The June issue of our flagship Money Fund Intelligence newsletter, which was sent to subscribers Tuesday morning, features the articles: "MMF Reform Countdown: 4 Months to Go; Sorting, Bracing," which looks at changes, trends, and question marks leading up to the October reform deadline; "T. Rowe Price's Lynagh on Lineup; Do No Harm," which profiles Joe Lynagh, Portfolio Manager and Head of Cash Management at T. Rowe Price; and "MMF Managers Set Variety of Strike Time Models," which reviews firms that have announced strike times for their floating NAV funds. We have updated our Money Fund Wisdom database query system with May 31, 2016, performance statistics, and also sent out our MFI XLS spreadsheet Tuesday morning. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our June Money Fund Portfolio Holdings are scheduled to ship Thursday, June 9, and our June Bond Fund Intelligence is scheduled to go out Tuesday, June 14.
MFI's lead "MMF Reform" article says, "With just four months to go before Money Market Reforms are finalized, fund managers continue to make announcements, tweaks to their lineups and funds and to prepare for the great unknown -- what investors will do come October. The total of funds converting from Prime to Government has now broken over $300 billion (it's over $340 billion when Prime to Ultra-short conversions are included), and the exodus from Tax Exempt funds continues. We review the latest moves below."
The article adds, "Most of the major players have announced their lineup changes, but filings continue to surface. The most recent batch is from Northern Trust, which announced plans for its Prime and Tax-Exempt money funds. The $9.1 billion Northern Institutional Diversified Assets fund will be "going Government," the $3.8 billion Northern Inst Prime Obligations will remain Prime Institutional and adopt a floating NAV, and the $7.4 billion Northern Trust Money Market Fund has been declared a (prime) Retail fund. Also, Northern Inst Tax-Exempt Fund and Northern Trust CA Muni MMF will be liquidated; Northern Municipal MMF has been declared "Retail," and Northern Inst Municipal MMF will be "Institutional." (See our June 2 News for more.)
Our latest fund manager interview reads, "This month, MFI profiles Joe Lynagh, Fixed Income Portfolio Manager and Head of the Cash Management team at T. Rowe Price, in charge of all the firm's money market and ultra short funds. Lynagh discusses the changes that T. Rowe Price has made to its money fund lineup as the firm prepares for reforms, based on the mandate of "do no harm to existing shareholders." T. Rowe Price plans to offer a range of options, including a Prime Institutional fund. Lynagh also talks about why retail investors will stay with Prime funds, why Ultra-Short Bond funds will grow in popularity, and why differentiation will return to the market."
MFI asks, "How long have you been running money funds? Lynagh says, "`T Rowe Price's history with money funds goes way back. Our first money fund -- Prime Reserve Fund -- was launched in January of 1976.... Our first tax exempt money fund was launched in 1981 and our California and New York tax exempt money funds followed in 1986. We launched our Summit series of funds in 1993, starting with Summit Cash Reserves Fund and Summit Municipal Money Fund. Three years after that we launched our Maryland tax exempt money fund. So ... it's been a steady progression building out our product line-up."
He adds, "As our mutual fund business grew, we launched two internal money funds -- the Reserve Investment Fund and our Government Reserve Fund. These funds serve as cash sweeps for our other mutual funds, primarily our stock and bond funds. They are internal money funds, but they have the lion's share of the money fund assets. In all, we manage about $45 billion in money fund assets."
The article on the "Strike Times" explains, " While it's not a mandated requirement of the SEC money market fund reform, money fund managers are adopting multiple intra-day "strike," or pricing, times for some of their floating NAV funds to try and preserve the same-day liquidity that Prime funds have always had. As Wells Fargo Securities' strategists Garret Sloan and Eric Vos explain in a recent report, "To facilitate same day (cash) settlement and intraday investor liquidity, funds will be required to set a specific market value at least once a day during market hours and likely multiple times a day. Actual 'strike times' are slowly being communicated by the fund companies as lineups are announced, but we do not believe that the announced times are set in stone as funds seek the sweet spot for pricing and investor risk appetite. In the past month we have seen several managers announce their intra-day pricing times including: Dreyfus, BlackRock, Federated and First American."
In a sidebar, we discuss, "Fitch on Liquidity Profiles." This brief says, "Fitch Ratings issued a press release, "`U.S. Money Funds' Liquidity Profiles Vary Ahead of Reform," which states, "Liquidity levels of U.S. institutional prime money funds vary ahead of upcoming reforms, suggesting some funds will need to increase their liquidity cushions."
We also do a sidebar on "OCC Guidance on MMFs," which says, "The Office of the Comptroller of the Currency issued "Compliance With SEC Money Market Fund Rules by Bank Fiduciaries, Deposit Sweep Arrangements, and Bank Investments," which "describes how the SEC's MMF rules are likely to affect banks, addresses the product and process changes that affected banks should consider, and highlights potential compliance, liquidity, operational, and strategic risks." Finally, as we do every month, we review all the important "Money Fund News."
Our June MFI XLS, with May 31, 2016, data, shows total assets decreased $9.7 billion in May to $2.626 trillion after decreasing $42.0 billion in April, dropping $20.3 billion in March, and increasing $37.4 billion in February. Our broad Crane Money Fund Average 7-Day Yield remained unchanged at 0.11% for the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) increased 1 basis point to 0.22% (7-day).
On a Gross Yield Basis (before expenses were taken out), the Crane MFA was unchanged at 0.43% and the Crane 100 was up 1 bp to 0.47%. Charged Expenses averaged 0.31% and 0.25% for the Crane MFA and Crane 100, respectively. The average WAM (weighted average maturity) for the Crane MFA was 33 days (down 2 days from last month) and for the Crane 100 was 32 days (down 3 days). (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
