The June issue of our flagship Money Fund Intelligence newsletter, which was sent to subscribers Wednesday morning, features the articles: "Europe Okays, Prepares for Money Fund Reforms; China," which talks about pending money fund reforms passed by the European Union, "Schwab's Klingman on Rates, Reforms; Rising to Occasion," which "profiles" Charles Schwab Investment Management Vice President & Head of Taxable Money Market Strategies Linda Klingman, and, "MMF Expenses Move Higher as Fee Waiver Unwind Ends," which reviews an ICI study on falling fee waivers. We have also updated our Money Fund Wisdom database with May 31, 2017, statistics, and sent out our MFI XLS spreadsheet Friday a.m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our June Money Fund Portfolio Holdings are scheduled to ship Friday, June 9, and our June Bond Fund Intelligence is scheduled to go out Wednesday, June 14.
MFI's "European MMF Reform" article says, "While all is relatively calm in the U.S. money market fund space, the same can't be said for money funds outside of the U.S. Big changes are coming to money funds overseas as the European Union formally approved reforms. The pending EU regulations will impact funds domiciled in Ireland, France and Luxembourg when they go into effect at the end of 2018. We review the latest on European reforms, and we look at changes in the world's second largest money fund market, China, below."
The piece continues, "S&P Global Ratings explains the changes in a paper entitled, "EU Money Market Reform: The Wait Is Finally Over." They write, "[T]he EU finally has its own MMF legislation, approved by the European Council on May 16, 2017. This third and final step in a very lengthy regulatory process, will see the "Regulation of the European Parliament and of the Council on Money Market Funds" come into force."
Our Schwab profile reads, "This month, we speak with Charles Schwab Investment Management Vice President & Head of Taxable Money Market Strategies, Linda Klingman. She reflects on Schwab's more than 25 years in the money fund business, and she comments on recent changes and challenges. Our interview follows."
MFI says, "Tell us about Schwab's history. Klingman comments, "Charles Schwab Investment Management, or CSIM, has been offering money market funds since January of 1990, and we've been managing them in-house since 1991. In the past 26 years, we've grown to manage over $160 billion in assets, in AUM, and we're now the number 8-ranked money fund manager by assets."
She explains, "I personally, joined CSIM in December of 1990. At that time, we had two funds, the Schwab Money Market Fund and the Schwab Government Money Fund, which were sub-advised by Kemper. It's my understanding that at a board meeting in May of 1990, Charles Schwab, or as we fondly refer to him as 'Chuck,' said to our then treasurer, 'We're managing our own corporate cash. Let's put a portfolio management team together and bring our money funds in-house.' That's when I joined CSIM to initiate that effort. A fun fact: I am the first CSIM employee."
We also ask, "What is your biggest priority?" Klingman answers, "Our biggest priority is always maintaining the stability of our fund NAVs and insuring liquidity for our shareholders. And this doesn't change regardless of market conditions, regulatory changes, or lineup changes. Last year, we did have several changes to our product lineup to respond to money fund reform. Two notable changes were both designed to ensure that we continue to provide compelling money market funds to a wide array of investor types."
She adds, "The first change was the creation of our Schwab Retirement Government Money Market Fund. This fund was designed specifically for retirement plans seeking government money fund exposure. The second change that we had was the launch of our Schwab Variable Share Price money fund. That fund was designed to provide investors that were deemed institutional by the new SEC rule, with prime money fund exposure with a variable NAV. Since then our product line has remained constant."
Our "Expense" update explains, "The Investment Company Institute recently published a study on fund expenses entitled, "Trends in the Expenses and Fees of Funds, 2016." It says, "The average expense ratios for money market funds rose 5 basis points in 2016 to 0.18 percent. This was indirectly related to the Federal Reserve raising short-term interest rates in December 2015, which prompted fund advisers to begin paring expense waivers that most money market funds offered during the period of near-zero short-term interest rates that had prevailed in the post–financial crisis era."
It continues, "The report shows average money fund expense ratios declining from 0.52% in 1996 to 0.46% in 2001, 0.40% in 2006, 0.21% in 2011, and a record low of 0.13% in 2014 and 2015. ICI's expense charts source Morningstar and Lipper. (See Crane Data's Money Fund Intelligence XLS for our expense series."
In a sidebar, we discuss, "Local AFPs: Prime Debate," saying, "In recent weeks, AFP's regional Treasury conferences have featured a host of talks on cash investing and money market mutual funds. A main theme was whether investors will return to Prime money funds, and which alternatives to Prime are gaining traction. We highlight some quotes below."
Our June MFI XLS, with May 31, 2017, data, shows total assets increased $20.3 billion in May to $2.825 trillion after increasing $68.9 billion in April, decreasing $25.2 billion in March, and increasing $51.5 billion in February. (Note that we added $67.3 billion in new funds in April.) Our broad Crane Money Fund Average 7-Day Yield was up 3 bps to 0.49% for the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) was up 3 bps to 0.68% (7-day).
On a Gross Yield Basis (7-Day) (before expenses were taken out), the Crane MFA rose 0.04% to 0.92% and the Crane 100 rose 3 bps to 0.96%. Charged Expenses averaged 0.43% and 0.28% for the Crane MFA and Crane 100, respectively. The average WAM (weighted average maturity) for the Crane MFA was 29 days (down 3 days from last month) and for the Crane 100 was 30 days (down 3 days from last month). (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
