The Investment Company Institute released its latest "Money Market Fund Holdings" summary (with data as of Feb. 29, 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, "March Portfolio Holdings: Treasuries Jump; TDs, CDs, Agencies Gain," for our earlier report on holdings.) We review the latest Holdings data from ICI and from JP Morgan Securities' "Prime money market fund holdings update February 2016" below, and we also discuss a new ICI release on fund expenses and Wall Street Journal blog on MMF revenues.
ICI's "Prime and Government Money Market Funds' Daily and Weekly Liquid Assets" table shows Prime Money Market Funds' Daily liquid assets at 30.5% as of Feb. 29, up from 27.8% on Jan. 31. Daily liquid assets were made up of: "All securities maturing within 1 day," which totaled 25.4% (vs. 23.4% last month) and "Other treasury securities," which totaled 5.1% (down from 4.4% last month). Prime funds' Weekly liquid assets totaled 41.1% (vs. 41.5% last month), which was made up of "All securities maturing within 5 days" (34.9% vs. 34.6% in January), Other treasury securities (5.1% vs. 4.3% in January), and Other agency securities (1.2% vs. 2.6% a month ago).
The report shows that Government Money Market Funds' Daily liquid assets totaled 57.7% as of Feb. 29 vs. 56.3% the previous month. All securities maturing within 1 day totaled 23.2% vs. 24.0% last month. Other treasury securities added 34.5% (vs. 32.3% in January). Weekly liquid assets for Govt MMFs totaled 77.5% (vs. 76.3%), which was comprised of All securities maturing within 5 days (33.5% vs. 34.1%), Other treasury securities (32.7% vs. 30.5%), and Other agency securities (11.3% vs. 11.8%).
ICI's "Prime and Government Money Market Funds' Holdings, by Region of Issuer" table shows Prime Money Market Funds with 39.3% in the Americas (vs. 39.5% last month), 18.9% in Asia Pacific (vs. 19.7%), 41.5% in Europe (vs. 40.5%), and 0.3% in Other and Supranational (vs. 0.4% last month). Government Money Market Funds held 84.2% in the Americas (vs. 85.2% last month), 1.4% in Asia Pacific (vs. 1.4%), 14.5% in Europe (vs. 13.4%), and 0.0% in Supranational (vs. 0.0%). The table, "Prime and Government Money Market Funds' WAMs and WALs" shows Prime MMFs WAMs at 36 days as of Feb. 29, up from 35 days last month. WALs were at 57 days, down from 59 days last month. Government MMFs' WAMs was at 41 days, up from 39 days last month, while Government fund WALs was at 93 days, up from 90 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.)
JP Morgan Securities also released its "Prime money market fund holdings update, February 2016" earlier this week. Short Duration Strategists Alex Roever, Teresa Ho, and John Iborg write, "As of the end of February, total prime fund AuM was down by $13bn YTD, driven entirely by prime to government fund conversions.... Still, while we have yet to see any visible reform-related investor outflows, anecdotally, we have heard of some smaller scale shifts beginning to take place. We continue to expect most major movement to occur during Q2/Q3."
They add, "Prime fund holdings of banks increased by $39bn month-over-month. Time deposit holdings increased by $40bn. Most other bank holdings across asset classes went unchanged. Away from banks, sector allocations also remained stable during February. Money market fund usage of the Fed RRP remained low throughout the course of February.... We view the Fed RRP's usage YTD as indicative of relatively healthy supply conditions in the money markets. The availability of higher yielding product in both the short-term credit and government markets has reduced reliance on the facility for the time being."
In other news, ICI also sent out a press release entitled, "Average Expense Ratios for Equity, Hybrid, and Bond Mutual Funds Hit 20-Year Lows," which shows that asset-weighted expense ratios for money market funds remained stable in 2015. It says, "Expense ratios for equity, hybrid, and bond mutual funds dropped in 2015 to the lowest level in at least 20 years, while money market fund expense ratios remained at their 2014 low, according to data released by the Investment Company Institute (ICI) today. A fund's expense ratio is the fund's total annual expenses expressed as a percentage of its net assets."
On MMFs specifically, it states, "Money market fund expense ratios averaged 13 basis points in 2015, unchanged from 2014. The current low interest rate environment has limited the expense ratios of money market funds over the last few years, as these funds have waived portions of their fees to prevent their net yields falling below zero. In 2015, 98 percent of money market fund share classes waived at least some portion of their fees. Fund advisers and their distributors pay for these waivers, which totaled an estimated $5.5 billion in 2015."
ICI's data only goes through the end of 2015, but Crane Data's expense ratio numbers show charged expenses rising. Our Crane Money Fund Average showed the average taxable MMF charged 0.16% at the end of November, and rose to 0.20% at the end of December. As of the February 29, 2016, according to our MFI XLS, the average expense ratio jumped to 0.27%. (Our Crane 100 Money Fund Index, the average of the 100 largest taxable MMFs, has risen from 0.17% in Nov. 2015 to 0.23% at the end of February.) This reflects the fact that money fund managers have reduced fee waivers following the Fed's December rate hike.
A WSJ blog, "Fed Actions Will Leave Money Market Funds "Rolling in Revenue"," says, "The recalibration by Federal Reserve officials of their interest rate outlook for 2016 should be perceived as good news by beleaguered money market fund managers, according to Peter Crane, president of Crane Data LLC, which tracks the industry. "Money funds are going to be rolling in revenue," he said [referring to the impact of future hikes]. The Fed is keeping its benchmark lending rate at between 0.25% and 0.50% for now. New estimates put the Fed Reserve's median projection for the benchmark federal-funds rate at 0.875% at the end of 2016, down from the 1.375% that was projected in December."
It continues, "If the central bank moves in quarter-percentage point increments, that would mean two moves this year rather than the four projected in December. "The money markets are looking at this as a hawkish move," said Mr. Crane. "[Given that the market was talking about rate cuts just a month ago] ... Two hikes in 2016 is fantastic news." Even a single rate hike would be "like manna from heaven" for money market funds after years of near zero interest rates, he said."
The blog adds, "Following December's rate increase, Mr. Crane estimates that money market funds used 0.05 to 0.1 of a percentage point of the increased income they garnered to reimburse themselves for fee waivers they granted to help keep yields in positive territory. A larger amount, between 0.1 and 0.15 of a percentage point went to investors in the form of higher yields. Mr.Crane expects to the benefits of a rate increase to be shared more equitably in the future. "It may be an even split now," he said [referring to the next hike]. As of February 29, Crane's Prime Institutional Money Fund Index yielded 0.27%, its Government Institutional Money Fund Index yielded 0.12% and its Tax-Exempt Institutional Index 0.01%."
