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The February issue of our flagship Money Fund Intelligence newsletter, which was sent to subscribers Friday morning, features the articles: "MMF Yields Higher & Spread Returns; Outflows Ahead?," which looks at how the increases in yields and spreads could affect fund flows; "MF University Experts on Supply & Demand in '16," where we recap the hot topics from last month's MFU conference; and "Worst Over for Fee Waivers; Earnings Up," which discusses how money fund managers are reducing fee waivers. We have also updated our Money Fund Wisdom database query system with Jan. 31, 2016, performance statistics, and sent out our MFI XLS spreadsheet Friday morning. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our January Money Fund Portfolio Holdings are scheduled to ship Tuesday, February 9, and our February Bond Fund Intelligence is scheduled to go out Friday, February 12.
MFI's lead article on "MMF Yields," says, "After a Fed-related jump in December, money fund yields continued to rise in January. But the all-too-brief party may be at an end, as expectations for additional hikes sank along with the stock market the past month. Talk of negative yields even surfaced this week, and assets experienced their first drop in 4 months, down $22.4 billion, in January. Preparations for MMF Reforms continued, and speculation focused on how much investor cash might leave Prime funds later in 2016."
The piece adds, "Our Crane Money Fund Average 7-Day Yield, a simple average of all taxable MMFs, rose to 0.09% from 0.06% at yearend (and triple the 0.03% from 11/30/15). The Crane 100 MF Index, which tracks the largest MMFs -- mainly Institutional and Prime -- rose to 0.18% from 0.15% on 12/31 and 0.07% on 11/30.... MMF yields rose less than the Fed hike, but more than expected of the move was passed through to investors. Gross yields rose by about 12-15 bps over 2 months (0.18% to 0.30% for the Crane MFA and 0.22% to 0.37% for the Crane 100), while Expenses rose by just 2-5 bps."
Our MFU recap reads, "Our 6th annual Money Fund University convened Jan. 21-22 in Boston and attracted a record 125 people. The "basic training" event, targeted at those new to the money fund industry, featured primers on interest rates, money market securities, the Federal Reserve, ratings, portfolio management, and money fund regulations and reforms. One of the overriding themes of this event was the supply outlook for 2016, which experts say should be more positive than 2015. Conference host and President of Crane Data Peter Crane commented, "This was our biggest and best MFU yet; it was encouraging to see new blood in the space given the change and challenges MMFs face."
It continues, "Crane kicked off the event with a session called, "History and Current State of Money Funds," reminding attendees that the industry has been remarkably stable since the Financial Crisis, gaining assets slightly in each of the past four years. "After six years of 0% yield and radical regulatory change, if you are still in a money market fund, [this likely means] you're not going anywhere." Crane said the migration out of Prime funds ultimately won't be as dramatic as many expect due to the yield advantage they will have over Government funds in a rising rate environment."
The piece adds, "That sentiment was echoed by others as well. He also expects inflows from the banking sector. "I believe you are going to hear a giant sucking sound out of the banking sector once money fund yields get to 100 basis points," he commented. Until then, much change is anticipated in the MMF space as reforms go into effect on Oct. 14, 2016. Fund managers, not quite sure which way the money will flow, are ready for everything. Crane added, "A lot of people are getting buckets out because they don't know where it's going to rain."
The "Worst Over for Fee Waivers" article says, "The December interest rate hike was a welcome relief for fee-starved money fund managers. As Crane Data's Peter Crane told Ignites in the article "`Fed Hike a 'Lifeline' for Money Funds, Waivers Drop to $5.5B," "The Fed hike was a lifeline and huge windfall for money fund managers." The Ignites piece adds, "The 25-basis-point federal funds rate increase will likely increase the amount of fees shops can collect from managers by 5 to 10 basis points. That would boost annualized revenues by $1.3 billion, to $2.6 billion, he adds. Waivers will likely decrease to 2009 levels this year and could eventually drop to levels last seen in 2007 and 2008 if the central bank raises rates again this year, says Crane."
