on some Frequently Asked Questions on money fund reforms. She sat on a panel along with attorneys Stephen Keen of Perkins Coie; and Jack Murphy of Dechert, in a session called "Money Fund Rules: Questions on the Rule." Keen & Murphy provided an overview of reforms, then focused their attention on some of the FAQs that they felt required additional clarification."

The issue also has a brief entitled, "Fund Liquidations Jump in June. It says, "JP Morgan, Fidelity, Federated, Touchstone, and Reich & Tang all liquidated money funds in recent weeks as a result of lineup changes and mergers precipitated by reforms."

Crane Data's July MFI XLS, with June 30, 2015, data shows total assets rising by $15.5 billion in June, after rising $26.8 billion in May. (MMFs assets fell by $156.8 billion total in the first 4 months of 2015.) YTD, MMF assets are down by $114.8 billion, or 4.3% (through 6/30/14). 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 0.16% (Crane MFA, up 0.01% from last month) and 0.19% (Crane 100, same as last month) on an annualized basis for both the 7-day and 30-day yield averages. Charged Expenses averaged 0.14% and 0.15% (unchanged) for the two main taxable averages. The average WAMs for the Crane MFA and the Crane 100 were 36 and 39 days, respectively, down 2 days and 1 day, respectively, from last month. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)

In other news, the International Monetary Fund released its annual assessment of the US economy, commenting on a number of areas, including money markets. On money market funds it says reforms have helped, but vulnerabilities remain. "Changes to the triparty repo infrastructure (including reengineering of the settlement cycle, improvements in the collateral allocation processes, and limits on intra-day credit) have reduced risks. Despite reforms, vulnerabilities in the triparty repo market remain large (including the reliance on two clearing banks). Potential next steps could include the use of central counterparty clearing houses for repo transactions. This, in turn, would require implementing adequate risk management requirements for central counterparty clearing houses including cyber resilience, standardized stress testing, and recovery and resolution regimes. The requirement that some money market funds move to a floating net asset value by 2016 is a positive step. `However, a significant share of funds will be able to maintain stable net asset values, allowing institutional and retail investors to treat their investment as deposit-like, despite their greater liquidity risks. Shifting all money market funds to floating net asset values should be reconsidered."

Jun 29

Thank you to all who attended and supported Crane's Money Fund Symposium last week in Minneapolis! (We had a record 502 attendees.) The conference binder, recordings and Powerpoints are now available to attendees and to Crane Data Subscribers at the bottom of our "Content" page. Watch for excerpts and coverage of the sessions in coming days on and in the July issue of our Money Fund Intelligence newsletter. Our next event is European Money Fund Symposium, Sept 17-18 in Dublin, our next "basic training" Money Fund University is Jan. 19-20 in Boston. Next year's Money Fund Symposium will be in Philadelphia, June 22-24, 2016. Also, in today's "News," we excerpt from our latest Bond Fund Intelligence, Crane Data's new publication focusing on the bond fund and conservative ultra-short bond fund marketplace. (Contact us to see the latest issue and our BFI XLS "complement" or to subscribe. BFI is $500 a year, or $1K including BFI XLS.)

The June issue of our new Bond Fund Intelligence newsletter features a profile of Gregory Nassour, Senior Portfolio Manager at Vanguard Investments. Nassour manages the new Vanguard Ultra Short Term Bond Fund, which launched earlier this year. Nassour tells us about the important gap that this new fund fills in the Vanguard lineup and why the space between money market funds and short term bond funds is so critical for investors in this market. As Nassour says, it's all about giving investors choices. Below, we reprint our latest BFI interview.

BFI: How long have you managed funds? Nassour: I've been with Vanguard since 1992 and I've been within the fixed income group since 1994. I'm principal and senior portfolio manager within the group. I co-head all of our actively managed investment grade corporate bond portfolios. I'm portfolio manager on the Ultra Short Term Bond Fund (along with David Van Ommeren), the Short Term Investment Grade Portfolio, the Intermediate Term Investment Grade Portfolio, and the Long Term Investment Grade Portfolio.

BFI: How have Vanguard's short term products evolved? Nassour: The oldest one we have is our Short Term Tax Exempt Portfolio which started back in 1977. On the taxable side, the Short Term Investment Grade portfolio started in October of 1982. When you look at the whole gamut, Vanguard runs a lot of short term bond portfolios. We have a Short Treasury, a Short TIPs, a Short Term Federal Portfolio, Short Term Investment Grade, a Short Term Government Bond Index Fund, a Short Index Fund, a Short Corporate Index Portfolio, and a Limited Tax Exempt Fund.

BFI: So the new Ultra Short Term Bond Fund fills a gap in the lineup? Nassour: Exactly. We have an equivalent short term tax exempt portfolio, but we did not have one on the taxable side. So this is basically to fill out our fund lineup. Our Short Term Investment Grade portfolio is right around two and a half years duration. If investors wanted to go shorter, they had to go to our money market portfolios, so we wanted to fill that gap. The Ultra Short Term Bond Fund has a one year duration and that's going to be its home. The biggest challenge right now in this space is yield; hopefully this will be short lived. It's important to point out that it's not a money fund. It has a variable rate NAV, so if rates go up, prices will go down on this particular bond fund. We've made it very clear, not only on all of the PR that we did, but to all of our clients who are considering the product that this is an extension of our bond fund lineup.

