U.K.-based website Treasury Today recently wrote the article, "Euro LVNAV MMFs hang in the balance," which discusses the recent move by the European Union to ban "reverse distribution mechanisms." Treasury Today comments, "The ability for fund managers to offer euro-denominated Low Volatility Net Asset Value (LVNAV) money market funds is in doubt. This comes after the European Commission (EC) stated that fund managers would no longer be able to use share cancellation mechanisms under the new regulatory regime that applies to new funds from 21st July 2018 and existing funds from 21st January 2019." (See our Feb. 5 News, "EC Letter Bans Reverse Exchanges in New European Money Fund Regs.") We quote from their update below, and we also summarize our latest Weekly Money Fund Portfolio Holdings statistics.
They explain, "Share cancellation is a technique used by fund managers that offer constant net asset value (CNAV) funds. It allows them to maintain a share price of E1 in a negative interest rate environment - one of the most appealing features of the funds for investors."
The update tells us, "With the usage of this mechanism now outlawed, euro LVNAV funds – which the majority of euro CNAV funds were going to transition to – will not be viable in a negative interest rate environment. Because of this, fund managers offering euro CNAV funds will have little option but to convert to variable net asset value (VNAV) money market funds, impacting E100bn of assets under management. This would not be the case if short-term interest rates turned positive to the extent that they could deliver positive yields."
It adds, "That being said, Aviva Investors has been offering VNAV funds since 2008 and has had success marketing this product to corporates. "The collapse of Lehman Brothers and the run on Northern Rock, almost a decade ago, systematically changed the environment for stable net asset value money market funds," explains Matthew Tatnell, Head of Liquidity at Aviva Investors."
He tells the publication, "Corporate investors that once considered cash investments as a risk-free asset class could no longer do so. In 2008 we took a bold decision to change our stable net asset funds from CNAV to VNAV but continued to target a stable net asset value. This was the right decision for our investors and we have continued to deliver a stable net asset fund."
In other news, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics and summary yesterday. Our weekly holdings track a shifting subset of our monthly Portfolio Holdings collection, and the latest cut (with data as of Feb. 16) includes Holdings information from 67 money funds, representing $1.326 trillion of the $2.990 (44.3%) in total money fund assets tracked by Crane Data. (For our monthly Holdings recap, see our Feb. 12 News, "Feb. Money Fund Portfolio Holdings: TD, CP, CDs Jump; Repo Plummets.")
Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $448.2 billion, or 36.8%, Treasury debt totaling $401.1 billion or 30.3%, and Government Agency securities totaling $280.5 billion, or 21.2%. Commercial Paper (CP) totaled $48.2 billion, or 3.6%, and Certificates of Deposit (CDs) totaled $42.0 billion, or 3.2%. A total of $33.9 billion or 2.6%, was listed in the Other category (primarily Time Deposits), and VRDNs accounted for $32.1 billion, or 2.4%.
The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $401.1 billion, Federal Home Loan Bank with $220.6 billion, BNP Paribas with $68.3 billion, Nomura with $36.2 billion, Federal Farm Credit Bank with $35.7 billion, RBC with $33.8 billion, Wells Fargo with $31.7 billion, Credit Agricole with $30.3 billion, Societe Generale with $26.0 billion, and Natixis with $23.8 billion.
The Ten Largest Funds tracked in our latest Weekly include: JP Morgan US Govt ($137.5B), Fidelity Inv MM: Govt Port ($103.4B), BlackRock Lq FedFund ($91.6B), Goldman Sachs FS Govt ($88.5B), Wells Fargo Govt MMkt ($72.2B), Blackrock Lq T-Fund ($69.1B), Dreyfus Govt Cash Mgmt ($65.6B), State Street Inst US Govt ($48.5B), Morgan Stanley Inst Liq Govt ($48.3B), and Goldman Sachs FS Trs Instruments ($45.7B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)
