The Investment Company Institute released its latest "Money Market Fund Holdings" summary (with data as of August 31, 2015) late last week, which tracks the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds. We also review JP Morgan Securities' "Prime Money Market Fund Holdings Update" for August. In addition, in response to the late August stock market swoon, Fitch Ratings issued an update entitled, "`US Money Market Funds' Exposure to China Slowing." (Note: Thanks again to those who spoke, sponsored and participated in last week's European Money Fund Symposium in Dublin! Next year's European Symposium will be Sept. 21-22, 2016, in London, and the next Crane conference will be our Money Fund University, which will take place Jan. 21-22, 2016, in Boston.)
ICI's "Prime and Government Money Market Funds' Daily and Weekly Liquid Assets" table shows Prime Money Market Funds' Daily liquid assets at 26.8% as of August 31, up from 26.1% on July 31. Daily liquid assets were made up of: "All securities maturing within 1 day," which totaled 23.2% (vs. 21.8% last month) and "Other treasury securities," which added 3.6% (down from 4.4% last month). Prime funds' Weekly liquid assets totaled 39.4% (vs. 38.8% last month), which was made up of "All securities maturing within 5 days" (33.8% vs. 32.9% in July), Other treasury securities (3.6% vs. 4.3% in July), and Other agency securities (2.0% vs. 1.6% a month ago). (See also Crane Data's September 11 News, "Portfolio Holdings Show Jump in Agencies; Prime to Govt Shift Starts.")
The ICI holdings report says Government Money Market Funds' Daily liquid assets totaled 61.7% as of August 31 vs. 62.0% in July. All securities maturing within 1 day totaled 25.5% vs. 26.5% last month. Other treasury securities added 36.2% (vs. 35.5% in July). Weekly liquid assets totaled 82.7% (vs. 82.9%), which was comprised of All securities maturing within 5 days (38.6% vs. 39.8%), Other treasury securities (34.1% vs. 33.4%), and Other agency securities (10.0% vs. 9.8%).
ICI's "Prime and Government Money Market Funds' Holdings, by Region of Issuer" table shows Prime Money Market Funds with 42.5% in the Americas (vs. 42.0% last month), 18.6% in Asia Pacific (vs. 19.2%), 38.5% in Europe (vs. 38.6%), and 0.5% in Other and Supranational (vs. 0.3% last month). Government Money Market Funds held 85.4% in the Americas (vs. 84.3% last month), 0.7% in Asia Pacific (vs. 0.7%), 13.9% in Europe (vs. 15.0%), and 0.1% in Supranational (vs. 0.1%).
The table, "Prime and Government Money Market Funds' WAMs and WALs" shows Prime MMFs WAMs at a low of 33 days as of August 31, down from 37 days last month. WALs were at 68 days, down from 73 days last month. Government MMFs' WAMs was at 38 days, down from 40 days last month, while WALs was at 78 days, down from 76 days. ICI's release explains, "Each month, ICI reports numbers based on the Securities and Exchange Commission's Form N-MFP data, which many fund sponsors provide directly to the Institute. ICI's data report for June covers funds holding 94 percent of taxable money market fund assets." Note: ICI publishes aggregates but doesn't publish individual fund holdings.
In other news, JP Morgan Securities Short Duration Strategy team also released its "Prime MMF Holdings Update for August." They write, "Taxable money market fund flows were flat throughout the course of August. Prime fund AuM increased by $5bn or +0.36%. Prime fund assets now stand at $1,441bn, down $18bn or -1.2% YTD. Government fund AuM increased by $6bn or +0.64% during August. Government fund assets now register $969bn, down $13bn or -1.3% YTD. Historical data shows that the outflows experienced YTD are seasonal, and not reform-driven. At the end of the month, prime WAMs stood at their lowest level that we have on record at 30 days. Government funds also further pulled their WAMs in to an average of 36 days."
They explain, "Total prime bank holdings decreased by a total of $3bn, led by a $5bn reduction in repo and $6bn decrease in CP/CD balances. Conversely, time deposit holdings increased by $17bn, mostly across Norwegian and Swedish banks. Sector allocations also went relatively unchanged during August. Prime funds used $37bn of Fed RRP, a $9bn increase from July month-end. Furthermore, holdings of agency securities increased by $20bn, while UST holdings dropped $12bn. This drop isn't surprising, as the available supply of T-bills and Treasury coupons fell $33bn over the same period."
JPM's update continues, "At the time of this publication, $207bn in prime fund AuM is currently scheduled for conversion into government status.... Before MMFs are required to comply with the final rules next October, we think that it is possible for an additional $200-$250bn to leave the prime fund universe -- either via additional conversions or by investor outflows.... We expect the fund conversion process to be relatively orderly, at least on the credit side.... As mentioned above, $125bn in demand for bank product will eventually be lost as these funds begin to shift into government assets. This amounts to 12% of total prime bank holdings by prime MMFs -- a fairly sizable amount."
Fitch's report, "US Money Market Funds' Exposure to China Slowing," says the "recent stresses striking the Chinese capital markets do not pose an immediate credit threat to Fitch-rated money market funds holding Chinese-backed paper." It explains, "As of the end of July, 16 of 125 US prime money funds had exposure to Chinese issuers, based on data from Crane Data LLC. The median exposure among the 16 was 2.9% of each respective fund's total assets. The highest exposure among the 16 funds was 10.3% held by the $6.1 billion HSBC Prime Money Market Fund, which is not rated by Fitch."
Note: Crane Data's Aug. 31 Money Fund Portfolio Holdings show $5.1 billion in China-related holdings with China Construction Bank Co ($1.3B), CNPC ($0.7B), Agricultural Bank of China Limited ($0.6B) and Industrial & Commercial Bank of China Ltd ($0.6B) being the largest holdings. Wells Fargo Adv Hrtg ($2.2B), JP Morgan Prime MM ($0.9B), HSBC Inv Prm MMkt ($0.7B), and Wells Fargo Adv Cash Inv MMkt ($0.5B) were the largest holders of China-affiliated debt.
Fitch adds, "So far, the short-term tenors of holdings help mitigate the risks US money funds take investing in China, with 63% of all Chinese securities in US prime money fund portfolios maturing within seven days and 96% maturing within two months (as of July 31). Only about 3% of securities mature in more than six months. The short maturities generally allow portfolio managers to respond to market developments quickly and limit the impact of volatility on funds."
They write, "Indeed, a number of funds have reduced their exposure to Chinese issuers following the recent volatility, generally by allowing positions to mature or roll down the maturity curve. Most of the Chinese short-term paper in US money funds is issued from major state-controlled or affiliated banks, such as China Construction Bank, whose credit strength is based on an assumption of support from the Chinese government. However, a few funds have recently invested in bank-guaranteed commercial paper issued by private industrial firms, such as Midea Group. The limited supply of short-term debt from US and European issuers in the US market, and the increasingly global reach of some large Chinese issuers, until recently made investments in Chinese paper attractive for certain money funds."
Fitch concludes, "However, the recent volatility points to the risks inherent when investing in China and other emerging economies. These investments may be less liquid and more thinly traded, presenting heightened spread risk and making it harder to exit positions as credit conditions deteriorate.... The Chinese bond market is now the third largest in the world, with about $4.4 trillion as of the end of September 2014. US money funds only invest in dollar-denominated paper, including from issuers whose home domicile is China."
