S&P Global Ratings published a paper entitled, "How Uncertainty In Global Markets Affected 'AAAm' Rated Money Market Funds," last week. They tell us, "The first half of 2017 proved to be a busy period for European money market funds (MMFs), which faced an array of uncertainties surrounding unfolding geopolitical events, settled regulatory reforms, cloudy economic forecasts, and somewhat "rewarding" monetary policies." We excerpt from this paper, and we also review our latest Money Fund Intelligence International statistics and MFII Portfolio Holdings data below. (Note: We're still accepting registrations for our European Money Fund Symposium, which is Sept. 25-26 at The Renaissance Paris La Defense Hotel in Paris, France.)
S&P writes, "More so than ever, assessing contentious political landscapes now plays an integral role in executing investment strategies, primarily as MMFs seek to avoid the consequences of investor uncertainty resulting from headline risks. In our view, the E1 trillion European money market industry has very little room to hide in today's interconnected world. Uncertainties in global markets and continued negative rates across the eurozone have led MMFs to continually adjust asset allocations, credit quality, and maturity profiles; despite this, we still expect our ratings on funds rated 'AAAm' to remain generally unchanged."
The paper continues, "In the early part of 2017, the French presidential elections kept some MMFs cautious about their exposures to French banks, with some MMFs reducing their overall tenors or placing maturities well-beyond any potential volatility surrounding the election dates. More recently, developments in the ongoing diplomatic crisis in Qatar prompted MMFs to adjust their tenors to Middle Eastern banks."
It says, "A year after the Brexit referendum, the U.K. economy is holding up better than predicted, but uncertainty surrounding EU exit negotiations has dampened wider economic investment. More focused concerns is the future of "passporting" rights of investment products including MMFs post BREXIT which have significantly benefited from the UCITS (Undertakings for Collective Investment in Transferable Securities) structure being recognized by investors and the associated benefits of selling across the EU. Under UCITS, with assets of nearly E9 trillion, a fund can be regulated in Luxembourg, managed in London, and sold in Paris."
S&P comments, "In the U.S., the Trump Administration continues to advocate for tax reform, including a repatriation of trillions of dollars in profit earned abroad by U.S.-based multinational corporations (MNCs), who for years have stockpiled cash overseas to avoid the 40% U.S. corporate tax rate, which is especially high compared with the EU average of 21.5%. Despite the contentious political climate in Washington, a Republican-controlled Congress increases the probability of the administration passing tax reform over the coming years. Should the U.S. host a tax holiday, it is likely there would be some significant outflow of assets from European MMFs as MNCs transfer cash back to the U.S, primarily as more than half of EU-domiciled MMF assets are held in U.S. dollars."
They add, "Not long after the U.S. implementation of MMF reform in October 2016, the most notable event for EU MMFs of 2017 (separate to all of the geopolitical and macro events) was the approval of European Union (EU) MMF reform on May 16, 2017 (see "EU Money Market Reform: The Wait Is Finally Over," published May 31, 2017). Although not effective until January 2019, the new regulations will be the key in shaping the future composition of the industry."
Crane Data's latest 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 $55 billion year-to-date to $786 billion as of 8/11/17. U.S. Dollar (USD) funds (148) account for over half ($414 billion, or 52.6%) of the total, while Euro (EUR) money funds (93) total E90 billion and Pound Sterling (GBP) funds (104) total L210. USD funds are up $43 billion, YTD, while Euro funds are up E3 billion and GBP funds are up L31B. USD MMFs yield 0.97% (7-Day) on average (8/11/17), up 81 basis points from 12/31/16. EUR MMFs yield -0.50% on average, down 31 basis points YTD, while GBP MMFs yield 0.13%, down 15 bps YTD.
Crane's latest MFI International Money Fund Portfolio Holdings data (as of 7/31/17) shows that European-domiciled US Dollar MMFs, on average, consist of 17% in Treasury securities, 22% in Commercial Paper (CP), 23% in Certificates of Deposit (CDs), 19% in Other securities (primarily Time Deposits), 16% in Repurchase Agreements (Repo), and 3% in Government Agency securities. USD funds have on average 31.4% of their portfolios maturing Overnight, 13.3% maturing in 2-7 Days, 19.3% maturing in 8-30 Days, 11.1% maturing in 31-60 Days, 9.5% maturing in 61-90 Days, 11.4% maturing in 91-180 Days, and 4.1% maturing beyond 181 Days. USD holdings are affiliated with the following countries: US (26.9%), France (14.9%), Canada (10.1%), Japan (9.8%), Sweden (6.1%), the Netherlands (5.4%), Australia (4.9%), United Kingdom (4.5%), Germany (4.0%), and Singapore (3.0%), and China (2.5%).