We also review the Prime fund landscape in the sidebar, "The Big Sort: Inst or Retail?" It says, "We've reported frequently on the $264.1 billion converting from Prime to Government, but what about the remaining Prime money funds? Which will declare as pure "Retail" and which will become all "Institutional" and float in October." We provide a brief overview of how the 8 largest money fund managers are sorting out their Prime funds. We also write "China Passes Ireland, Regs," about how China became the second largest MMF country.
Our February MFI XLS, with Jan. 31, 2016, data, shows total assets decreasing $22.4 billion in January after increasing $44.2 billion in December, rising $3.5 billion in November, jumping $56.5 billion in October, and declining by $9.4 billion in September. Our broad Crane Money Fund Average 7-Day Yield climbed by 3 bps to 0.09% for the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) increased 5 basis points to 0.18% (7-day).
On a Gross Yield Basis (before expenses were taken out), funds averaged 0.30% (Crane MFA, up 4 basis points) and 0.37% (Crane 100, up 5 bps). Charged Expenses averaged 0.21% (up 1 bps) and 0.19% (unchanged) for the two main taxable averages. The average WAM (weighted average maturity) for the Crane MFA was 35 days (up 1 day from last month) and for the Crane 100 was 36 days (up 2 days). (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
Finally, Crane Data released the preliminary agenda for its upcoming Money Fund Symposium, which will be held June 22-24 at the Philadelphia Marriott. Registration is now live (and is $750) and the website and brochure are now available. (E-mail us at firstname.lastname@example.org for the PDF brochure, or visit www.moneyfundsymposium.com for details.) We're also making preparations for our next European Money Fund Symposium, Sept. 20-21, in London, and our first Bond Fund Symposium, tentatively scheduled for March 23-24, 2017 in Boston.
One year ago, Crane Data launched Bond Fund Intelligence, a monthly newsletter with news and performance data on bond mutual funds. With money market fund reform a reality, we saw an opportunity to broaden our scope beyond 2a-7 money funds to cover the ultra-short and short-term bond fund market. In the first issue (Jan. 2015), we began tracking about 200 bond funds, focusing primarily on the Ultra-Short universe and our new "Conservative Ultra-Short Bond" category. As the year went on, we expanded our coverage out to all types of bond funds, though the editorial focus is still primarily on the short end of the market. By December 31, we were tracking 375 bond funds (and ETFs), totaling $1.663 trillion in assets -- over half of the market. Below, we excerpt from the article, "BFI's First Year, Top Stories & Funds in '15, Outlook for '16." Also, we report on Treasury Strategies' latest "Quarterly Cash Briefing," where the conversation turned to money fund reform and its impact on the market.
Our January Bond Fund Intelligence says, "It was a challenging year for bond funds, but not bad considering — both assets and returns were roughly flat overall. While assets are up slightly through Nov 30, there have been steady outflows through the second half of the year. According to ICI, bond fund assets stood at $3.465 trillion as of Nov. 30, up just $5 billion from Dec. 31, 2014. But with outflows in December, they may finish the year in the red. This was just one of the big stories of 2015. Here are our "Top 10 Stories of 2015," in chronological order."
It continues, "In January, we introduced ourselves in the story, "Welcome to BFI! 2015 Outlook & Top Bond Funds of 2014." In February we wrote, "New Fund Launches Continue in Ultra Short, ETF Bond Space." It focused on the launch of the Vanguard Ultra- Short Term Bond Fund, which made a big splash in the space. The launch of new Ultra-Shorts was a theme we'd see throughout the year. In March we wrote, "ICI Analyzes Bond Fund Volatility," where we quoted ICI's Brian Reid on the historically low volatility of bond funds."
