While money fund assets overall rebounded in the latest week, Prime funds continued to bleed assets into Government MMFs; the total Prime-to-Govie amount moved since late 2015 now exceeds $400 billion. ICI's weekly "Money Market Fund Assets" report shows all MMFs increasing $14.9 billion in the latest week, the first gain in 5 weeks. But Prime funds lost another $23.0 billion -- their 7th week in a row of declines (-$132.2B). (Govt funds continue to be the recipient of all these assets.) Over the past 4 weeks, overall assets have declined by about $15 billion -- all of which came from Tax Exempt MMFs. Prime MMFs fell about $93 billion in June while Govt MMFs gained $93 billion. We look at these latest flows below, excerpt from ICI's latest "Trends in Mutual Fund Investing" and "Month-End Portfolio Holdings of Taxable Money Funds" reports, and review a recent update on HSBC's Money Funds.
Since Oct. 29, 2015, just prior to Fidelity Cash Reserves' huge conversion, Prime assets have fallen by a massive $409 billion, or 28.1%. Govt MMFs have increased by $461.8 billion during this same time while Tax Exempt MMFs have fallen by $51.4 billion. YTD in 2016, Prime MMFs are down by $234.7 billion, or 18.3% while Govt MMFs are up by $254.6 billion, or 20.9%. Government fund assets moved ahead of Prime assets in February 2016 for the first time ever, and they haven't looked back. The shift has been fueled by the conversion of $260 billion of Prime funds into Govt funds; another $50 billion or so is still scheduled to convert. (This is not counting expected institutional investor outflows, which could be another $300-400 billion ahead of October 14. There have also been conversions of Prime into Ultra-Short Bond Funds and Tax-Exempt MMFs into Govt.)
While we're still not clear on who is driving this latest wave, the past month's flows appear to be the first signs of investors or fund segments switching. We believe this is related to the "big sort" or reclassification of Institutional and Retail investors and "omnibus" clients making policy changes. Note: The most recent week does include the conversion of $12 billion in UBS RMA brokerage sweep assets into Govt funds and an early liquidation of RBC's Prime MMF, but we're not aware of any other large fund conversions in the June 1-30 period.
ICI's latest weekly says, "Total money market fund assets increased by $14.86 billion to $2.72 trillion for the week ended Wednesday, June 29, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $45.78 billion and prime funds decreased by $23.01 billion. Tax-exempt money market funds decreased by $7.91 billion." Government assets, including Institutional and Retail (and Treasury and Government), stand at $1.475 trillion, while Prime assets are at $1.049 trillion.
The release explains, "Assets of retail money market funds decreased by $3.84 billion to $954.02 billion. Among retail funds, government money market fund assets increased by $18.45 billion to $439.76 billion, prime money market fund assets decreased by $15.44 billion to $364.45 billion, and tax-exempt fund assets decreased by $6.86 billion to $149.80 billion. Assets of institutional money market funds increased by $18.70 billion to $1.76 trillion. Among institutional funds, government money market fund assets increased by $27.32 billion to $1.04 trillion, prime money market fund assets decreased by $7.57 billion to $684.69 billion, and tax-exempt fund assets decreased by $1.05 billion to $43.73 billion."
ICI's "Trends in Mutual Fund Investing May 2016" confirms a decrease in MMF assets in May. MMFs were down $11.8 billion, or 0.4%, to $2.706 trillion after dropping $41.8 billion in April, falling $15.1 billion in March, climbing $38.2 billion in February, and decreasing $19.0 billion in January. (Assets should be down in June too.) But in the 12 months through May 31, money fund assets are up $103.5 billion, or 4.0%, according to ICI. The monthly release says, "The combined assets of the nation’s mutual funds increased by $85.61 billion, or 0.5 percent, to $15.90 trillion in May, according to the Investment Company Institute’s official survey of the mutual fund industry.... Bond funds had an inflow of $12.89 billion in May, compared with an inflow of $18.98 billion in April.... Money market funds had an outflow of $10.63 billion in May, compared with an outflow of $37.54 billion in April. In May funds offered primarily to institutions had an inflow of $667 million and funds offered primarily to individuals had an outflow of $11.30 billion."
