ICI's "Trends in Mutual Fund Investing April 2016" confirmed a big decrease in money market fund assets in April, which declined by $41.8 billion, or 1.5%, to $2.717 trillion. Assets dropped $15.1 billion in March, jumped $38.2 billion in February, and fell $19.0 billion in January. In the 12 months through April 30, 2016, money fund assets are up $152.4 billion, or 5.9%, according to ICI. But based on ICI's weekly money market flow data, assets should end up sharply -- about $24 billion -- in May. Also, ICI's "Month-End Portfolio Holdings of Taxable Money Funds" shows that Repos and Treasuries plummeted in April while CDs surged. (See our May 12 News, "Latest MF Portfolio Holdings: Repo, T-Bills Plunge; TDs, CP Increase.") We review these below, and also excerpt from the SEC's recently updated "Money Market Reform Frequently Asked Questions." (Please note: Today is the last day to get a discounted hotel rate for those attending Crane's Money Fund Symposium, June 22-24 in Philadelphia. We expect the hotel to sell out soon, so please make reservations asap. See you in Philly in 3 weeks!)
ICI's Trends release says, "The combined assets of the nation's mutual funds increased by $96.31 billion, or 0.6 percent, to $15.82 trillion in April, according to the Investment Company Institute's official survey of the mutual fund industry.... Bond funds had an inflow of $19.06 billion in April, compared with an inflow of $21.37 billion in March.... Money market funds had an outflow of $37.95 billion in April, compared with an outflow of $16.11 billion in March."
It explains, "In April funds offered primarily to institutions had an outflow of $16.44 billion and funds offered primarily to individuals had an outflow of $21.52 billion." The report shows Taxable MMFs with $26.8 billion in withdrawals, while Tax-Exempt MMFs had $11.2 billion in outflows. Year-to-date through April, MMFs have had $36.9 billion in outflows, with $4.5 billion in inflows to Taxable funds and $41.4 billion in outflows from Tax-Exempt funds.
Money funds now represent 17.2% of all mutual fund assets, while bond funds represent 22.5%. The total number of money market funds dropped sharply in April to 456, down from 478 in March, due most likely to BlackRock completing its acquisition of BofA's money funds. One year ago, April 2015, there were 522 money funds.
ICI's latest "Portfolio Holdings" summary shows that CDs gained in April, due to an increase in Time Deposits, while Repos and Treasuries declined. CDs (including Eurodollar CDs) jumped to first, from third, as the largest portfolio segment, increasing $68.3B, or 13.5%, in April to $576.1 billion. (ICI's CD totals likely include Time Deposits, which Crane Data and the SEC categorize as "Other" -- we reported a large increase in Other/TDs in April.) CDs make up 23.0% of all holdings.
Repurchase agreements fell to second, dropping $67.2 billion, or 11.3%, in April to $529.9 billion. Repo represents 21.2% of taxable MMF holdings. Treasury Bills & Securities dropped to third place among composition segments, decreasing $28.9 billion, or 5.3%, in April to $516.6 billion (20.6% of assets). U.S. Government Agency Securities remained in fourth place, increasing $9.3 billion, or 2.0%, to $470.2 billion (18.8% of assets). Commercial Paper remained fifth, decreasing $17.1B, or 5.1%, to $316.3 billion (12.6% of assets). Notes (including Corporate and Bank) dropped by 12.4 billion, or 23.5%, to $40.4 billion (1.6% of assets), and Other holdings (including Cash Reserves) stood at $53.3 billion.
The Number of Accounts Outstanding in ICI's series for taxable money funds increased by 143.1 thousand to 23.277 million, while the Number of Funds fell by 10 to 327. Over the past 12 months, the number of accounts fell by 353.3 thousand and the number of funds declined by 33. The Average Maturity of Portfolios was 38 days in April, down 1 day from March. Over the past 12 months, WAMs of Taxable money funds have declined by 3 days.
In other news, the SEC's updated MMF Reform FAQs include several new questions (outlined in blue). One of the new FAQs is number 20: "As amended, Rule 482 will require money market funds to include different disclosure statements, depending on fund type (e.g., retail, government, or institutional prime) and whether they can impose liquidity fees and suspend redemptions. For money market fund advertisements, what type of legend should a multi-fund marketing piece use if the money market funds covered differ in these respects? More specifically, is a combined legend permissible?"
The SEC answers: "No. If an advertisement discusses multiple money market funds that require different disclosure statements under Rule 482 due to differences in fund type or the ability to impose liquidity fees and redemption gates, then each required statement must be presented separately. Money market funds may not combine these disclosures in a single statement."
FAQ 29 is also new. It asks: "The compliance date for the floating NAV reform is Friday, October 14, 2016. Does that mean that the last day on which a money market fund subject to the floating NAV requirement may operate with a stable NAV is Thursday, October 13th or Friday, October 14, 2016" They answer: "The staff believes that a money market fund subject to the floating NAV requirement would need to switch to a floating NAV on or before Thursday, October 13, 2016. Accordingly, the staff believes that such funds must begin to operate using a floating NAV by no later than the beginning of the business day on Friday, October 14, 2016. The staff notes, however, that a fund may also convert to a floating NAV earlier at any time during the compliance period, and not only on the last day."
FAQ 56 asks: "May a government money market fund "look through" its 100 percent-owned subsidiary and treat the underlying assets as if it were holding them directly for purposes of the definition of a government money market fund?" The answer is: "Yes. So long as a subsidiary is 100 percent-owned and controlled by a single government money market fund and has no leverage or debt of its own, the staff believes there likely would be no risk of competing claims or other interference by third parties over the respective underlying assets. As a result, the staff believes that a government money market fund would have substantially the same access and control over assets held through such a wholly-owned subsidiary as if the fund were holding them directly. Accordingly, the staff would not object if a fund were to "look through" such wholly-owned subsidiaries and treat the respective assets as if it were holding them directly for purposes of the definition of a government money market fund."
FAQ 68 asks: "If a money market fund has materially changed its investment objective (e.g., a prime fund reorganizing into a government fund), should the fund continue to include its performance history from before such change in its performance disclosures and marketing materials? A: Yes, it is the staff's longstanding view that a fund, including a money market fund, that has materially changed its investment objective should continue to include its prior performance history in its performance disclosures and marketing materials."
Finally, there was also a question related to money market funds in Variable Annuity or Variable Insurance products. The last FAQ update before this one was released on March 18. (See our March 22 News, "SEC MMF Stats: Assets, Yields Up in Feb; Updated FAQ; Keen on Phase II.")