BFI tells us, "In April we reported, "Who's the Biggest Bond Fund? A Look at the Largest and Top 10." It was on the changing of the guard as Vanguard Total Bond Market Index Fund surpassed Pimco Total Return as the largest bond fund in the world. In June, we wrote, "Bond Market Conundrum: Ultra-Shorts Raise Profile." This story looked at the conundrum of asset inflows despite stalling returns for bond funds. Later in the year, we would see those inflows turn to outflows and stay that way throughout the latter half of the year. In the August story, "Bond Fund Assets Peak as Fed Rate Hike Draws Nigh," we saw the outflows begin and assets plateau."
We write, "In September, "Bond Fund Assets Continue Slide," and October, "No Fed Rate Hike in Sept., But Dec.?," we saw the market slide further on the anticipation that the Federal Reserve was finally going to hike interest rates. Citing uncertainty in China, following its September stock market crash, the Fed did not raise rates. It would, however, raise rates in December. In November, we wrote about another money manager offering money market- like bond funds, "SSgA Intros New Bond Funds." As it prepares for "the new world of cash," SSgA launched 3 new ultra-short bond funds, along with 3 new 2a-7 money funds.... Finally, in December, we wrote, "Junk Bond Fund Liquidates," on Third Avenue Management which liquidated its Focused Credit Fund. It sent shockwaves through the market and sparked concerns about volatility in the high yield sector."
Our 1-Year Anniversary issue adds, "What's ahead for 2016? It'll be another challenging year for bond funds as the Fed is expected to raise interest rates at least a couple more times this year. But most expect the Fed to be very gradual and cautious in its approach. The ultra-short sector should see continued inflows as investors seek alternatives to Prime money funds once MMF reforms are implemented in October. Meanwhile, look for BFI to continue to expand its coverage and launch a new website in 2016." (Contact us if you'd like to see the latest issue of Bond Fund Intelligence or if you'd like to subscribe.)
Finally, under a "Top Performers for 2015" sidebar, we explain, "The table below lists the No.-1 performing bond funds based on total return for through 12/31/15 in each of our 7 bond fund categories. PIMCO Short Asset Inv Fund Inst (PAIDX) was the top performing fund in our Conservative Ultra-Short category, Vanguard Total Intl Bond Mkt Ind Inv (VTIBX) won in the Global category, Fidelity Capital & Income (FAGIX) returned the most in our High Yield category, DoubleLine Total Return I (DBLTX) was No. 1 among Intermediate-Term Bond Funds, American Funds Govt R6 (RGVGX) was No. 1 among Long Term Bond Funds, Invesco High Yield Muni A (ACTHX) was No. 1 among Muni Bond Funds, PIMCO Income Inst (PIMIX) was No. 1 among Short Term BFs, and Guggenheim Limited Duration Instl (GILHX) placed first among Ultra-Short Bond Funds. Congratulations to the winners! Note that we will continue to expand our collections and tweak our categorizations in the coming year, so watch for changes in 2016."
In other news, Treasury Strategies Quarterly Cash Briefing host Tony Carfang asked the panel -- Fitch Ratings' Roger Merritt, Federated Investors' Debbie Cunningham, and Association of Corporate Treasurers' Peter Matza –- about how the regulatory landscape will affect cash management strategies in 2016. Merritt said, "We just did [a] survey of corporate treasurers ... and it's very clear from our survey and those conversations [that] the number one issue for them is fees and gates."
He explained, "They've always viewed money market funds as a very attractive option because they offered same day liquidity, preservation of capital, and yield. Now, or at least starting in October, that free lunch no longer exists. As a corporate treasurer, you'll have to give up one of those three features based on the products that will be available to you going forward. That is the key issue." Merritt added, "We also expect to see a proliferation of new liquidity products coming to market, trying to continue to meet the demands of cash investors."
Federated's Cunningham said, "We've got two different implementation dates in 2016. The major changes will occur in mid-October, but there are other changes that will occur in April that will maybe give will us some insight into what to expect from a cash flow perspective from customers. They are changes to reporting and disclosure. They will include reporting the information on the 4-digit mark-to-market NAV for all funds ... on a daily basis. We'll be able to see that information for all funds and our clients will be able to see that information, in addition to the posting of the weekly liquidity numbers on a daily basis, which are the basis off which the potential for a fee or gate could potentially be triggered. That additional disclosure ... might be the beginning of what would be insightful information for expected cash flow."
