The Investment Company Institute released its latest "Money Market Fund Holdings" summary (with data as of Jan. 31, 2016), which reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds. (See our Feb. 10 News, "Latest MF Portfolio Holdings Show Fed Repo Plunge; TDs, CDs, CP Jump" for our earlier report on holdings.) Also, we recently interviewed Vanguard's Pam Tynan, who is retiring at the end of this month, and colleague, Justin Schwartz, who will replace Tynan as Head of the Short-Term Municipal Desk, for the February issue of our Bond Fund Intelligence publication. Tynan and Schwartz also run Vanguard's $17.3 billion Tax-Exempt Money Market Fund and several State Tax-Exempt money fund portfolios, so we asked them some money fund questions while we had them on the phone. The two discuss challenges in the Tax-Exempt space, as well as fees, MMF reforms, and the stickiness of assets, below.

ICI's "Prime and Government Money Market Funds' Daily and Weekly Liquid Assets" table shows Prime Money Market Funds' Daily liquid assets at 27.8% as of Jan. 31, down from 33.1% on Dec. 31. Daily liquid assets were made up of: "All securities maturing within 1 day," which totaled 23.4% (vs. 28.4% last month) and "Other treasury securities," which added 4.4% (down from 4.7% last month). Prime funds' Weekly liquid assets totaled 41.5% (vs. 44.8% last month), which was made up of "All securities maturing within 5 days" (34.6% vs. 37.4% in December), Other treasury securities (4.3% vs. 4.7% in December), and Other agency securities (2.6% vs. 2.7% a month ago).

The report says, Government Money Market Funds' Daily liquid assets totaled 56.3% as of Jan. 31 vs. 61.3% the previous month. All securities maturing within 1 day totaled 24.0% vs. 27.5% last month. Other treasury securities added 32.3% (vs. 33.8% in December). Weekly liquid assets totaled 76.3% (vs. 77.4%), which was comprised of All securities maturing within 5 days (34.1% vs. 36.7%), Other treasury securities (30.5% vs. 31.1%), and Other agency securities (11.8% vs. 9.6%).

ICI's "Prime and Government Money Market Funds' Holdings, by Region of Issuer" table shows Prime Money Market Funds with 39.5% in the Americas (vs. 55.5% last month), 19.7% in Asia Pacific (vs. 20.1%), 40.5% in Europe (vs. 24.1%), and 0.4% in Other and Supranational (vs. 0.3% last month). Government Money Market Funds held 85.2% in the Americas (vs. 93.9% last month), 1.4% in Asia Pacific (vs. 0.8%), 13.4% in Europe (vs. 5.3%), and 0.0% in Supranational (vs. 0.0%). The table, "Prime and Government Money Market Funds' WAMs and WALs" shows Prime MMFs WAMs at 35 days as of Jan. 31, up from 31 days last month. WALs were at 59 days, up from 56 days last month. Government MMFs' WAMs was at 39 days, down from 40 days last month, while Government fund WALs was at 90 days, up from 86 days.

The 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.)

ICI also recently updated a slide originally published in its "Money Market Working Group Report" which shows that money market funds own about one quarter of the almost $10 trillion in total taxable instruments in the money markets. Specifically, ICI states that there are, as of September 2015, $9.565 trillion in total taxable instruments, and they calculate that money market funds hold $2.316 trillion, or 24%.

Looking at the various segments, MMFs hold $391 billion (13%) of the $2.974 trillion in Treasury Securities, $692 billion (34%) of the $2.062 trillion in Repo, $482 billion (25%) of the $1.895 trillion in CDs, $338 billion (34%) of the $991 billion in Commercial Paper, $399 billion (43%) of the $930 billion in Agency Securities, and $13 billion (2%) of the $714 billion in Eurodollar deposits. Also, MMFs hold $242 billion (84%) of the $288 billion in Tax-Exempt instruments.

In our recent BFI interview with Pam Tynan and Justin Schwartz, we discussed Vanguard's Short-Term Tax-Exempt Fund and other municipal bond funds. But the two Muni PMs also touched on a range of Tax-Exempt money fund related issues. Tynan said, "The biggest challenge, of course, has been related to low rates in the money market funds for a protracted period of time now. The key thing here is, despite the fact that the Fed has actually begun to raise rates, our benchmark SIFMA rate remains at all-time lows. The main reason for this disconnect is the supply conditions in our market, which have remained very constrained. Clearly, the supply-demand imbalance will have to right itself, and we expect that might come with a shift of assets to the taxable side of the house. We actually think this may occur sooner rather than later.... In fact we are already witnessing industry outflows, which I believe are being led by institutional accounts."

When BFI asked about the stability of assets, she told us, "Considering we have been in a zero rate environment, the Vanguard Tax-Exempt Money Market Fund has done surprisingly well. It still has over $17 billion in assets -- that's testimony to the fact that the objective -- safety, liquidity, and, of course, the best value possible -- does seem to resonate well with our investors given that there has been a lot of uncertainty and volatility in markets in general. The fund, for all intents and purposes, is all retail and we haven't had a lot of migration out of our funds with respect to money market fund reform concerns.”

She said the funds have very high liquidity levels, much higher than taxable funds, so there is less of a concern about the new fees and gates regulation. Tynan explained, "Weekly and Daily Liquidity is in the 75-80% range for the fund, which is near the averages for the municipal money fund market in general. That definitely makes investors more comfortable about the liquidity in these funds when you compare them with the requirements under Rule 2a-7. As a result, there has been little noise from our shareholder base on that front."

Finally, on fee waivers, Tynan explained, "We don't look to recover fees on our funds. We have been limiting some of our operating expenses for the Vanguard Tax-Exempt Money Market Fund to make sure we have a positive yield for our investors. For the year ended October, which is our fiscal year for that fund, the rate is 8 bps, or about half the expense ratio that we would typically charge." We'd like to wish Tynan the best of luck in retirement!

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