An SEC filing for the DFA Investment Trust's DFA Short Term Investment Fund appears to indicate that yet another internal money market fund is abandoning the Prime Institutional sector ahead of the implementation of emergency mandatory liquidity fees in October. We believe the $15.1 billion DFA Short Term Investment Fund is converting to an ultra-short bond fund, though we could not confirm this with Dimensional Fund Advisors. The POS AMI filing states, "The investment objective of the Short Term Series is to seek to provide a high level of current income consistent with liquidity and the preservation of capital. The Short Term Series will pursue its investment objective by investing in U.S. dollar-denominated short-term debt securities."
It continues, "The Short Term Series' investments will include: direct obligations issued by the U.S. Treasury ('U.S. Treasury Obligations'); obligations issued or guaranteed by the U.S. Government or any of its agencies, authorities or instrumentalities ('U.S. Government Obligations'); obligations of U.S. thrift institutions, savings and loans, banks, and foreign banks (including U.S. subsidiaries and branches of foreign banks); corporate obligations; commercial paper and other instruments; U.S. dollar-denominated obligations of foreign issuers, including U.S. dollar-denominated securities that trade outside of the United States ('Eurodollar Securities'); repurchase agreements; and shares of money market funds."
DFA writes, "The fixed income securities in which the Short Term Series invests are considered investment grade at the time of purchase (e.g., rated AAA to BBB- by S&P Global Ratings ('S&P') or Fitch Ratings Ltd. ('Fitch') or Aaa to Baa3 by Moody's Investor's Service, Inc. ('Moody's')). The Short Term Series will acquire obligations that have remaining maturities of 397 calendar days or less (with certain exceptions such as U.S. Treasury Obligations). The Series will maintain a dollar-weighted average portfolio maturity of 60 calendar days or less and will maintain a dollar-weighted average life ('weighted average life') of 120 calendar days or less. 'Weighted average life' is the dollar-weighted average portfolio maturity calculated using the final maturities of the securities held by the Short Term Series rather than using such securities' next interest rate reset dates. The Short Term Series will limit its purchases of any one issuer's securities (other than U.S. government securities) to 5% of the Series' total assets."
They then state, "The Short Term Series is not a money market fund and is not subject to the strict rules that govern the quality, maturity, liquidity and other features of securities that money market funds may purchase. The Short Term Series does not seek to maintain a stable share price of $1.00. As a result, the Short Term Series' share price, which is its net asset value per share, will fluctuate due to the Series' own investment experience and reflect the effects of unrealized appreciation and depreciation and realized losses and gains."
DFA adds, "Further, because the Short Term Series does not seek to maintain a stable share price, investors should expect the value of their investment to vary and reflect the value of the Short Term Series' holdings. The following is a description of the categories of investments that may be acquired by the Short Term Series: U.S. Treasury Obligations; U.S. Government Agency Obligations; Corporate Debt Obligations; Bank Obligations; Commercial Paper; Repurchase Agreements; Foreign Government and Agency Obligations; Supranational Organization Obligations; Foreign Issuer Obligations; Eurodollar Securities; and, Money Market Funds." The Federal Reserve Bank of New York also published a brief titled, "Reverse repo counterparties list updated," which says, "DFA Short Term Investment Fund of The DFA Investment Trust Company is no longer a reverse repo counterparty, effective August 1."
For more, see the Crane Data News updates, "First American Inst Prime Obligations to Invest Solely in Liquid Assets" (7/23/24), "Schwab, JPM, Meeder Announce Prime Inst Conversions to Government" (7/18/24), "Invesco Files to Liquidate Prime Inst MMFs; UBS MF Converting to Retail" (6/13/24), "BlackRock Liquidates TempFund, LEAF" (6/10/24), "Federated Hermes Merging Prime Inst Money Funds; Prime Value To POF" (6/6/24), "Allspring to Merge Heritage MMF Into Govt MMF; UBS Converting Fund" (6/3/24), "DWS Liquidating ESG Liquidity Fund, 7th Prime Inst to Exit" (5/22/24), "Dreyfus Files to Liquidate Cash Management Prime Inst MMF, Tax Exempt" (5/13/24), "Goldman Files to Liquidate Prime Inst MMFs; Barron's: MMFs Tempting" (4/22/24), "Federated Liquidating Money Mkt Trust" (4/1/24), "Vanguard Market Liquidity Fund Files to Go Government, Joins American" (3/20/24) and "American Funds Central Cash to Convert to Govt to Avoid Liquidity Fees" (2/6/24).