Also, Cunningham commented on the billions of assets industrywide that are being converted from Prime to Government funds in response to reforms (by our count, $263 billion). She noted that about 80% of the conversions are complete with another $40-$50 billion to convert. She said, "What that doesn't take into consideration are people who are in a Prime fund that may withdraw their balances from their prime fund and go into the Government space. There have been estimates that that could be several more hundreds of billions of dollars, but there is no firmness in those estimates. It seems to be a moving target."
Cunningham added that when reforms were first introduced, many clients were adamant that they would not be in liquidity products that had fees and gates or a floating NAV. She explained, "If you ask those same clients that same question today and you talk about yield spreads, there is much more potential interest and tolerance" for the unlikely occurrence of a fee or a gate being imposed, or mild volatility, given the potential for returns higher than a Government fund. "I think we still have a lot to learn and perhaps we start to learn some of that in April," she added. Carfang commented, "At Treasury Strategies, our clients clearly are less concerned about fees gates and floating NAV than they were six months ago ... nine months ago, and it's truly a question of spread between prime and government funds."
There was also some discussion of the High Yield bond fund market, specifically the Third Avenue Focused Credit Fund, which halted redemptions in December. Fitch's Merritt said that through research his firm did into the fund, he found it to be "a bit of an outlier.... It was clear that the Third Avenue fund had a very high portion of its assets in what would appear to be in distressed or less liquid assets, whereas that's not the case for most other high yield funds." He said it may have been the case of essentially a hedge fund operating as an open-ended mutual fund.
The January issue of our flagship Money Fund Intelligence newsletter, which was sent to subscribers Friday morning, features the articles: "Money Fund Highlights of '15; More Changes Ahead in '16," which looks at the major trends and stories from 2015; "RBC Global on Going Govt; Rethinking Liquidity," where we talk to RBC's money market fund management team on their view of the markets; and "Top Money Funds of 2015; 7th Annual MFI Awards," which honors the best performing MMFs in a variety of categories. We have also updated our Money Fund Wisdom database query system with Dec. 31, 2015, 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 ship Tuesday, January 12, and our January Bond Fund Intelligence is scheduled to go out Friday, January 15.
MFI's lead article, "Money Fund Highlights of '15,” says, "Between 2014, when Money Market Fund Reforms were passed, and 2016, when those reforms go into effect, 2015 was a year of transition. Ahead of the Oct. 14, 2016 implementation date, money fund managers tweaked, revamped, and even scrapped their money fund lineups. The most notable trend we saw was managers converting Prime funds to Government funds to maintain the stable NAV."
The piece adds, "It was also the year that the Federal Reserve finally raised interest rates; its first hike in almost 10 years. The long-awaited Fed move was a welcome relief for money fund managers, and investors, as we head into 2016. In just the few weeks since the Dec. 16 rate hike, yields have already increased, though by far less than 25 bps. (Part of the move was no doubt absorbed by fund managers unwinding fee waivers.)"
Our latest MFI "profile" reads, "This month, Money Fund Intelligence profiles the liquidity management team at RBC Global Asset Management in the U.S., including Brandon Swensen, Senior Portfolio Manager and Co-Head of U.S. Fixed Income; John Donohue, Head of Liquidity Management; and, Matthew Appelstein, Head of U.S. Sales and Distribution. They discuss RBC's decision to no longer offer the RBC Prime Money Market Fund, the firm’s growth in the U.S., and the opportunities that exist in the new liquidity management landscape."
