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Money Fund Intelligence

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Money Fund Intelligence is a must-read for money market mutual fund and cash investment professionals. The monthly PDF contains:

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Latest Contents (March 1, 2015)

Money on the Move? Pending Changes 1
JPMorgan Sticks to Program; Prime 1
Max 60-Day Maturity Funds: Federated 1
Money Mkt News, Benchmarks 1
Brokerage Sweep & Bank Saving 8
People, Calendar, Subscription 8
Top Performing Tables, Indexes 9-12
Fund Performance Listings 13-30
Crane Money Fund Indexes 24

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Money Fund Intelligence News

Mar 24

Today, we excerpt from the March issue of Crane Data's new publication, Bond Fund Intelligence, which tracks the bond fund marketplace with a focus on the ultra-short and most conservative segments. Our latest monthly "profile" follows.... This month, Bond Fund Intelligence interviews Managing Director & Portfolio Manager Dave Martucci and Managed Reserves Investment Policy Committee Chairman and Risk Manager Saad Rehman from JPMorgan Asset Management. Martucci runs the $6 billion JPMorgan Managed Income Fund, which is the largest fund we currently track in our Conservative Ultra Short Bond Fund category, and Rehman has been instrumental in the creation of our new "Conservative" category. We discuss risk management, the growing demand for short-term products, and conservative ultra short’s place within a cash segmentation strategy, below.

BFI: How long have you been involved in the conservative ultra short bond space? Martucci: JPMorgan Chase & Co. has been managing money for corporations, governments, endowments, foundations, and individuals worldwide for well over a century. Currently, J.P. Morgan Asset Management has $1.7 trillion in AUM, around 25% of which is in our Global Liquidity business, which we've been in for over 30 years. Within the Global Liquidity business we manage cash and money market fund portfolios, as well as our conservative ultra short bond fund offering, which we call the Managed Reserves strategy.

The strategy dates back to 2004 and currently has $43 billion in AUM. Of that, around $9B is in mutual funds and the remainder is in separately managed accounts. Within the Managed Reserves strategy is the JPMorgan Managed Income Fund (JMGIX), which was launched in 2010 and now has $6B, an all-time high. I'm the lead portfolio manager and head of our Managed Reserves trading desk. I have 15 years of experience running liquidity strategies, and I've also been a portfolio manager for short duration and intermediate portfolios.

Rehman: I am a Risk Manager and Chairman of the Managed Reserves Investment Policy Committee, which formulates and approves investment policies and procedures as they relate to credit, market, and other risks applicable to the investment management of these funds and accounts. I've worked at JPM for 10 years.

BFI: How has the fund been received? Martucci: We've seen a significant amount of interest recently, as clients continue to be challenged by the Fed's zero interest rate policy. Additionally, they now face the prospect of floating NAVs on the short end and rising rates on the long end. These clients are looking for some incremental return over money market funds, but they still want a conservative approach. Rehman: In the wake of the financial crisis, a lot of clients built up large cash positions on their balance sheets. This excess cash, combined with an effective segmentation strategy, has been driving growth in this space. A natural place to put a strategic cash position to work is in a conservative solution that offers an incremental return over money funds.

Martucci: This is where the Managed Reserves strategy comes in, as it was a natural extension of our well-established money market fund platform, leveraging the best practices and procedures that we employ in that platform. For instance, an approved credit list that you typically find in a money market fund has been built upon and expanded, serving as a key piece of our Managed Reserves strategy. Since the strategy launched, these conservative foundations have enabled Managed Reserves to provide a strong track record of consistent returns over money market funds, with very limited volatility. Since inception, the Managed Reserves composite has had no period of rolling three-month losses. Fund assets are at an all-time high.

