The Federal Reserve released its latest quarterly "Z.1 Financial Accounts of the United States" statistical survey (formerly the "Flow of Funds") last week. Among the 4 tables it includes on money market mutual funds, the First Quarter, 2017 edition shows that the Household Sector remains the largest investor segment, as assets here rose again in Q1. The next largest segment, Nonfinancial Corporate Businesses, however, saw assets plummet in the first quarter, while Funding Corporations (primarily Securities Lending money) were flat. State & Local Governments, Private Pension Funds, Rest of World, and Nonfinancial Noncorporate Business were the next largest segments, and these all remained relatively flat in the latest quarter. Businesses and Life Insurance Companies showed decreases over the past 12 months, while Household holdings of MMFs and State & Local Retirement holdings increased over the past year. We review the latest Fed Z.1 numbers, and we also review a filing from Schwab Municipal Money Fund announcing the liquidation of Schwab's MA, NJ, and PA Muni Money Market Funds, below.
The Fed's "Table L.206," "Money Market Mutual Fund Shares," shows total assets decreasing by $64 billion, or -2.3%, in the first quarter to $2.664 trillion. Over the year through March 31, 2017, assets are down $95 billion, or -3.4%. The largest segment, the Household sector, totals $1.071 trillion, or 40.2% of assets. The Household Sector increased by $48 billion, or 4.7%, in the quarter, after increasing $51 billion in Q4'16 and decreasing $13 billion in Q3'16. Over the past 12 months through March 31, Household assets are up $35 billion, or 3.4%.
Nonfinancial Corporate Businesses were the second largest investor segment, according to the Fed's data series, with $479 billion, or 18.0% of the total. Business assets in money funds decreased $104 billion in the quarter, or -17.9%, and have declined by $96 billion over the past year, or -16.7%. Funding Corporations remained the third largest investor segment with $445 billion, or 16.7% of money fund shares. They remained unchanged in the latest quarter and decreased $36 billion over the previous 12 months.
The fourth largest segment, State and Local Governments held 6.9% of money fund assets ($184 billion) -- up $1 billion, or 0.3%, for the quarter, and up $5 billion, or 3.0%, for the year. Private Pension Funds, which held $156 billion (5.9%), remained in 5th place. Rest Of The World category was the sixth largest segment in market share among investor segments with 4.2%, or $111 billion, while Nonfin Noncorp Business held $99 billion (3.7%), State and Local Government Retirement Funds held $61 billion (2.3%), Life Insurance Companies held $43 billion (1.6%), and Property-Casualty Insurance held $16 billion (0.6%), according to the Fed's Z.1 breakout.
The Fed's "Flow of Funds" Table L.121 shows "Money Market Mutual Funds" largely invested in "Debt Securities," or Credit Market Instruments, with $1.655 trillion, or 62.1%. Debt securities includes: Open market paper ($109 billion, or 4.1%; we assume this is CP), Treasury securities ($741 billion, or 27.8%), Agency and GSE backed securities ($644 billion, or 24.2%), Municipal securities ($154 billion, or 5.8%), and Corporate and foreign bonds ($8 billion, or 0.3%).
Other large holdings positions in the Fed's series include Security repurchase agreements ($808 billion, or 30.3%) and Time and savings deposits ($179 billion, or 6.7%). Money funds also hold minor positions in Foreign deposits ($4 billion, or 0.1%), Miscellaneous assets ($4 billion, or 0.1%), and Checkable deposits and currency ($14 billion, 0.5%). Note: The Fed also recently added a new breakout line to this table which lists "Variable Annuity Money Funds;" they currently total $34 billion, down $1.5 billion in the quarter.
During Q1, Treasury Securities (down $56 billion), Agency- and GSE-Backed Securities (down $34 billion), Checkable Deposits and Currency (down $15 billion), and Municipal Securities (down $9 billion) showed decreases. Security Repurchase Agreements (up $8 billion), Time and Savings Deposits (up $33 billion), and Open Market Paper (up $6 billion).
Over the 12 months through 3/31/17, Time and Savings Deposits (down $314B), Open Market Paper (down $224B), and Municipal Securities (down $85B) all showed huge declines due to the massive shift from Prime and Tax-Exempt money funds to Government MMFs. Treasury Securities (up $195B), Agency- and GSE-Backed Securities (up $183B), and Security Repurchase Agreements (up $211B) all showed major gains over the 12 months through Q1'17.
In other news, a Prospectus Supplement filing for Schwab Municipal Money Funds, which includes Schwab Massachusetts Municipal Money Fund, Schwab New Jersey Municipal Money Fund, and Schwab Pennsylvania Municipal Money Fund, explains, "At a meeting held on June 6, 2017, the Board of Trustees of The Charles Schwab Family of Funds (the Trust) approved the liquidation of, and the related Plan of Liquidation for, each of the Schwab Massachusetts Municipal Money Fund, Schwab New Jersey Municipal Money Fund and Schwab Pennsylvania Municipal Money Fund (each, a Fund, and collectively, the Funds)."
It explains, "Accordingly, effective June 8, 2017 (the Closing Date), each Fund is closed to new investors. All existing investors may continue to make additional investments and receive dividends and/or distributions in the form of additional shares of each Fund through the Liquidation Date. Each Fund anticipates making a distribution of any taxable dividends and capital gains of the Fund prior to or on its liquidation.... Each Fund will distribute liquidation proceeds to its shareholders in one or more distributions."
The funds will be liquidated in mid-September, says the Schwab filing. It tells us, "Shareholders in a Fund, as of the Liquidation Date, will receive, as a liquidating distribution, an amount equal to $1.00 per share for each full share owned and a proportionate amount for each partial share owned. Shareholders in a Fund, as of the Liquidation Date, are expected to receive a second liquidation distribution on or about September 15, 2017, of an amount of any remaining Fund assets in excess of $1.00 per share equal to their remaining proportionate interest in the net assets of the Fund, after the Fund has paid or provided for all of its charges, taxes, expenses and liabilities."
It adds, "Effective June 8, 2017, through the Liquidation Date, each Fund's investment adviser will waive fees and reimburse the Fund for all operating expenses. As soon as practicable after the Closing Date, each Fund will wind up its business and affairs, and each Fund will cease investing its assets in accordance with its stated investment policies.... Shareholders should contact their tax advisors to discuss the potential tax consequences of the liquidation. Once the Funds have been liquidated, all references to the Funds will be deleted from the Prospectus and Statement of Additional Information." (For more on muni liquidations, see "Vanguard Liquidating OH Tax Exempt MMF and "March MFI Features Prime, T-E Liquidations.")
