As we mentioned last week, the Investment Company Institute published its "2017 Investment Company Fact Book," an annual compilation of statistics and commentary on the mutual fund industry. (See our April 27 News, "ICI 2017 Fact Book Reviews MMF Demand, Reforms, Composition in '16.") We reviewed the sections on "Demand for Money Funds," and "Recent Reforms to Money Funds," in our last piece, but today we revisit the "Fact Book," focusing this time on its numerous "Data Tables" involving "Money Market Mutual Funds, which start on page 204. ICI lists annual statistics on shareholder accounts, the number of funds, net assets, net new cash flows, paid and reinvested dividends, composition of prime and government funds, and net assets of institutional investors by type of institution.
ICI's annual statistics show that there's been a steady decline in the number of money market mutual funds over the last 15 years. (See Table 35 on page 204.) In 2016, according to the Fact Book, there were a total of 421 money funds, down from 481 in 2015, 847 in 2006, and down from 1,039 in 2000. The number of share classes stood at 1,282 in 2016, down from 1,427 in 2015 and 2,031 in 2006. securities and cash reserves). The average maturity was 34 days.
Table 36 on page 205, "Total Net Assets of Money Market Funds by Type of Funds," shows us that total net assets in taxable U.S. money market funds decreased $26.6 billion to $2.728 trillion in 2016. At year-end 2016, $1.742 trillion (63.8%) was in institutional money market funds, while $986.2 billion (36.2%) was in retail money market funds. Breaking the numbers down by fund type, $376.0 billion (13.8%) were in prime funds, $2.222 trillion (81.5%) in government money market funds, and $130.3 billion (4.8%) in tax-exempt accounts.
Also, Table 37 on page 206, "Net New Cash Flow of Money Market Funds by Type of Fund," show that there was $30.2 billion in net new cash flow out of money market funds last year, the first decline since 2012. A closer look at the data shows $40.1 billion in net new cash flow into institutional funds and a $70.4 billion cash outflow from retail funds. There were also $850.6 billion in net inflows into Government funds, and $764.8 billion in net outflows from Prime funds.
Table 39 (page 208), "Money Market Funds: Paid and Reinvested Dividends by Type of Fund," shows dividends paid by money funds reached their highest level since 2009 with $8.618 billion, $5.367 billion of which was reinvested (62.3%). Dividends have been as high as $127.9 billion in 2007 (when rates were over 5%), and as low as $5.2 billion in 2011 (when rates were 0.05%). Reinvestment rates were 64.4% in 2007 and 62.3% in 2011, so they've remained relatively stable over the past decade.
ICI's Tables 40 and 41 on pages 209 and 210, "Asset Composition of Taxable Government Money Market Funds as a Percentage of Total Net Assets" and "Asset Composition of Taxable Prime Money Market Funds," show that of the $2.222 trillion in taxable government money market funds, 30.5% were in U.S. government agency issues, 33.0% were in Repurchase agreements, 17.8% were in U.S. Treasury bills, 16.8% were in Other Treasury securities, and 1.7% was in "Other" assets. The average maturity was 46 days.
The second table shows that of the $376.0 billion in Prime funds at year-end 2016, 38.6% was in Certificates of Deposit, 26.8% was in commercial paper, 18.0% was in Repurchase agreements, 0.2% was in U.S. government agency issues, 2.0% was in Other Treasury securities, 1.1% was in Corporate notes, 0.3% percent was in Bank notes, 5.1% was in U.S. Treasury bills, 0.5% was in Eurodollar CDs, and 7.4% was in Other assets (which includes Banker's acceptances, municipal
Table 60 on page 229, "Total Net Assets of Mutual Funds Held in Individual and Institutional Accounts," shows that there was $1.060 trillion of assets with institutional investors and $1.668 in assets in Individual accounts in 2016.
Finally, Table 62, "Total Net Assets of Institutional Investors in Taxable Money Market Funds by Type of Institution and Type of Fund," shows of the total of $1.055 trillion in Total Institutional assets ($990.1 billion in Institutional funds and another $64.8 billion in Retail funds), $487.5 billion were held by business corporations (46.2%), $416.2 billion were held by financial institutions (39.5%), $91.1 billion were held by nonprofit organizations (8.6%), and $60.7 billion were held by Other (5.8%). Business corporations' use of MMFs fell in 2016 (by $55.7 billion), while all other sectors rose.
The Fact Book also mentions money funds in a couple of other places, saying in Chapter 1, "Historically, mutual funds have been one of the largest investors in the US commercial paper market -- an important source of short-term funding for major corporations around the world. Mutual fund demand for commercial paper arose primarily from prime money market funds. In 2016, however, the assets of prime money market funds fell 70 percent (nearly $900 billion) as these funds adapted to the 2014 SEC rule amendments that required the money market fund industry to make substantial changes by October 2016 (see chapter 2). Consequently, prime money market funds sharply reduced their holdings of commercial paper. From yearend 2015 to year-end 2016, mutual funds' share of the commercial paper market fell from 40 percent to 19 percent."
On "Bond Mutual Funds," ICI writes, "Bond fund flows typically are correlated with the performance of bonds (Figure 2.8), which, in turn, is largely driven by the US interest rate environment. In the first half of 2016, long-term interest rates declined about 80 basis points, likely reflecting weaker than expected economic activity and diminished prospects of tighter monetary policy. As economic activity picked up in the third quarter, long-term interest rates started to rise, then jumped after the US presidential election and continued to drift higher, ending the year at about 20 basis points more than at the beginning of 2016. These developments created a seesaw pattern (up first, then down) in the total return on bonds for the year. Bond mutual funds had net inflows of $107 billion in 2016, a significant reversal from $25 billion in net outflows in 2015."
They add, "Despite several periods of market turmoil, bond mutual funds have experienced net inflows through most of the past decade. Bond funds received $2.0 trillion in net inflows and reinvested dividends from 2007 through 2016.... A number of factors have helped sustain this long-term demand for bond mutual funds.... Older investors tend to have higher account balances because they have had more time to accumulate savings and take advantage of compounding. At the same time, as investors age, they tend to shift toward fixed-income products. Over the past decade, the aging of Baby Boomers has boosted flows to bond funds. Although net outflows from bond funds would have been expected when long-term interest rates rose over the second half of 2016, they were likely mitigated, in part, by the demographic factors that have supported bond fund flows over the past decade."