BFI: What are the biggest challenges for funds in the conservative space? Martucci: The main issue that we see is the variability of funds in this category. The issue comes from trying to define what that conservative ultra short space is. We're happy that industry leaders such as Crane and others are starting to focus on this and trying to establish it as a category of its own. Clearly, the space is somewhere between money market funds and short duration. We believe that the conservative ultra short space is not determined solely by interest rate duration, but also by spread duration, credit selection, the type of securities these funds can and do choose to hold and, most importantly, the volatility of performance. We address all these factors through robust risk management.

Rehman: What clients are looking for in this space is not just returns, but the risk associated with those returns. We have seen a period of low volatility over the past few years, which we think is masking some of the potential downside. We expect to see more volatility, potentially due to diverging central bank actions, regulations for money market funds and banks, as well as geopolitical risk. With volatility, we expect that we'll start to see divergence in performance for these conservative ultra short funds. One of the factors driving that divergence will be credit selection in these funds. For example, some funds in the ultra short space actively participate in below investment grade credit while others, like JPMorgan Managed Income, do not.

There are many ways you can analyze the risk and returns of funds in the ultra short space. For example, when you look at the average monthly returns of these funds they are somewhat clustered tightly around a mean -- whereas there's a much wider range when you look at the volatility of those returns. Another way to get a general sense of how risky a fund's returns are is to compare the percentage of negative monthly returns over a period, such as the past 12 or 36 months. You can see that the percentage for some funds is almost double that of others in the space. (Note: Watch for more excerpts from our latest BFI "profile" in coming days, or contact us to see the full issue of our new Bond Fund Intelligence.)

Mar 11

Crane Data released its March Money Fund Portfolio Holdings late yesterday, and our latest collection of taxable money market securities, with data as of Feb. 28, 2015, shows a jump in Repo and CP, and drops in VRDNs, Agencies, Treasuries, CDs, and Other. Money market securities held by Taxable U.S. money funds overall (those tracked by Crane Data) decreased by $52.1 billion to $2.473 trillion in February, after increasing by $5.6 billion in January, $68.3 billion in December, $11.5 billion in November, and $4.7 billion in October. CDs remained in the top spot as the largest portfolio segment among taxable money market funds, ahead of Repos. CP moved into third place, jumping ahead of Treasuries. Agencies were fifth, followed by Other (Time Deposits) and VRDNs. Money funds' European-affiliated securities represented 29.1% of holdings, down from 29.3% the previous month, while the Americas' market share fell slightly to 58.5% from 58.8%. Below, we review our latest Money Fund Portfolio Holdings statistics.

Among all taxable money funds, Certificates of Deposit (CDs) were down $7.4 billion (1.3%) to $549.0 billion, or 22.2% of assets, after increasing $28.0 billion in January and dropping $34.8 billion in December. Repurchase agreements (repo) increased $10.8 billion (2.1%) to $531.7 billion, or 21.5% of assets, after dropping $141.5 billion in January and increasing $140.3 billion in December. Commercial Paper (CP) moved up to the third largest segment, jumping $8.2 billion (2.1%) to $397.4 billion, or 16.1% of assets.

Treasury holdings, the fourth largest segment, dropped $8.2 billion (2.0%) to $395.4 billion, or 16% of assets, while Government Agency Debt remained in fifth, decreasing $42.9 billion (11.1%) to $342.3 billion, or 13.8% of assets. Other holdings, which include primarily Time Deposits, dropped $2.4 billion to $236.7 billion, or 9.6% of assets. VRDNs held by taxable funds decreased by $10.3 billion to $20.0 billion (0.8% of assets).

Among Prime money funds, CDs still represent over one-third of holdings with 35.6% (up from 35.3% a month ago), followed by Commercial Paper (25.8%). The CP totals are primarily Financial Company CP (15.7% of holdings) with Asset-Backed CP making up 5.5% and Other CP (non-financial) making up 4.6%. Prime funds also hold 5.1% in Agencies (down from 6.3%), 4.4% in Treasury Debt (up from 4.2%), 4.3% in Other Instruments, and 6.2% in Other Notes. Prime money fund holdings tracked by Crane Data total $1.540 trillion (down from $1.577 trillion last month), or 62.3% of taxable money fund holdings' total of $2.525 trillion.