BFI: How has the fund been received? Nassour: One of the neat things about this portfolio launch has been its consistency. This fund is just under $230 million in assets right now and the cash flow has been very consistent. Overall, Vanguard is great at keeping hot money out of the portfolios. We have policies in place to make sure that doesn't happen so that we can protect the current fund holders. That's a true benefit of the portfolios here; money tends to be sticky. That's great from the shareholder standpoint and it helps us manage the portfolio much better.

BFI: What is the investment strategy? Nassour: About 25% of the portfolio will look similar to the securities we would hold in a money fund. The rest of the portfolio has around 25% in corporate bonds, 25% to 30% in asset backed securities -- mostly high quality AAA auto loans and credit cards. There will be a small amount of CMBS, mostly the triple-A enhanced tranches. So the portfolio is very conservative. It has 10% Agency bullets and about 10% Treasuries. Yes, it has some money market securities in it, but I look at it as more closely related to the Short Term Investment Grade Portfolio -- just a little bit more conservative. We know that investors want a little more yield than money market funds because money market funds are not yielding anything. At the same time they're not in a longer duration portfolio where they're worried about a rate rise.

BFI: Are there concentration limits or diversification requirements? Nassour: We are going to keep this portfolio right around the one year duration. One of the hallmarks of Vanguard is, we give you exactly what the fund says it is going to be. For example, a long term investment grade fund is never going to become an intermediate fund because rates are going to rise, the inter-mediate funds are not going to shorten up to where it becomes a short term fund, and on down the line. This fund is going to be right around one year duration. It will give shareholders some decent current income. Right now the SEC 30-day yield is 65 basis points yield to maturity. The duration is not going to fluctuate too much up or down from that one year.

We offer enough funds that we give the investors the ability to choose what they want. If you want a Treasury fund, we have short, intermediate, and long Treasury funds. If you want an investment grade fund we have short, intermediate, and long investment grade funds. We give investors choices and we stay exactly within what the portfolio says it's going to be. In terms of concentration limits, all of our investment portfolios are highly diversified. If it is a lower quality security like a triple-B, we wouldn't own more than 25 basis points exposure in the portfolio. If it's single-A, we might hold up to 50 basis points in the security, and at AAA obviously we can hold more.

BFI: Can you invest in any junk or any below investment grade? Nassour: All of our investment grade portfolios have the ability to go up to 5% in high yield securities -- this way, in case securities get downgraded by the rating agencies we're not forced sellers and we can sell when the time is right. But we do not plan on investing in the high yield sector as a strategy in [this fund] at this time. Even in our Short Term Investment Grade Portfolio we're only around 1.25% of high yield exposure. But in this fund it is currently zero.

BFI: What types of investors are using it? Nassour: We've been looking at the behavior of our investors, and we have found a lot of investors moved out of money market funds and into this particular fund. I think that's just a yield play. Yields are so low in the money market space that they wanted to get a little bit more out of their money so they moved into this fund. And that's what we thought would happen. Certainly some investors moved down from short term investment grade into this fund just to get a little bit shorter duration in case rate rises. From a shareholder perspective, if they have a long term investment plan and they're dollar cost averaging into the funds, then yes, when interest rates go up, bond fund prices will go down. But as you continue to buy, you'll be buying at yields that will be higher and higher in the portfolio and you'll be buying the fund at a slightly lower price.

BFI: What is your outlook for rates? Nassour: We believe the Fed is going to move, probably in 2015, in a more gradual pace, so we don't think it's going to be a real shock to the portfolio. We don't think it's going to be a straight line -- they'll probably pause along the way to take a look at how the economy is performing. I think this fund will actually fare pretty well in that sort of environment. As rates slowly begin to rise, we'll be able to invest in product that will have a slightly higher yield and because it will be slow, it'll be able to absorb the rate hike. What investors need right now is yield. They're not making anything on money funds, short term yields are still not exceptional, and everyone can do with a little bit more income.

BFI: Are there any lessons to be learned from past rate hike cycles, like 1994? Nassour: I think the Fed learned a lot during that period. If you get behind the curve, then you wind up with a 1994 scenario where you're just jumping too quickly, in fifty basis point increments. They don't want to do that, but they also don't want to go too slow either. We're in an economy now where inflation is not rearing its ugly head. We're not getting macro-economic data that is fantastic; we're just muddling through. The Fed is very aware of that environment, so I do believe they're keeping that front and center in terms of how they're going to proceed with the rate rise. It will be painful on the way up, but when rates normalize, it's definitely a longer term positive for investors. Investors are really feeling the pain of low yields, especially those who are either nearing retirement or in retirement. From that standpoint, a higher rate environment will certainly be better.

BFI: What is the future of ultra short bond funds in general? Nassour: One of the lessons that a lot of investors learned, especially during the crisis, is the importance of having a balanced portfolio -- money funds, bond funds, equities. So bond funds are going to be very important. In terms of the future of ultra short term bond funds, they're going to have a place because investors have different needs for their allocations.