The December 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: "Assets Flat 3rd Year in a Row; JPM Rates, Supply Outlook," a review of year-to-date asset totals and a look ahead to next year; "Wells' Sylvester Retiring: Parting Words of Wisdom," an interview with Dave Sylvester, senior portfolio manager and long-time head of money market funds at Wells Fargo; and, "ICI Recaps Regs, 80% Stable NAV," which examines highlights from ICI's 2014 Annual Report. We also updated our Money Fund Wisdom database query system with Nov. 30, 2014, performance statistics, and sent out our MFI XLS spreadsheet early this morning. (MFI, MFI XLS and our Crane Index products are available to subscribers via our Content center.) Our December Money Fund Portfolio Holdings are scheduled to go out on Tuesday, Dec. 9.
The latest MFI's "Assets Flat 3rd Year in a Row" article comments, "As the second half rally continues, money market mutual fund assets should end 2014 roughly flat. November was the fourth straight month of money fund asset gains, with assets up by $21.0 billion (according to MFI XLS), and assets have increased for 7 weeks in a row (according to ICI's weekly series, which showed a jump of $25.6 billion this week). YTD, assets are now down a mere $31 billion, or 1.1%. This likely will be the third year in a row that fund assets have been flat, falling or rising by under $100 billion, or 1%. (MMF assets increased by $10 billion in 2012 and by $14 billion in 2013.) All things considered, it hasn't been nearly as bad as many expected, given that the Securities & Exchange Commission adopted Money Fund Reforms in July that altered money funds. While many predicted outflows would accompany the new rules, just the opposite happened."
It continues, "Our MFI Daily shows assets surging in early December. Assets have increased by $35.2 billion in the first 3 days of the new month, with Prime Institutional funds accounting for over half of the gains ($21.7 billion). Money fund assets have shown a pattern of decreasing approximately 5% over the first half of the year, and gaining back this deficit in the second half of the year for the past 3 years. (See the chart in the story for annual money fund assets.)"
In our monthly MFI profile, we interviewed Wells Fargo's Dave Sylvester, who announced his retirement, effective March 31, 2015, after a long and successful career that included 35 years with Wells Fargo. On his career in the money fund space, he said, "I started in the fixed income markets in 1974 and then I came to Minneapolis to work for the old Northwestern National Bank in 1979. We had some short-term common and collective funds for trust accounts and I was the portfolio manager on those. Then, in 1987, Norwest opened its money fund suite, the Prime Value Funds. I was the portfolio manager at the time and I've managed those ever since and have been focused exclusively on short-term assets since a few years after those funds opened. We've had a great experience with the growth of those funds. I've managed cash for 35 years and I've managed cash exclusively for the last 25 years."
On some of the changes he has seen over the years, Sylvester said, "The shareholder composition is the biggest change I think. You've got to look at the liability side of the funds balance sheet and that's seen maybe more changes than the asset side. When we first started doing this in the '80s, individuals were coming out of bank savings accounts where the rate was capped by the Federal Reserve moving in to instruments that had no artificial rate cap. Now, we have a lot of institutional MMFs; they've become much more of an institutional cash management vehicle and that presents a different set of challenges to some extent. The industry didn't necessarily respond to how the funds were structured in light of their new shareholder composition and so, they were restructured for us. If there's a lesson in that it is, as the market evolves, the industry might want to be in front of it and think about whether the structure is appropriate for the types of shareholders it has."
The December MFI article on the ICI 2014 Annual Report says, "The Investment Company Institute released its 2014 Annual Report earlier this week, which included a recap of a landmark year for money market funds as sweeping reforms were passed by the SEC. The most notable statistic from the report revealed that nearly 80% of U.S. MMF assets will retain a stable net asset value once reforms are implemented in October 2016. This is much higher than current categorizations of "Prime Institutional" due to the new definition of retail funds and marks a major win for the industry."
It explains, "The 60-page report begins with a letter from ICI Chairman William MacNabb, the chairman and CEO of Vanguard. He comments, "In July, we saw the resolution of the six-year-long debate over how to make money market funds more resilient with adoption of new reforms by the Securities and Exchange Commission (SEC). The changes are sweeping and yet nuanced. Retail investors -- including those who invest through retirement plans and omnibus accounts -- will still have access to stable value prime, tax-exempt, and government money market funds. Institutions can choose to invest in stable-value government funds or floating value prime funds. The SEC rejected such harmful ideas as capital requirements or holdbacks on redemptions.... These factors -- combined with the Institute's reputation for fact-based policy analysis and advocacy -- helped policymakers create a package of reforms that will largely preserve the benefits of money market funds for investors, issuers, and the economy."
Crane Data's December MFI XLS with November 30, 2014, data shows total assets increasing for the fourth straight month in November, rising $21.0 billion after jumping $10.2 billion in October, $27.5 billion in September, and $34 billion in August. As of Oct. 31, total money market fund assets stood at $2.559 trillion with 1,228 funds, 7 less than last month. Our broad Crane Money Fund Average 7-Day Yield and 30-Day Yield ticked up to 0.02% (from 0.01%) while our Crane 100 Money Fund Index (the 100 largest taxable funds) ticked up to 0.03% (7-day and 30-day) <b:>`_. On a Gross Yield Basis (before expenses were taken out), funds averaged 0.13% (Crane MFA, unchanged) and 0.16% (Crane 100) on an annualized basis for both the 7-day and 30-day yield averages. (Charged Expenses averaged 0.11% and 0.13% for the two main taxable averages, both down a tick from last month.) The average WAM for the Crane MFA and the Crane 100 were 44 and 46 days, respectively. The Crane MFA WAM is 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.)