We ask, "Tell us about your recent changes. Why are you getting out of prime?" Donohue answers, "The decision was driven by conversations with our clients -- they just don't feel the need to be involved in a variable rate NAV product. What we've seen is that the majority of our clients are considering a move to our government money market fund, while also evaluating our ultra-short products. In addition, clients continue to explore customized separate account strategies for their core cash positions. We have approximately $30 billion of short duration assets, which enables us to be large enough in the market, but remain flexible. We believe clients will scrutinize their cash investing practices more than ever before."
Swensen continues, "While we're not predicting the demise of prime funds, we are in the camp that believes they have been fundamentally changed and are less desirable in terms of delivering the liquidity solution our clients are looking for. Prime funds now exhibit liquidity characteristics that aren't quite the same as what a liquidity investment should look like. We think government funds are still a pure play liquidity product, but prime funds have this baggage associated with it. Fundamentally, we feel that clients that are looking for yield should be in something other than a prime fund, and that's where our separately managed accounts will come in to fill that void. The government funds are there to provide that pure play liquidity with no strings attached."
The "7th Annual MFI Awards" article says, "In this issue, we once again recognize some of the top‐performing money funds, ranked by total returns, for calendar year 2015, 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, 2015, in each of our major fund categories -- Prime Institutional, Government Institutional, Treasury Institutional, Prime Retail, Government Retail, Treasury Retail, and Tax‐Exempt. (Watch for the full Awards story in coming days.)
We also review the latest Prime to Govie moves in a sidebar entitled, "More Funds Go Govie." It says, "Money market fund conversion announcements have accelerated in the final weeks of the year -- 7 additional fund managers have filed recently to change their Prime MMFs into Government funds since our last update. The recent batch of Prime to Govie conversions include: Cavanal Hill, John Hancock, Prudential, SunAmerica, Thrivent, TIAA-CREF, and Voya." We also have a sidebar called, "Goldman Sachs AM Details More MMF Changes."
Our January MFI XLS, with Dec. 31, 2015, data, shows total assets increasing $44.2 billion in December after increasing $3.5 billion in November, jumping $56.5 billion in October, declining by $9.4 billion in September, and rising $7.2 billion in August. In 2015, MMF assets rose by $39.4 billion, or 1.5%. Our broad Crane Money Fund Average 7-Day Yield doubled, rising by 3 bps to 0.06% for the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) jumped 8 basis points to 0.13% (7-day).
On a Gross Yield Basis (before expenses were taken out), funds averaged 0.26% (Crane MFA, up 6 basis points) and 0.32% (Crane 100, up 10 bps). Charged Expenses averaged 0.20% (up 4 bps) and 0.19% (up 2 bps) for the two main taxable averages. The average WAM (weighted average maturity) for the Crane MFA was 34 days (up 1 day from last month) and for the Crane 100 was 34 days (down 1 days). (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
The December issue of our flagship Money Fund Intelligence newsletter, which was sent to subscribers Monday morning, features the articles: "Assets Flat 4th Year in a Row; Prime Exodus Begins, Lineups," which says MMF assets are flat again in 2015 and discusses the latest Prime to Govt moves; "BlackRock's Henderson & Erbeck on Tax-Exempt MMFs," where we interview BlackRock's Muni money market team; and "Tax Exempt MFs Hit by Ultra-Low Yields; Will Any Go Inst?," which reviews recent trends in the municipal money market. We have also updated our Money Fund Wisdom database query system with Nov. 30, 2015, performance statistics, and sent out our MFI XLS spreadsheet earlier. (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 ship Wednesday, December 9, and our December Bond Fund Intelligence is scheduled to go out Monday, December 14.
MFI's lead "Assets Flat 4th Year" article says, "As the year winds down, money fund assets continue their second half rebound. For the fourth year in a row, MMFs fell by about 5% in the first half of the year, then recovered all of the deficit to end the year slightly positive. Assets are now flat YTD in 2015. Meanwhile, changes continue as more managers announce lineup tweaks and assignments, and a major chunk of assets shifts from Prime to Government. We review 2015 and the latest reform-related moves below."
