Fitch Ratings posted a new video entitled, "A New Dawn for European Money Funds," which tells us that, "European money fund reforms, due to be signed into law imminently, will herald important changes for short-term investors." We discuss Fitch's update below, and we also review the latest statistics from our Money Fund Intelligence International and our MFII Portfolio Holdings data collection on European and "offshore" money funds. (Let us know if you'd like to see the latest copy of our MFI International or MFII Holdings.)
The New Dawn update says, "Fitch Ratings believes that these reforms will benefit investors by strengthening industry-wide risk limits and enhancing transparency. The reforms will introduce new fund types, as we explain in the video below, but for many investors we believe the new LVNAV fund type will be a workable alternative to existing money funds. We do not believe liquidity fees and redemption gates should be an area of investor concern in Europe."
In the video, "Fitch Ratings: Latest on European Money Fund Reform," Alastair Sewell comments, "After almost 4 years of debate, European Money Fund Reform is finally here. The reforms are significant and will change the landscape in Europe for short term investors. Once the reforms are effective, there will be four types of Money Funds available in Europe up from the current two. The existing standard or longer term money fund will be relatively unchanged. However, in the short-term money category there will now be three different varieties of funds post-reform."
Sewell explains, "Funds which invest the vast majority, that's over 99.5%, of their assets in public-debt such as sovereign issues will be able to continue transacting their constant net asset value per share. These funds will also be subject to potential liquidity fees and redemption gates if liquidity falls below pre-defined thresholds. Given the way the liquidity is calculated in these funds, we consider the imposition of a gate a remote possibility."
He continues, "The Low Volatility Net Asset Value, or LVNAV, Fund can provide its mark to market NAV close to its book value [and] transact at a constant unit value per share. However, if its mark to market NAV deviates by more than 20 basis points from its book value, then it will be forced to convert to a variable NAV Fund. The threshold is low, but in practical terms the variability we've seen in the mark to market NAVs in existing funds is extremely low and will be unlikely to breach this threshold. These funds will also be subject to potential fees and gates."
The video also states, "Lastly, the Short-Term VNAV Fund is our variable priced fund, although the actual variation in price is likely to be extremely low similar to LNAV funds. Unlike the previous fund types, however, this fund will not be subject to reform driven potential liquidity fees or redemption gates. Although standard liquidity measures available to all European Mutual Funds will still apply."
Finally, Sewell tells us, "We anticipate that the existing short-term CNAV funds, which have assets on the management of around 700 billion Euros, would see the most change. These funds are primarily domiciled in Ireland and Luxembourg. Standard money funds which are primarily domiciled in France will not face huge changes from the reforms, although they are likely to need to increase liquidity levels. `Our survey results from March this year show that LVNAV funds are investors preferred option, so we expect to see a substantial inflow to this fund category."
He adds, "The implementation clock is now ticking and we can expect to see a flurry of activity from fund providers as they began to position their post-reform product sets. There are two significant time horizon to be aware of: first, in 12 months' time all new funds will need to comply with the reforms; second, in 18 months' time all existing funds will need to comply with reform. This time horizon is substantially shorter than the 24 month implementation period in the US."
In related news, Crane Data's MFI International shows assets in "offshore" money market mutual funds, U.S.-style funds domiciled in Ireland or Luxemburg and denominated in USD, Euro and GBP (sterling), up $54 billion year-to-date to $785 billion as of 6/13/17. U.S. Dollar (USD) funds (149) account for over half ($408 billion, or 52.0%) of the total, while Euro (EUR) money funds (93) total E95 billion and Pound Sterling (GBP) funds (104) total L212. USD funds are up $9 billion, YTD, while Euro funds are up E1 billion and GBP funds are up L22B. USD MMFs yield 0.81% (7-Day) on average (6/13/17), up 65 basis points from 12/31/16. EUR MMFs yield -0.49% on average, down 30 basis points YTD, while GBP MMFs yield 0.14%, down 14 bps YTD.
Crane's latest Money Fund Intelligence International Portfolio Holdings data (as of 5/31/17) shows that European-domiciled US Dollar MMFs, on average, consist of 17% in Treasury securities, 22% in Commercial Paper (CP), 24% in Certificates of Deposit (CDs), 19% in Other securities (primarily Time Deposits), 14% in Repurchase Agreements (Repo), and 4% in Government Agency securities. USD funds have on average 28.3% of their portfolios maturing Overnight, 15.5% maturing in 2-7 Days, 23.0% maturing in 8-30 Days, 10.8% maturing in 31-60 Days, 10.6% maturing in 61-90 Days, 9.0% maturing in 91-180 Days, and 2.8% maturing beyond 181 Days. USD holdings are affiliated with the following countries: US (28.8%), France (14.2%), Japan (9.2%), Canada (9.0%), Sweden (6.3%), the Netherlands (5.5%), Australia (5.1%), United Kingdom (4.3%), Germany (4.2%), China (2.7%), and Singapore (2.7%).
