ICI's latest "Trends in Mutual Fund Investing" shows that total money fund assets decreased by $13.9 billion, or 0.5%, to $2.678 trillion, in February 2015. It was the second straight month of declines as assets dropped $33.4 billion in January (after increasing by $81.4 billion in December, $21.1 billion in November, $19.2B in October, and $22.7B in September). Money fund assets are roughly flat month-to-date in March, though, according to Crane Data's Money Fund Intelligence Daily, which shows assets down a mere $194 million through March 27. (Year-to-date through March 25, money market funds are down $44 billion, according to ICI's latest weekly "Money Market Fund Assets" report.) We review ICI's latest monthly "Trends," as well as its latest Portfolio Composition figures, below. ICI's latest "Month-End Portfolio Holdings of Taxable Money Funds" verified our previously reported sizable decreases in Agencies and TDs, and increases in Repo, CDs, and CP, in February. (See Crane Data's March 11 "News", "March Portfolio Holdings Show Drop in Agencies, TDs; Repo, CP Up.")
The Trends report says, "The combined assets of the nation's mutual funds increased by $501.83 billion, or 3.2 percent, to $16.24 trillion in February, according to the Investment Company Institute's official survey of the mutual fund industry.... Bond funds had an inflow of $17.41 billion in February, compared with an inflow of $10.11 billion in January.... Money market funds had an outflow of $14.21 billion in February, compared with an outflow of $33.44 billion in January. In February funds offered primarily to institutions had an outflow of $8.80 billion and funds offered primarily to individuals had an outflow of $5.41 billion." Money funds represent 16.5% of all mutual fund assets, while bond funds represent 21.7%.
ICI's latest Portfolio Holdings summary shows that Holdings of CDs (including Eurodollar) increased by $9.3B, or 1.5%, in February to $637.3B, after increasing $84.3 billion in January. CDs represent 26.3% of assets and are the largest composition segment. Repo holdings, the second largest segment, increased $12.8 billion, or 2.5%, in February (after decreasing $132.5B in January) to $534.8 billion. Repos represent 22.1% of taxable MMF holdings.
Treasury Bills & Securities moved up into third place despite decreasing by $9.5 billion, or 2.5%, in February to $383.7 billion (15.9$ of assets). Commercial Paper jumped to fourth, increasing $7.6B, or 2.1%, to $374.6 billion (15.5% of assets). U.S. Government Agency Securities fell from third to fifth after dropping $43.0 billion, or 11.2%, to $340.7 billion (14.1% of assets). Notes (including Corporate and Bank) dropped by $1.2 billion, or 1.5%, to $76.5 billion (3.2% of assets), and Other holdings (including Cash Reserves) increased by $10.5 billion to $71.8 billion.
The Number of Accounts Outstanding in ICI's series for taxable money funds decreased by 120.6 thousand to 23.237 million, while the Number of Funds remained the same at 364. Over the past 12 months, the number of accounts fell by 579.6 thousand and the number of funds declined by 17. The Average Maturity of Portfolios declined by one day to 43 days in February. Over the past 12 months, WAMs of Taxable money funds have declined by 5 days.
Note: Crane Data has updated its March MFI XLS to reflect the 2/28/15 composition data and maturity breakouts for our entire fund universe. Note too that we are now producing a "Holdings Reports Issuer Module," which allows subscribers to choose a series of Portfolio Holdings and Issuers and to see a full listing of which money funds own what paper. (Visit our Content Center and the latest Money Fund Portfolio Holdings download page to access our March Money Fund Portfolio Holdings and the latest version of this new file.)
In other news, a Working Paper was published by the European Central Bank (ECB) entitled, "Fragility in Money Market Funds: Sponsor Support and Regulation." (It was written by Cecilia Parlatore from the Wharton School, and we learned about it from an article in Chief Investment Officer magazine.) The paper's Conclusion says, "In this paper, I developed a novel model of MMFs to analyze the role of sponsor support in the industry's stability. The model incorporates several features that are characteristic of MMFs: the investors' ability to redeem their shares on demand, the stability of the NAV, the liquidation of the funds after breaking the buck, and, most importantly, the provision of voluntary sponsor support. The fluctuation in the value of the funds' assets is captured by shocks to the quality of risky assets which affect the equilibrium prices. The model shows that, even in the absence of investor runs, the MMF industry may be fragile. MMFs may subject to a source of fragility that differs from the canonical bank runs: there may be strategic complementarities in the sponsors' support decisions that may give rise to multiple equilibria and to runs of the MMFs on the asset market. Therefore, sponsor support, which is instrumental in providing stability to the MMFs after idiosyncratic shocks, may be not so effective when the shocks are systemic and it may even amplify them."
She continues, "I then use the model to analyze the trade-offs involved in the adoption of a floating NAV and of a capital buffer for MMFs. The consequences of the regulations depend on the interaction between potentially countervailing effects. Changing the institutional setup of the MMF industry would affect the risks and returns of intermediation for investors and MMF managers not only directly, but also through the change in equilibrium outcomes such as intermediation fees, the sponsors' support decision, and asset prices. The model allows me to take into account these general equilibrium effects, which seem particularly important given the relative size of the MMF industry in the market for short term financing. One of the key determinants of the overall effect of the policies is the elasticity of the supply of assets faced by MMFs. In light of this, the model suggests that a crucial piece in the policy analysis is whether other market participant would be able and willing to offer liquidity in the money market if MMFs were not there."
