The Investment Company Institute released its latest monthly "Trends in Mutual Fund Investing," and its latest "Month-End Portfolio Holdings of Taxable Money Funds" updates yesterday. The report confirmed that `Treasury holdings plunged while Repo moved higher in April. (See our May 10 News, "May Money Fund Portfolio Holdings: Repo, CD, CP Up; Treasuries Plunge.") We review these latest reports below, and we also cite a filing from Federated Investors in what could be the first of a series of mergers in the Prime fund space.
ICI's latest "Trends in Mutual Fund Investing - April 2017" shows a $24.0 billion decrease in money market fund assets in April to $2.640 trillion. The decrease follows a $17.7 billion decrease in March, a $0.4 billion dollar increase in February, and a $46.6 billion increase in January. In the 12 months through April 30, money fund assets were down $76.7 billion, or -2.8%. (Month-to-date in May through 5/29/17, our Money Fund Intelligence Daily shows total assets up by $13.9 billion.)
The monthly report states, "The combined assets of the nation's mutual funds increased by $148.59 billion, or 0.9 percent, to $17.14 trillion in April, 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."
It explains, "Bond funds had an inflow of $14.98 billion in April, compared with an inflow of $29.09 billion in March.... Money market funds had an outflow of $24.86 billion in April, compared with an outflow of $18.47 billion in March. In April funds offered primarily to institutions had an outflow of $6.31 billion and funds offered primarily to individuals had an outflow of $18.55 billion."
The latest "Trends" shows that both Taxable MMFs and Tax-Exempt MMFs declined last month. Taxable MMFs decreased by $21.9 billion in April, after decreasing $17.5 billion in March, increasing $0.8 billion in February and decreasing $46.8 billion in January. Tax-Exempt MMFs decreased $2.2 billion in April, after decreasing $0.3 billion in March, $0.3 billion in February and adding $0.1 billion in Jan. Over the past year through 4/30/17, Taxable MMF assets decreased by $9.9 billion while Tax-Exempt funds fell by $86.7 billion.
Money funds now represent 15.4% (down from 15.7% last month) of all mutual fund assets, while bond funds represent 22.3%, according to ICI. The total number of money market funds was down 2 to 418 in April, but down from 455 a year ago. (Taxable money funds have decreased from 320 to 318 and Tax-exempt money funds were unchanged at 100 over the last month.)
ICI's Portfolio Holdings showed a huge drop in Treasuries in April and a jump in Repo. Repo remained the largest portfolio segment and rose by $21.9 billion, or 2.7%, to $830.0 billion or 33.0% of holdings. Repo has increased by $300.1 billion over the past 12 months, or 56.6%. Treasury Bills & Securities remained in second place among composition segments, but they plummeted $101.7 billion, or -13.1%, to $674.9 billion, or 26.9% of holdings. Treasury holdings rose by $158.8 billion, or 30.8%, over the past year. U.S. Government Agency Securities remained in third place, but were flat (down $491 million, or -0.1%) at $643.2 billion or 25.6% of holdings. Govt Agency holdings rose by $172.5 billion, or 36.6%, over the past 12 months.
Certificates of Deposit (CDs) stood in fourth place; they increased $7.8 billion, or 4.3%, to $189.9 billion (7.6% of assets). CDs held by money funds fell by $386.2 billion, or -67.0%, over 12 months. Commercial Paper remained in fifth place but increased $8.3B, or 7.6%, to $117.7 billion (4.7% of assets). CP has plummeted by $213.3 billion, or -64.4%, over one year. Notes (including Corporate and Bank) were up by $338 million, or 4.2%, to $48.6 billion (0.3% of assets), and Other holdings inched down to $1.8 billion.
The Number of Accounts Outstanding in ICI's series for taxable money funds increased by 367.9 thousand to 25.945 million, while the Number of Funds inched down by two to 318. Over the past 12 months, the number of accounts rose by 2.667 million and the number of funds declined by 8. The Average Maturity of Portfolios was 35 days in April, down 3 days from March. Over the past 12 months, WAMs of Taxable money funds have shortened by 3 days.
In other news, a Prospectus Supplement filing from Federated Investors tells us, "The Board of Trustees ("Board") of Money Market Obligations Trust ("Trust") has approved a change in investment strategy pursuant to which, effective on or about July 31, 2017, Federated Institutional Prime Value Obligations Fund (PVOF) will invest all or substantially all of its assets in Federated Institutional Prime Obligations Fund (POF). POF is an affiliated institutional money market fund with an investment objective and investment strategies substantially the same as PVOF."
It explains, "The change in PVOF's investment strategy represents an efficient means for PVOF to achieve its investment strategy. POF also may have the opportunity to derive potential benefits from an investment by a large shareholder like PVOF, such as, for example, the opportunity for POF to invest more assets in pursuit of POF's investment strategy and for additional assets being available in POF to fund redemption requests and other liquidity needs."
Federated continues, "Upon the change in PVOF's investment strategy becoming effective, in instances where PVOF is unable to invest all of its assets into POF (for example, due to late-day purchases or trades), PVOF will invest its excess cash in overnight repurchase agreements, other affiliated money market funds or other eligible securities, in the discretion of PVOF's investment adviser, Federated Investment Management Company (the "Adviser"). PVOF has filed an amendment to its registration statement to incorporate these changes, which amendment must become effective with the U.S. Securities and Exchange Commission before the change in PVOF's investment strategy becomes effective."
They write, "To avoid charging duplicative fees, the Adviser will waive and/or reimburse PVOF's Management Fee with respect to the amount of its net assets invested in POF. PVOF's proportionate share of the fees and expenses of POF (including Management Fees) will be reflected as Acquired Fund Fees and Expenses in PVOF's fee table under "Risk/Return Summary: Fees and Expenses" in PVOF's prospectus.... Both PVOF and POF have previously adopted and maintain policies and procedures such that they will be able to impose liquidity fees on redemptions and/or temporarily suspend redemptions for up to 10 business days in any 90 day period in the event that either fund's weekly liquid assets were to fall below a designated threshold, subject to a determination by the Trust's Board that such a liquidity fee or redemption gate is in the best interest of PVOF or POF (as applicable)."
Federated adds, "Similar to a substantial investment by any shareholder, once PVOF invests all or substantially all of its assets in POF, POF will be subject to large shareholder risk. This is the risk that a significant percentage of POF's shares are owned or controlled by a large shareholder, such as PVOF or other funds or accounts, including any regarding which the Adviser or an affiliate of the Adviser has investment discretion. Accordingly, POF can be subject to the potential for large scale inflows and outflows as a result of purchases and redemptions made by significant shareholders like PVOF. These inflows and outflows could be significant and, if frequently occurring, could negatively affect POF's net asset value and performance and could cause POF to sell securities at inopportune times in order to meet redemption requests."