Government fund portfolio assets totaled $468 billion in February, down from $472 billion in January, while Treasury money fund assets totaled $465 billion in February, down from $476 billion at the end of January. Government money fund portfolios were made up of 55.8% Agency Debt, 22.4% Government Agency Repo, 2.6% Treasury debt, and 18.7% in Treasury Repo. Treasury money funds were comprised of 67.8% Treasury debt, 31.0% Treasury Repo, and 1.2% in Government agency, repo and investment company shares.

European-affiliated holdings fell $19.9 billion in February to $719.0 billion (among all taxable funds and including repos); their share of holdings fell to 29.1% from 29.3% the previous month. Eurozone-affiliated holdings fell $10.8 billion to $399.3 billion in February; they now account for 16.2% of overall taxable money fund holdings. Asia & Pacific related holdings increased by $5.8 billion to $305.8 billion (12.4% of the total). Americas related holdings plunged $38.0 billion to $1.445 trillion, and now represent 58.5% of holdings.

The overall taxable fund Repo totals were made up of: Treasury Repurchase Agreements (up $19.2 billion to $286.7 billion, or 11.6% of assets), Government Agency Repurchase Agreements (down $5.0 billion to $157.8 billion, or 6.4% of total holdings), and Other Repurchase Agreements (down $3.3 billion to $87.1 billion, or 3.5% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (up $9.8 billion to $241.2 billion, or 9.8% of assets), Asset Backed Commercial Paper (down $5.7 billion to $85.4 billion, or 3.5%), and Other Commercial Paper (up $4.2 billion to $70.8 billion, or 2.9%).

The 20 largest Issuers to taxable money market funds as of Feb. 28, 2015, include: the US Treasury ($396.2 billion, or 16.0%), Federal Home Loan Bank ($203.6B, 8.2%), Federal Reserve Bank of New York ($160.9B, 6.5%), BNP Paribas ($69.3B, 2.8%), Wells Fargo ($69.1B, 2.8%), Credit Agricole ($69.0B, 2.8%), JP Morgan ($57.8B, 2.3%), Bank of Tokyo-Mitsubishi UFJ Ltd ($55.5B, 2.2%), RBC ($55.2B, 2.2%), Federal Home Loan Mortgage Co ($54.2B, 2.2%), Bank of Nova Scotia ($53.4B, 2.2%), Bank of America ($47.6B, 1.9%), Natixis ($45.6B, 1.8%), Sumitomo Mitsui Banking Co ($45.1B, 1.8%), Toronto-Dominion Bank ($43.3B, 1.7%), Federal Farm Credit Bank ($42.1B, 1.7%), Barclays PLC ($41.9B, 1.7%), Federal National Mortgage Association ($39.8B, 1.6%), Credit Suisse ($38.9B, 1.6%), and DnB NOR Bank ASA ($38.7B, 1.6%).

In the repo space, Federal Reserve Bank of New York's RPP program issuance (held by MMFs) remained the largest program with $160.9B, or 30.3% of the repo market, down fractionally from 30.6% a month ago. Of the $160.9B, $117.7 billion, or 73.2%, was in Overnight Repo, while $43.1 billion, or 26.8% was in Term Repo. 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 ($160.9B, 30.3%), Bank of America ($38.5B, 7.2%), BNP Paribas ($37.9B, 7.1%), Wells Fargo ($34.1B, 6.4%), Credit Agricole ($30.0B, 5.7%), Societe Generale ($28.1B, 5.3%), JP Morgan ($22.8B, 4.3%), Barclays PLC ($21.1B, 4.0%), Citi ($20.2B, 3.8%), and Credit Suisse ($19.3B, 3.6%).

