Standard & Poor's Ratings Services issued a press release entitled, "S&P: Money Market Funds Have Remained Stable Despite Greater Disclosure Of Shadow Net Asset Values," which says, "When the SEC began to require that money market funds disclose their "shadow" net asset values (NAVs), in December 2010, fund sponsors were concerned about shareholders' reaction to viewing these NAVs. In Standard & Poor's Ratings Services' view, the impact of the requirement has been relatively benign over the past two years, said an article published today, titled "Money Market Funds' "Shadow" Net Asset Values Are In The Spotlight Again."" (Note that Crane Data publishes these monthly shadow NAVs in our Money Fund Intelligence XLS.)
S&P's release continues, "Based on the revision that the SEC made to Rule 2a-7, which governs registered money market funds under the Investment Company Act of 1940, fund companies have to submit their shadow NAVs monthly, and then the postings are made available on the SEC's Web site with a 60–day delay. A fund's marked-to-market NAV is the total value of all the investments in its portfolio (minus any liabilities), divided by the number of fund shares outstanding. The shadow NAV is the true (nonrounded) marked-to-market NAV per share out to four decimals."
It adds, "As investors continue to gain access to more frequent shadow NAV data for their stable NAV investments, we're updating how our rated stable NAV funds have behaved over the past two years." "Generally, money market funds and other similar investment pools have remained stable," said Standard & Poor's credit analyst Madeleine Parish. "Recall, prior to the implementation of the SEC's revision to Rule 2a-7, we had noted only small incremental NAV deviations."
S&P tells us, "In early 2013, money fund managers (including some of the largest assets managers in the U.S.) began reporting shadow NAVs out to four decimal places on a daily basis by posting them to their Web sites. The impact of disclosing NAVs on a daily basis can lead to more conservative portfolios that are managed to minimize the impact of changes in interest rates." (Note too that we now publish daily "MNAVs" in our Money Fund Intelligence Daily product.)
Parish also comments, "The prolonged period of low interest rates and new liquidity rules for 2a-7 funds have established a general basis for lower portfolio average maturities over the past few years. Average portfolio maturity and liquidity positions are significant factors contributing to the stability of observed marked-to-market NAVs. However, the NAV data we have observed over the past two years are in line with the stable values we have seen in the nearly 30 years that we have been assigning principal stability fund ratings, with the exception of a few more volatile periods in 1994 and 2007."
S&P's full report comments, "The money market fund industry has received increased attention as a result of the FSOC and SEC's continued work deciding on appropriate reforms to the industry following the financial crisis. Notably, one of the recommendations the FSOC outlined is a requirement for the stable NAV to become a variable NAV. If a variable NAV requirement becomes part of Rule 2a-7 and is applied to prime money market funds based on the $100.00-per-share NAV proposal the FSOC outlined, the range of share prices we would have witnessed for our rated prime funds over the past two years using this anchor point would have been $99.790 to $100.148."
Finally, the report says, "In addition, the question that remains regarding the shadow NAV disclosures is at what point will increased transparency from posting daily NAVs cause shareholders to redeem their investments? Although there is no definitive answer to this, increased transparency will provide investors with more factors on which to base their investment decisions. Once daily NAVs become available to portals (institutional online trading platforms), investors will be able to sort funds by their NAVs, among other factors."