It continues, "Following a surge in October, money fund assets inched higher in November, up $3.5 billion. Assets have increased in 9 out of the last 11 weeks, hitting their highest levels of 2015. Below, we show assets over the past 5 years, and on page 2 we show historical MMF asset levels. Overall, assets have increased in five of the last 6 months. The only month that showed a decline was September, when assets were down $5.1 billion. Assets are currently at their highest levels of 2015 and appear poised to move higher in December, particularly if the Federal Reserve raises interest rates at its Dec. 15-16 FOMC meeting, as expected."
Our latest MFI "profile," reads, "This month, Money Fund Intelligence interviews BlackRock’s William Henderson, Managing Director & Lead Portfolio Manager on the Municipal Liquidity Portfolio Team, and Jack Erbeck, Managing Director & Municipal Credit Analyst. BlackRock manages about $9.2 billion in Tax-Exempt money fund assets, including the $2.5 billion BIF Tax Exempt MF and the $1.4 billion BlackRock MuniFund. (BlackRock is also poised to almost double its Tax-Exempt MMF assets once it acquires BofA’s cash business in April 2016.) Henderson has been running Tax-Exempt money funds for BlackRock since 1993, and Erbeck has been a credit analyst supporting Tax-Exempt funds since 1999. We discuss recent events in the Tax-Exempt or Municipal money markets below."
We ask, "MFI: How long has BlackRock been running Tax-Exempt cash? Henderson: Our flagship Tax Exempt money market fund, the BlackRock Muni Fund, began operations in 1980. We have a variety of Tax-Exempt funds -- the BlackRock Liquidity Funds, the BlackRock Institutional Funds, and the BlackRock retail funds. They are all managed here in Princeton, where we conduct tax-exempt fund portfolio management and credit research. It’s all part of Blackrock’s $110 billion municipal platform. MFI: What is your biggest priority currently? Henderson: My number one priority is to keep the client and fiduciary responsibility front-and-center for the team."
The "Tax-Exempt MMF" article says, "While Taxable money fund assets have held steady the past 5 years, Tax Exempt MMFs have not fared as well. Tax-Exempt MMFs total $244.6 billion, down almost 50% from Dec. 2008 when the zero yield environment began, and down 23% over the past 5 years. (Assets peaked at over $500 billion in Aug. 2008.) We briefly review this sector below, and we discuss recent designations fund companies have made in the Tax-Exempt space. Also, though taxable MMFs have seen some relief of late, yields in the Municipal money markets continue making record lows. Crane’s Tax Exempt MF Index remains at 0.01%, down from 0.91% at year-end 2008."
We also review the month's lineup change announcements in a sidebar entitled, "Managers Firm Up Lineups." It says, "BlackRock, Federated, Dreyfus, and Invesco all made announcements recently that provide a clearer picture of how their money fund lineups will look after MMF reforms take effect in October 2016. Federated further laid out its Institutional offerings, designating four -- Federated Money Market Management, Prime Obligations, Prime Value Obligations, and Tax-Free Trust."
Our December MFI XLS, with Nov. 30, 2015, data, shows total assets increasing $3.5 billion in November after increasing $56.5 billion in October, declining by $9.4 billion in September, rising $7.2 billion in August, and jumping $52.4 billion in July. YTD, MMF assets are flat, down by just $8.4 billion, or 0.3% (through 11/30/15). Our broad Crane Money Fund Average 7-Day Yield rose by one bps to 0.03%, while our Crane 100 Money Fund Index (the 100 largest taxable funds) remained at 0.05% (7-day).
On a Gross Yield Basis (before expenses were taken out), funds averaged 0.18% (Crane MFA, same as last month) and 0.22% (Crane 100, up one bps). Charged Expenses averaged 0.16% (up one bps) and 0.17% (unchanged) for the two main taxable averages. The average WAMs (weighted average maturities) for the Crane MFA was 33 days (down 3 days from last month) and for the Crane 100 was 35 days (down one day). (See our Crane Index or craneindexes.xlsx history file for more on our averages.)