The 20 Largest Issuers to "offshore" USD money funds include: the US Treasury with $82.4 billion (17.7% of total assets), BNP Paribas with $16.9B (3.6%), Credit Agricole with $14.8B (3.2%), Mitsubishi UFJ with $11.7B (2.5%), Toronto-Dominion Bank with $11.4B (2.5%), Wells Fargo with $9.3B (2.0%), Swedbank AB with $8.8B (1.9%), Skandinaviska Enskilda Banken AB with $8.6B (1.8%), Natixis with $7.8B (1.7%), RBC with $7.7B (1.7%), Sumitomo Mitsui Banking Co with $7.7B (1.7%), ING Bank with $7.7B (1.7%), Societe Generale with $7.6B (1.6%), DnB NOR Bank ASA with $7.3B (1.6%), Rabobank with $7.3B (1.6%), Bank of Montreal with $7.2B (1.6%), National Australia Bank Ltd with $6.9B (1.5%),`Commonwealth Bank of Australia <b:>`_ with $6.8B (1.5%), Mizuho Corporate Bank LTD with $6.8B (1.5%), and Credit Mutuel with $6.3B (1.4%).
Euro MMFs tracked by Crane Data contain, on average 38% in CP, 31% in CDs, 21% in Other (primarily Time Deposits), 7% in Repo, 1% in Treasury securities and 2% in Agency securities. EUR funds have on average 21.1% of their portfolios maturing Overnight, 8.9% maturing in 2-7 Days, 17.3% maturing in 8-30 Days, 18.2% maturing in 31-60 Days, 15.0% maturing in 61-90 Days, 16.1% maturing in 91-180 Days and 3.4% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (29.1%), Japan (13.4%), US (12.8%), Netherlands (8.0%), Sweden (7.5%), Belgium (6.8%), Germany (5.3%), Switzerland (4.1%), and the United Kingdom (2.6%).
The 15 Largest Issuers to "offshore" EUR money funds include: BNP Paribas with E4.6B (4.7%), Credit Agricole with E3.9B (4.1%), Rabobank with E3.7B (3.8%), BPCE SA with E3.5B (3.7%), KBC Group NV with E3.5B (3.6%), Svenska Handelsbanken with E3.5B (3.6%), Proctor & Gamble with E3.3B (3.5%), Nordea Bank with E3.3B (3.5%), Credit Mutuel with E3.3B (3.5%), Societe Generale with E3.2B (3.3%), Mitsubishi UFJ Financial Group Inc with E2.7B (2.8%), Norinchukin Bank with E2.6B (2.7%), ING Bank with E2.5B (2.6%), Mizuho Corporate Bank Ltd with E2.5B (2.6%), and Sumitomo Mitsui Banking Co with E2.2B (2.3%).
The GBP funds tracked by MFI International contain, on average (as of 5/31/17): 43% in CDs, 24% in Other (Time Deposits), 21% in CP, 9% in Repo, 2% in Treasury, and 0% in Agency. Sterling funds have on average 21.9% of their portfolios maturing Overnight, 8.3% maturing in 2-7 Days, 14.2% maturing in 8-30 Days, 18.6% maturing in 31-60 Days, 16.5% maturing in 61-90 Days, 15.4% maturing in 91-180 Days, and 5.1% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: France (18.6%), Japan (15.4%), United Kingdom (14.8%), Germany (7.1%), Netherlands (6.7%), Sweden (5.7%), Australia (5.2%), US (4.9%), Canada (4.7%), and Belgium (2.8%).
The 15 Largest Issuers to "offshore" GBP money funds include: UK Treasury with L9.1B (5.3%), Credit Agricole with L7.0B (4.1%), Mitsubishi UFJ Financial Group Inc. with L6.0B (3.5%), BNP Paribas with L5.9B (3.4%), Sumitomo Mitsui Banking Co. with L5.5B (3.2%), Nordea Bank with L5.5B (3.2%), Credit Mutuel with L5.4B (3.2%), DZ Bank AG with L5.3B (3.1%), Rabobank with L5.2B (3.0%), Mizuho Corporate Bank Ltd. with L5.2B (3.0%), BPCE SA with L5.1B (3.0%), Standard Chartered Bank with L4.8B (2.8%), Sumitomo Mitsui Trust Bank with L4.4B (2.6%), Qatar National Bank with L4.3B (2.5%), Bank of America with L4.2B (2.5%), ING Bank with L4.1B (2.4%), Dexia Group with L3.5B (2.0%), Commonwealth Bank of Australia with L3.3B (1.9%), National Bank of Abu Dhabi with L3.3B (1.9%), and Svenska Handelsbanken with L3.3B (1.9%).
