ICI released its latest monthly "Trends in Mutual Fund Investing" and "Month-End Portfolio Holdings of Taxable Money Funds" updates yesterday. The first report showed that `both taxable and tax-exempt money fund assets inched up in December, and MMFs assets were down slightly in 2016. ICI's second report confirmed that Treasury holdings plunged while Repo jumped last month. (See our Jan. 12 News, "Government Takeover: Treasuries, Agencies Dominating MMF Holdings.") We review these, as well as a new ICI "Viewpoints", below.
ICI's latest "Trends in Mutual Fund Investing - December 2016" shows a $6.5 billion increase in money market fund assets in December to $2.721 trillion. The increase follows an increase of $55.3 billion in November and a decrease of $12.1 billion in Oct. and $51.1 billion in Sept. In the 12 months through Dec. 31, money fund assets were down slightly, -$26 billion, or 0.9%. (Month-to-date in January through 1/29/17, our Money Fund Intelligence Daily shows total assets down by $34.4 billion. `Govt MMFs are down $43.4 billion, but Prime MMFs are up $9.1 billion and Tax Exempt MMFs are up $1.1 billion.)
The monthly report states, "The combined assets of the nation's mutual funds increased by $100.55 billion, or 0.6 percent, to $16.34 trillion in December, according to the Investment Company Institute's official survey of the mutual fund industry. In the survey, mutual fund companies report actual assets, sales, and redemptions to ICI.... Bond funds had an outflow of $10.19 billion in December, compared with an outflow of $16.53 billion in November.... Money market funds had an inflow of $6.14 billion in December, compared with an inflow of $56.02 billion in November. In December funds offered primarily to institutions had an outflow of $6.44 billion and funds offered primarily to individuals had an inflow of $12.58 billion."
The latest "Trends" shows that both Taxable MMFs and Tax-Exempt MMFs increased slightly in December. Taxable MMFs increased by $6.3 billion, after rising $53.4 billion in Nov. after dropping $11.7 billion the prior month. Tax-Exempt MMFs added $0.3 billion, after rising $1.9 billion in Nov. and falling $0.4 billion in October and $15.3 billion in September. In 2016, MMFs showed $29.6 billion in outflows, with $86.5 billion flowing into of Taxable funds and a huge $116.1 billion flowing out of Tax-Exempt funds. Money funds now represent 16.7% (same as last month) of all mutual fund assets, while bond funds represent 22.3%. The total number of money market funds was down 2 to 421 in December, and down from 481 a year ago. (Tax exempt money funds have declined from 145 to 102 over the last year.)
ICI's Portfolio Holdings confirms a huge drop in Treasuries and a jump in Repo in December. Repo rose to reclaim the largest portfolio segment, up by $28.1 billion, or 3.6%, to $800.1 billion or 30.8% of holdings. Repo increased by $100.9 billion in 2016, or 14.4%. Treasury Bills & Securities fell to second place among composition segments, declining $50.5 billion, or -6.0%, to $796.7 billion, or 30.7% of holdings. Treasury holdings rose by $313.8 billion, or 65.0%, in 2016. U.S. Government Agency Securities remained in third place, falling $6.4 billion, or -0.9%, to $678.5 billion or 26.1% of holdings. Govt Agency holdings rose by $211.1 billion, or 45.2%, in 2016.
Certificates of Deposit (CDs) stood in fourth place; they decreased $5.7 billion, or -3.7%, to $148.3 billion (5.7% of assets). CDs held by money funds fell by $305.4 billion, or 67.3%, in 2016. Commercial Paper remained in fifth place but decreased $5.3B, or -4.9%, to $104.1 billion (4.0% of assets). CP plummeted by $194.7 billion, or 65.2%, in 2016. Notes (including Corporate and Bank) were down by $3.9 billion, or -39.0%, to $6.2 billion (0.2% of assets), and Other holdings inched up to $36.4 billion.
The Number of Accounts Outstanding in ICI's series for taxable money funds decreased by 58.2 thousand to 25.328 million, while the Number of Funds was down 2 to 319. Over the past 12 months, the number of accounts rose by 1.934 million and the number of funds declined by 17. The Average Maturity of Portfolios was 44 days in Dec., up 1 day from Nov. Over the past 12 months, WAMs of Taxable money funds have lengthened by 9 days.
In related news, ICI's Sean Collins penned a new "ViewPoint," entitled, "What's the "Exposure" of Money Market Funds to Europe <i:https://www.ici.org/viewpoints/>`_?" He writes, "At the American Economic Association (AEA) meetings in Chicago early this month, speakers and attendees at several sessions asked: do money market funds pose systemic risks? Recent developments -- both in regulation and in the markets—make it even more difficult to argue that they do. On the regulatory front, the Securities and Exchange Commission (SEC) in 2014 revised Rule 2a-7, which money market funds must follow, and required funds to fully implement the changes by October 2016."
He explains, "As we discussed in a recent series of ICI Viewpoints, the rule changes induced investors to move an estimated $1 trillion out of prime money market funds (those that invest significantly in commercial paper and bank CDs) into government money market funds (which invest almost entirely in Treasury and agency securities, as well as repurchase agreements backed by those securities) from January 1, 2015 to December 31, 2016."
ICI's Collins continues, "As a result, the composition of the assets in taxable money market funds (i.e., the combined assets of government and prime funds) is quite different today than it was even a few months ago. The vast majority (87 percent) of the assets of taxable money market funds now consist of government securities or repurchase agreements backed by government securities.... Compare that to two years ago, when the share was considerably smaller (56 percent). Why does this matter? Treasury and agency securities are the most creditworthy and liquid securities in the market -- precisely the kinds of securities that investors demand during periods of financial stress."
He adds, "Other market developments also have eased concerns about systemic risk in money market funds. One concern -- expressed, for example, during the eurozone crisis of 2011 -- was that money market funds were exposed to large European banks that were under stress. Such concerns have resurfaced, with a recent government report suggesting that money market funds could still be vulnerable to shocks to European banks. But any "exposure" that money market funds now have to European entities is quite different from that of 2011."