The 10 largest issuers of CDs, CP and Other securities (including Time Deposits and Notes) combined include: Bank of Tokyo-Mitsubishi UFJ Ltd ($48.9B, 4.6%), Sumitomo Mitsui Banking Co ($45.1B, 4.3%), Credit Agricole ($39.0B, 3.7%), DnB NOR Bank ASA ($38.7B, 3.7%), RBC ($38.6B, 3.7%), Toronto-Dominion Bank ($38.3B, 3.6%), Bank of Nova Scotia ($37.9B, 3.6%), Natixis ($37.6B, 3.6%), Wells Fargo ($34.9B, 3.3%), and JP Morgan ($34.6B, 3.3%).

The 10 largest CD issuers include: Bank of Tokyo-Mitsubishi UFJ Ltd ($38.6B, 7.1%), Toronto-Dominion Bank ($37.4B, 6.9%), Sumitomo Mitsui Banking Co ($37.0B, 6.8%), Bank of Nova Scotia ($31.5B, 5.8%), Mizuho Corporate Bank Ltd ($29.5B, 5.4%), Bank of Montreal ($26.3B, 4.8%), Wells Fargo ($26.1B, 4.8%), Rabobank ($24.9B, 4.6%), Natixis ($20.7B, 3.8%), and Sumitomo Mitsui Trust Bank ($19.5B, 3.6%).

The 10 largest CP issuers (we include affiliated ABCP programs) include: JP Morgan ($23.9B, 7.1%), Commonwealth Bank of Australia ($17.5B, 5.2%), Westpac Banking Co ($16.7B, 5.0%), RBC ($15.9B, 4.8%), Lloyds TSB Bank PLC ($14.3B, 4.3%), National Australia Bank Ltd ($11.9B, 3.5%), Australia & New Zealand Banking Group Ltd ($10.6B, 3.2%), Toyota ($10.1B, 3.0%), BNP Paribas ($9.6B, 2.9%), and Barclays PLC ($9.0B, 2.7%).

The largest increases among Issuers include: Wells Fargo (up $9.6B to $69.1B), Lloyds TSB Bank PLC (up $8.5B to $27.0B), Skandinaviska Enskilden Banken AB (up $3.0B to $31.5B), Goldman Sachs (up $2.9B to $13.4B), Bank of America (up $2.5B to $47.6B), Sumitomo Mitsui Trust Bank (up $2.4B to $21.0B), Norinchukin Bank (up $2.3B to $12.6B), Canadian Imperial Bank of Commerce (up $2.3B to $18.3B), ING Bank (up $2.2B to $28.9B), and Sumitomo Mitsui Banking Co. (up $2.0B to $45.1B).

The largest decreases among Issuers of money market securities (including Repo) in February were shown by: Federal Home Loan Bank (down $24.5B to $203.6B), Federal National Mortgage Association (down $9.1B to $39.8B), Federal Home Loan Mortgage Co. (down $8.2B to $54.2B), Nordea Bank (down $7.9B to $20.6B), US Treasury (down $7.4B to $396.2B), Citi (down $7.3B to $33.8B), Svenska Handelsbanken (down $6.5B to $23.5B), Standard Chartered Bank (down $5.1B to $15.9B), KBC Group NV (down $5.0B to $9.5B), and Natixis (down $4.4B to $45.6B).

The United States remained the largest segment of country-affiliations; it represents 49.3% of holdings, or $1.219 trillion (down $44B). France (10.3%, $255.4B) stayed in second, followed by Canada (9.0%, $222.8B) in third. Japan (7.5%, $186.4B) remained in fourth, while the U.K. (4.9%, $121.5B) was fifth. Sweden (4.3%, $105.6B) was sixth, followed by Australia (3.6%, $89.9B) in seventh. The Netherlands (3.0%, $75.0B), Switzerland (2.2%, $53.8B), and Germany (2.1%, $50.6B) 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 Feb. 28, 2015, Taxable money funds held 25.5% of their assets in securities maturing Overnight, and another 15.1% maturing in 2-7 days (40.6% total matures in 1-7 days). Another 19.9% matures in 8-30 days, while 12.3% matures in 31-60 days. Note that almost three-quarters, or 72.7% 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 11.6% of taxable securities, while 12.0% matures in 91-180 days and just 3.7% matures beyond 180 days.

