The February issue of our flagship Money Fund Intelligence newsletter, which was sent to subscribers Tuesday morning, features the articles: "Time for Prime Comeback Say MMF Managers; Rates Higher," which revisits the $1 trillion question: will investors return to Prime?; "Money Funds First (American) at US Bancorp A.M.," which "profiles" First American Funds' Jeff Plotnik and Eric Thole; and, "MF University Features Big Shift, New Frontiers in ’17," which reviews our latest "basic training" conference. We have updated our Money Fund Wisdom database query system with Jan. 31, 2017, performance statistics, and also sent out our MFI XLS spreadsheet Monday a.m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our February Money Fund Portfolio Holdings are scheduled to ship Thursday, Feb. 9, and our Feb. Bond Fund Intelligence is scheduled to go out Tuesday, Feb. 14.

MFI's lead "Time for Prime Comeback" article says, "As interest rates continue inching higher on money market mutual funds, and as the spread between Prime and Government money funds continues to widen, money has slowly but surely begun to trickle back to Prime funds. Fund managers are encouraging this trend by publishing papers and attempting to re-educate investors on gates, fees and floating NAVs, and by extolling the benefits of segmenting cash. We revisit the new $1 trillion question: will investors return to Prime? While we're not predicting a Patriots-style comeback, things are looking up."

It adds, "Prime assets increased by $9.0 billion in January, after being flat in December. (We showed Prime up $88.0 billion in December, but this was due to the addition of a number of internal and private money funds to our collection.) Spreads also continued widening, rising from 25 to 28 bps in January (the difference between Prime Inst MMFs and Treasury Inst MMFs), and up from 18 bps in November 2016 (and 11 bps in Dec. 2015)."

Our First American Funds profile reads, "This month, Money Fund Intelligence speaks with Eric Thole, CEO of U.S. Bancorp Asset Management and President of First American Funds, and Jeff Plotnik, Director of Money Market Fund Management for First American Funds. We look back at the implementation of reforms and huge changes of 2016, and we discuss the current environment and outlook for money funds going forward. Our Q&A follows."

MFI asks, "What's your biggest priority?" Thole says, "I would say that our biggest priority today is very similar to what it's been in past years. We continue to diligently work with our shareholders.... Money fund reform hit its finish line back in October of last year, but it's certainly the starting line for a new way of thinking about cash management. So we're busy talking with shareholders, just like we were all of last year. The operational pieces are done. But we're trying to take advantage of the 'money in motion'.... We've had growth in our AUM numbers, and we're looking to continue to take advantage of some of that as the year progresses."

Plotnik adds, "From a management standpoint, we're adjusting to the new universe. We have a lot more 'Govie' cash than we once had, so we're really focused on putting that to work. It's a lot harder, as [there's] a shortage of product, so you're always hunting and pecking there. We're also getting used to the different prime environment...."

Our "MF University '17" article explains, "Crane Data recently hosted its 7th annual Money Fund University, which took place Jan. 19-20 in Jersey City. The 'basic training' event, targeted at those new to the money fund industry, featured primers on interest rates, money market securities, the Federal Reserve, ratings, portfolio management, and money fund regulations. The big themes this year were the massive shift from Prime into Government MMFs, the realization of rising rates and the possible return to Prime, or shift into alternatives, in 2017."

It explains, "Host Peter Crane kicked off the event with a session called, 'History and Current State of Money Funds,' commenting, "The composition of money funds has shifted dramatically over the past year. Right now treasuries, repos and agencies, the main investments for government MMFs, really dominate.... A trillion dollars in 2016 shifted from prime general purpose into government MMFs."

In a sidebar, we discuss, "Invesco: The Case for Prime," saying, "Invesco Fixed Income posted a recent 'Investment Insights,' entitled, "Prime Institutional funds may offer renewed value in a post-ZIRP, post-​reform world." Written by Robert Corner, senior client portfolio manager, it says, "Yields of floating net asset value (FNAV) prime institutional money market funds have increased and may now offer an attractive relative value opportunity. Following many years of zero interest rate policy (ZIRP) and recent money market fund reform implementation, we believe the yield advantage of prime institutional funds has increased enough to compensate investors for political fluctuations in FNAVs. And to reduce the risk of being subject to potential liquidity fees and redemption gates (fees and gates), we believe investors should consider segmenting their cash investments."

Our February MFI XLS, with Jan. 31, 2017, data, shows total assets decreased $43.0 billion in January to $2.711 trillion after increasing $107.8 billion in December (this includes the addition of $110.3 billion in new funds), $32.1 billion in November, and decreasing $3.1 billion in October and $48.5 billion in September. Our broad Crane Money Fund Average 7-Day Yield was up 3 bps to 0.29% for the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) rose 4 bps to 0.47% (7-day).

On a Gross Yield Basis (before expenses were taken out), the Crane MFA rose 0.06% to 0.67% and the Crane 100 rose 5 bps to 0.73%. Charged Expenses averaged 0.39% and 0.26% for the Crane MFA and Crane 100, respectively. The average WAM (weighted average maturity) for the Crane MFA was 37 days (up 1 day from last month) and for the Crane 100 was also 37 days (unchanged). (See our Crane Index or craneindexes.xlsx history file for more on our averages.)

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