In other news, the Financial Times published the article, "Asset managers fret over lost gains as investor cash piles up on sidelines," which tells us, "Top asset managers are struggling with investor reluctance to embrace risk and put money into the markets, as interest rates and yields on cash savings remain at their highest level in more than a decade. Investors have been stubbornly sitting in cash, hurting bottom lines for asset managers and forgoing gains on more than $1.5tn during a record bull run that until recently pushed markets to all time highs."
They comment, "Several factors are driving the caution. Risk-free yields are outpacing inflation for the first time in decades. A narrow stock market riding high on a handful of volatile tech stocks, widespread geopolitical conflict, poor economic sentiment and an uncertain US election are all keeping investors firmly on the sidelines. Asset managers, who have been frustrated with what they've called 'tremendous' amounts of investor capital in cash for more than a year, are eager for rate cuts to ease pressure on their bottom lines."
The piece says, "More than $6.1tn is held in US money market funds where investors can earn about 5 percent on their cash with little risk, according to the Investment Company Institute, up from roughly $4.5tn before the US Federal Reserve began to raise interest rates. It is estimated that investors have missed out on $225bn in stock market gains on $1.5tn in so-called excess cash as markets charged ahead this year. The S&P 500 is up more than 15 percent since the start of the year. That cash earned roughly $75bn sitting in money market funds over the same period."
It continues, "Investor reluctance to put cash to work has tested asset managers, who rely on management fees for invested capital and are in constant competition for assets. The excess in uninvested savings potentially translates to billions in lost fee income for the asset management industry. While rate cuts are predicted later this year, they are also expected to remain attractively high to investors for some time."
The FT adds, "The reticence has confounded managers, who thought the broad rebound in markets (until recent weeks) would bring investors back into their funds, helping improve what have been modest flows across the sector. But despite markets hitting all time highs this year, investor's risk appetite remains muted.... Frustrated companies hope a Fed rate cut will drive investors out of cash and back into the market. 'As we get closer to the Fed's rate cutting cycle, we expect traditional fixed income sectors to regain their place as the primary source of yield as cash begins to look less attractive,' said Jenny Johnson, the chief executive of Franklin Templeton."
Finally, money fund yields inched down to 5.12% on average in the week ended Aug. 2 (as measured by our Crane 100 Money Fund Index, an average of 7-day yields for the 100 largest taxable money funds). Yields were 5.13% on 6/28, 5.14% on 5/31, 5.13% on 4/30, 5.14% on 3/31 and 2/29/24, 5.17% on 1/31/24, 5.20% on 12/31/23, 4.94% on 6/30/23, 4.61% on 3/31/23 and 4.05% on 12/31/22. The vast majority of money market fund assets now yield 5.0% or higher. Assets of money market funds rose by $18.5 billion last week to $6.531 trillion according to Crane Data's Money Fund Intelligence Daily. Weighted average maturities were unchanged at 34 days. The broader Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 706), shows a 7-day yield of 5.03%, unchanged in the week through Friday. Brokerage sweep rates also remained unchanged, contrary to the discussions on a number of brokerage earnings calls in recent weeks.
Prime Inst money fund yields were unchanged at 5.18% in the latest week. Government Inst MFs were down 1 bp at 5.11%. Treasury Inst MFs were unchanged at 5.07%. Treasury Retail MFs currently yield 4.85%, Government Retail MFs yield 4.84%, and Prime Retail MFs yield 5.02%, Tax-exempt MF 7-day yields were up 24 bps to 3.17%. According to Monday's Money Fund Intelligence Daily, with data as of Friday (8/2), 28 money funds (out of 827 total) yield under 3.0% with $7.9 billion in assets, or 0.1%; 96 funds yield between 3.00% and 3.99% ($126.8 billion, or 1.9%), 253 funds yield between 4.0% and 4.99% ($1.126 trillion, or 17.2%) and 450 funds now yield 5.0% or more ($5.270 trillion, or 80.7%).
Our Brokerage Sweep Intelligence Index, an average of FDIC-insured cash options from major brokerages, was unchanged (again) at 0.62%. The latest Brokerage Sweep Intelligence, with data as of Aug. 2, shows that there were no changes over the past week. (We haven't seen many of the changes mentioned on earnings calls, which apparently only apply to a narrow slice of "advisory" accounts. Only a couple of brokerages report these rates, which aren't included on our BSI report.) Ten weeks ago, we removed the rates for TD Ameritrade from the listings, which completed its merger with Charles Schwab and which pushed the averages higher (2 bps). Three of the 10 major brokerages tracked by our BSI still offer rates of 0.01% for balances of $100K (and lower tiers). These include: E*Trade, Merrill Lynch and Morgan Stanley.