Crane Data's Taxable MF Portfolio Holdings (and Money Fund Portfolio Laboratory) were updated Tuesday, 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 Issuer Module.

Mar 06

The March 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 on the Move? Keeping Up With Pending Changes," which estimates how much money will shift to various fund types and discusses other changes in the money fund world; "JP Morgan Sticks to Program; Announces Lineup Changes," about how JP Morgan is standing pat with its large Prime Institutional fund; and "Max 60-Day Maturity Funds: Federated Goes Its Own Way," a look at how Federated is changing its fund lineup with 60-Day maximum maturity funds. We also updated our Money Fund Wisdom database query system with Feb. 28, 2015, performance statistics, and sent out our MFI XLS spreadsheet shortly. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our March Money Fund Portfolio Holdings are scheduled to go out on Tuesday, March 10, and our March Bond Fund Intelligence is scheduled to ship next Friday, March 13.

The lead article in the latest issued of MFI is "Money on the Move? Keeping Up With Pending Changes." It says, "If the first couple of months of the year are any indication, 2015 will be filled with changes in the money fund world. As we have written about in MFI and on, money fund managers are not wasting any time getting ready for SEC reforms, which kick in October 2016. New funds are being announced, old funds are being converted, and that means money will be moving -- some in, some out, and some shuffling within. Let's take a look at the some of the recent changes and possibilities."

On the "Prime to Government Shift," the article comments, "Fidelity announced in late January that it was converting three Prime Retail MMFs to Government MMFs, including the largest money fund, the $112 billion Fidelity Cash Reserves. BlackRock, reports The Wall Street Journal, is also considering turning Prime Retail funds into Government funds. (See our table of the largest money fund managers along with their type of fund assets on p. 7.)"

In our middle column, we look at how JP Morgan Asset Management is responding to MMF reforms. It reads, "Since Fidelity Investments announced that it was revamping its money market fund lineup in response to SEC's reforms and investor demand in late January, two more major MMF managers have announced changes of their own, Federated Investors and J.P. Morgan Asset Management. The latter won't be making any changes to its largest MMF, the $64.9 billion J.P. Morgan Prime MMF, a prime institutional fund that will adopt a Floating NAV. But it did announce other changes."

The article continues, "J.P. Morgan, which is the second largest manager of money market funds globally with $384 billion, became the first money fund manager to designate which of its funds will be "Retail," "Institutional," or "Government," under the pending criteria established by the Securities & Exchange Commission in July 2014. The company also stated that it has no current intention of instituting liquidity fees or gates on any of the MMFs designated as Government MMFs."

The article on "Max 60-Day Maturity Funds: Federated says, "In a recent commentary, Garret Sloan, money market strategist with Wells Fargo Securities, said that he didn't expect a stampede of money managers to follow Fidelity's lead to move from prime to government funds. Rather, he said that money managers would choose to "go their own way." That's indeed been the case over these last few weeks. Case in point: Federated Investors, which is responding to SEC reforms by creating 60-day maximum maturity and under funds -- i.e. floating NAV funds that don't really float. However, the company also plans to have at least one longer duration Prime Institutional fund with a floating NAV."

It adds, "On Feb. 19, Federated Investors, the 4th largest money fund manager with $211 billion in assets, announced "phase one" of its post-MMF reform changes. The big change, which CEO Christopher Donahue has discussed in recent earnings calls, is to convert some of its Institutional Prime funds to 60-day maximum maturity funds, which are allowed to continue using amortized cost pricing, decreasing the likelihood that any floating NAV fund would actually float."