The 20 Largest Issuers to "offshore" USD money funds include: the US Treasury with $79.2 billion (16.8% of total assets), BNP Paribas with $19.6B (4.1%), Credit Agricole with $15.6B (3.3%), Toronto-Dominion Bank with $12.6B (2.7%), RBC with $10.3B (2.2%), Mitsubishi UFJ with $10.2B (2.2%), Wells Fargo with $9.3B (2.0%), Skandinaviska Enskilda Banken AB with $9.2B (1.9%), Natixis with $8.9B (1.9%), Societe Generale with $8.6B (1.8%), DnB NOR Bank ASA with $8.4B (1.8%), Svenska Handelsbanken with $8.1B (1.7%), Rabobank with $7.5B (1.6%), Bank of Nova Scotia with $7.5B (1.6%), Mizuho Corporate Bank Ltd with $7.5B (1.6%), Bank of Montreal with $7.3B (1.5%), Commonwealth Bank of Australia with $6.9B (1.5%), Federal Reserve Bank of New York with $6.9B (1.5%), Sumitomo Mitsui Banking Co with $6.7B (1.4%), and KBC Group NV with $6.7B (1.4%).
Euro MMFs tracked by Crane Data contain, on average 40% in CP, 28% in CDs, 22% in Other (primarily Time Deposits), 8% in Repo, 1% in Treasury securities and 1% in Agency securities. EUR funds have on average 22.1% of their portfolios maturing Overnight, 8.8% maturing in 2-7 Days, 18.8% maturing in 8-30 Days, 16.8% maturing in 31-60 Days, 14.2% maturing in 61-90 Days, 15.7% maturing in 91-180 Days and 3.6% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (27.4%), Japan (13.3%), US (13.2%), Sweden (7.9%), Netherlands (7.4%), Belgium (6.9%), Switzerland (6.4%), Germany (3.7%), and China (2.6%).
The 15 Largest Issuers to "offshore" EUR money funds include: BNP Paribas with E4.5B (5.3%), Rabobank with E3.7B (4.4%), Svenska Handelsbanken with E3.5B (4.1%), Credit Agricole with E3.4B (4.1%), Proctor & Gamble with E3.2B (3.8%),Credit Mutuel with E2.9B (3.4%), KBC Group NV with E2.8B (3.3%), Nordea Bank with E2.7B (3.2%), Mizuho Corporate Bank Ltd with E2.6B (3.0%), Dexia Group with E2.5B (3.0%), Agence Central de Organismes de Securite Sociale with E2.5B (3.0%), Sumitomo Mitsui Banking Co. with E2.5B (2.9%), Credit Suisse with E2.3B (2.7%), Mitsubishi UFJ Financial Group Inc with E2.1B (2.5%), and BPCE SA with E2.1B (2.5%).
The GBP funds tracked by MFI International contain, on average (as of 7/31/17): 43% in CDs, 25% in Other (Time Deposits), 20% in CP, 10% in Repo, 2% in Treasury, and 0% in Agency. Sterling funds have on average 24.9% of their portfolios maturing Overnight, 8.5% maturing in 2-7 Days, 14.1% maturing in 8-30 Days, 17.3% maturing in 31-60 Days, 12.8% maturing in 61-90 Days, 17.3% maturing in 91-180 Days, and 5.1% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: France (18.7%), Japan (17.4%), United Kingdom (13.6%), Netherlands (7.8%), Sweden (6.4%), Germany (6.0%), US (4.9%), Canada (4.7%), Australia (4.2%), and Singapore (2.9%).
The 15 Largest Issuers to "offshore" GBP money funds include: UK Treasury with L8.7B (5.2%), Credit Agricole with L7.3B (4.4%), Mitsubishi UFJ Financial Group Inc. with L6.4B (3.9%), ING Bank with L6.3B (3.8%), Sumitomo Mitsui Banking Co. with L6.1B (3.7%), Nordea Bank with L6.0B (3.6%), BNP Paribas with L5.9B (3.5%), Mizuho Corporate Bank Ltd. with L5.9B (3.5%), BPCE SA with L5.5B (3.3%), Credit Mutuel with L5.4B (3.2%), Rabobank with L5.3B (3.2%), Sumitomo Mitsui Trust Bank with L4.7B (2.8%), Bank of America with L4.4B (2.7%), DZ Bank AG with L4.1B (2.5%), Standard Chartered Bank with L4.1B (2.5%), Svenska Handelsbanken with L4.1B (2.4%), UBS AG with L3.5B (2.1%), National Bank of Abu Dhabi with L3.4B (2.1%), Dexia Group with L3.4B (2.0%), and Oversea-Chinese Banking Co. with L3.0B (1.8%).