The report shows that the bulk of the money fund outflows in May were from Tax-Exempt MMFs, which declined by $6.1 billion, compared to taxable, which had $4.6 billion in outflows. Year-to-date through May, MMFs have had $47.1 billion in outflows, with $293 million in inflows to Taxable funds and $47.4 billion in outflows from Tax-Exempt funds." Money funds now represent 17.0% of all mutual fund assets, while bond funds represent 22.4%. The total number of money market funds dropped to 450 in May, down from 456 in April and down from 520 a year ago.
ICI's latest "Portfolio Holdings" summary shows that Agencies and Repo gained in May, while CDs, CP, and Treasury Bills all declined. ` CDs <b:>`_ remained the largest portfolio segment despite dropping $17.8 billion, or 3.1%, to $558.3 billion or 22.4% of holdings. Repurchase agreements held on to second, gaining $24.4 billion, or 4.6%, to $553.8 billion or 22.2% of holdings. Treasury Bills & Securities stayed in third place among composition segments, dropping $10.2 billion, or 2.0%, to $506.8 billion, or 20.3% of holdings. U.S. Government Agency Securities stood in fourth place, increasing $33.2 billion, or 7.1%, to $503.4 billion (20.2% of assets). This gain likely reflects the ongoing conversion of Prime funds to Government funds. Commercial Paper remained fifth, decreasing $16.1B, or 4.9%, to $315.0 billion (12.6% of assets). Notes (including Corporate and Bank) dropped by $1.1 billion, or 4.3%, to $24.5 billion (1.0% of assets), and Other holdings (including Cash Reserves) stood at $35.6 billion, down from $53.3 billion. (See our June 13 News, "Portfolio Holdings: Agencies, Repo Gain; Govt Holdings Surpass Prime.")
The Number of Accounts Outstanding in ICI's series for taxable money funds decreased by 455.0 thousand to 22.822 million, while the Number of Funds fell by 6 to 321. Over the past 12 months, the number of accounts fell by 525.7 thousand and the number of funds declined by 38. The Average Maturity of Portfolios was 35 days in May, down 3 days from April. Over the past 12 months, WAMs of Taxable money funds have declined by 5 days. Note: Crane Data also revised its June MFI XLS this week to reflect the latest 5/31/16 Portfolio Composition data and Maturity breakouts. (Visit our Content Center and the latest Money Fund Portfolio Holdings download page to access our June Money Fund Portfolio Holdings and the latest files.)
Finally, in other news, HSBC, the 20th largest MMF manager with $15.2 billion in MMF assets under management, issued an update on the changes planned for its "HSBC Money Market Funds." In short, HSBC says it will offer Prime Institutional and Government funds, but no Retail funds. The update says, "In order to comply with the new Rule 2a-7 requirements for money market funds, the HSBC Money Market Funds will be making the following changes. Institutional Prime Money Market Funds -- HSBC Prime Money Market Fund will adopt a "floating" net asset value per share, calculated to the fourth decimal place."
It explains, "The HSBC Prime Money Market Fund's NAV per share will be calculated three times per business day, at 8:00 AM, 12:00 PM and 3:00 PM. The Board will be permitted to impose a liquidity fee on redemptions from the Fund (up to a maximum of 2%) or temporarily restrict redemptions from the Fund for up to 10 business days in any 90 day period, if weekly liquidity levels fall below the required regulatory thresholds."
On its Government Money Market Funds, HSBC writes, "Both the HSBC US Government Money Market Fund and HSBC US Treasury Money Market Fund will qualify as "government money market funds," as defined in revised rule 2a-7. A "government money market fund" is a fund that invests at least 99.5% of its assets in: (1) cash, (2) securities issued or guaranteed by the United States or certain U.S. government agencies or instrumentalities, and/or (3) repurchase agreements that are collateralized by cash and U.S. government securities. As government money market funds both of these two Funds will continue to utilize the amortized cost method of valuation to price their shares at $1.00. Government money market funds are exempt from the requirements relating to the imposition of liquidity fees and/or redemption gates. While the Funds' Board maintains the authority to subject the Funds to liquidity fees and/or redemption gates in the future after providing appropriate prior notice to shareholders, neither of these two Funds have adopted liquidity fees and/or redemption gates at this time."
They conclude, "HSBC Funds will not offer a "retail money market fund," as defined in revised rule 2a-7. A "retail money market fund" is a fund that has policies and procedures reasonably designed to limit all beneficial owners of the fund to natural persons. We expect these changes to take effect on October 5, 2016."