Crane Data's February MFI XLS, with Feb. 28, 2015, data shows total assets decreasing in February, the second month in a row, down $1.6 billion to $2.598 trillion, after falling $44.6 billion in January. Prior to January, assets had gone up each of the last 5 months of 2014. 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 0.14% (Crane MFA, same as last month) and 0.17% (Crane 100, unchanged) on an annualized basis for both the 7-day and 30-day yield averages. Charged Expenses averaged 0.13% (up from 0.12%) and 0.14% (same as last month) for the two main taxable averages. The average WAMs for the Crane MFA and the Crane 100 were 41 and 44 days, respectively. The Crane MFA WAM was the same as last month while the Crane 100 WAM is down 1 day from the prior month. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)

Feb 27

The February issue of Crane Data's new publication, Bond Fund Intelligence, which tracks the bond fund marketplace with a focus on the ultra-short and most conservative segments, interviews Leonard Aplet, Senior Portfolio Manager at `Columbia Management and a portfolio manager on Columbia's institutional CMG Ultra Short-Term Bond Fund, one of the largest and oldest conservative ultra-short bond funds. Aplet is responsible for Columbia's short duration strategies, a major segment of the manager's $20.7 billion in bond fund assets. We reprint the article below. (Watch for our profile of J.P. Morgan's Dave Martucci in the upcoming March issue of BFI. Contact us to subscribe or for a sample issue.)

BFI: How long have you been involved in the space? Aplet: I started at Columbia in 1987 and have managed money market funds and short term bond products ever since. The inception date of the Ultra Short Term Bond Fund is March 8, 2004, and the inception date for the Short Term Bond Fund is October 2, 1992. While each of the funds have named portfolio managers on them, there are research analysts, traders, and other portfolio managers that are all part of the team.... My group is a multi-sector group; we manage funds and separate accounts that typically invest in more than one investment grade sector. Columbia also has other fixed income teams that manage shorter duration assets that specialize in a single sector.

BFI: Why was the Ultra Short Term Bond Fund launched? Aplet: At the time Columbia launched the Ultra Short Term Bond Fund, we saw a gap in the market between money market funds and short duration. Our short duration bond fund has as a benchmark the Barclays 1-3 Government Credit Index, so we wanted something between zero duration and 1.5-1.75 years. It was a space that was filled with the Ultra Short Term Bond Fund. The current benchmark for that fund is the Barclays Short Term Government Corporate Index and it's basically anything that falls below the Barclays 1-3 year Government Credit Index. It's an institutional fund and one of the things we've been looking at in this marketplace is the need for a retail offering in the ultra-short term area.

BFI: What is the investment strategy? Aplet: As you know, money market funds are very restrictive and our money market funds are very plain vanilla. They're prime funds and we don't stray from the safe and stable. But with the Ultra Short Term Bond Fund, the difference is it can invest in securities that are longer, even though the overall duration of the Ultra Short Term Bond Fund is not that much longer than a money market fund. It has a duration of around 0.6 years and the benchmark is 0.55 years. The Fund can be as long as a year so it can be quite a bit longer than money market funds. In terms of the individual securities, we will typically go out as far as three years on an individual security basis. So the Fund can employ strategies like barbells when the yield curve is steeper. That's something that a money market fund cannot do. We also can invest in the full range of investment grade securities, down to triple-B. Typically, a money market fund that buys prime securities only buys A1-P1 securities. So we can go down a little bit lower in credit quality but still stay within the investment grade universe. We can also buy tranches of asset-backed securities that are beyond the 2a-7 limitations. Overall, we can be a little bit longer with individual securities; we can invest in some asset classes that are not 2a7 eligible; and we can go down to the full extent of investment grade credit.

BFI: What is the outlook for supply? Aplet: In general, there are not enough bonds to go around. That's not going to get any better going forward, as the population ages, the preference for bonds grows, and a large percentage of US Treasuries are owned by foreign governments, as well as by the Fed itself. So all of that has taken supply out of the market, not necessarily just at the short end of the curve, but it has taken general supply out of the marketplace. There has been good supply of corporate bonds over the past couple of years, but that supply has been met with even higher demand. So when new securities come to the marketplace, they are generally over-subscribed and you can't purchase as much as you want. That has, I think, contributed to less liquidity in the market today. We want to make sure that the NAV price of the fund doesn't fluctuate very much, that we have securities that maintain their investment grade credit rating, and that we provide the necessary liquidity so clients can withdraw their funds when they need them.

BFI: What are the key challenges? Aplet: The recent rally has affected the longer end of the yield curve more than the shorter end, so it hasn't really impacted our yields as much. The very short-term yields have actually gone up a little bit over the past several months, but yields are still low. That's something that is hard to accept for some investors so they go out searching for yield -- sometimes in the right places, but sometimes in the wrong places. Or it could be the right place today, but the wrong place as the market changes. One of the challenges that we see is that besides the fact that yields are low, investors' preferences for yield is growing, so investors are maybe taking more risk today than they would have been comfortable taking a few years ago. We think that has caused more demand for products that are lower quality, especially in the ultra-short term space. Despite that thirst for yield, however, we have stuck with our strategy to provide the investment grade products that our clients signed up for and I think that's going to keep us in good stead as we go through this cycle.

BFI: How are regulations impacting this space? Aplet: Money market reform regulations are going to have a major impact. We also have money market funds, so we're in the process of making decisions on institutional vs. retail; prime vs. government, etc. So far I don't think these changes have caused a tremendous amount of fund flows. You have seen a few mutual fund complexes announce changes to their funds, but in general, people haven't really made those announcements. We're trying to assess what clients find most important -- Is it the floating NAV? Is it the potential for a fee or gate? There's still some time before investors make decisions, so we are evaluating our lineup as we constantly do. Our product development team is looking at the different options to make sure we are giving clients a full range of offerings. We're not yet at the point of offering anything new, but it's something we're definitely considering.

BFI: Has the space been attracting assets? Aplet: The ultra-short term bond space saw most of the asset gains about one to two years ago as investors sought out yield and safety of principle. Much of the money in ultra-short funds came from money market funds or cash-type investments. It's not that big a leap in terms of risk, but I think a lot of that movement has already occurred. So that movement into ultra short funds probably peaked a year ago. However the flows may pick up again if investors decide to move more funds from either lower yielding money funds or longer duration bond funds.

BFI: What is your outlook for rates? Aplet: Our economists see the Fed potentially acting in the second half of the year. The Fed has allowed the unemployment rate to fall below the level that they originally were looking for to raise rates, but they did that because they knew the participation rate was low and the underemployment rate was still pretty high. Now that the adjusted unemployment rate is coming in at about the level in which they previously said they would start raising interest rates, I think they are a little bit more anxious to act. Our view is it's a second half 2015 phenomenon, but instead of June, it might be closer to the end of 2015 before the Fed acts.

BFI: And rising rates might not be a bad thing, right? Aplet: I think people lose track of the fact that rising interest rates are not the worst thing in the world for ultra-short term and short duration products. It's going to drive better returns, especially if you look at returns on a total return basis. The NAV can fall somewhat, but in the case of our products, they are short enough that they won't fall very much, yet the increase in yield is going to more than make up for that. So, our investors are going to be better off if interest rates rise, even if it may not seem like it at the time. When the Fed does start raising rates, the good thing is that ultra-short and short duration funds are probably going to be as much or more rate responsive than money market funds, because there's so much subsidy in the expense ratio for many of the money market funds, more than the longer duration funds. Some of that interest rate increase needs to be absorbed by a reduction in that subsidy. So if rates go up 25 basis points, will the net yield on money market funds go up 25 basis points? I doubt that will happen.