On Monday, we quoted from the "Major Issues" panel at our recent Money Fund Symposium conference, which we hosted a week and a half ago in Pittsburgh. Today, we excerpt from the "Senior Portfolio Manager Perspectives" segment that featured Laurie Brignac of Invesco, John Tobin of J.P. Morgan Asset Management, and Dave Walczak of UBS Asset Management. Moderator Peter Crane asked the three about what they're buying, risks in today's market and a number of other portfolio management topics. We review this session below. (Visit our "Money Fund Symposium 2018 Download Center" to access the Powerpoints, recordings and binder materials from our Pittsburgh show, and mark your calendars for next year's show, June 24-26, 2019, at the Boston Renaissance.)
Crane first asked Walczak about the risks of rising rates. He answered, "I think from our standpoint, the risk really comes in ... potentially if you are forced to sell a security to raise liquidity. Obviously, with rates continuing to increase, that means that chances are pretty good that [any] security you are looking [to sell] might be at slight mark-to-market loss, something that we're very mindful of.... We tend to think that the best liquidity is maturity, so that definitely causes us to be much more focused on liquidity in our fund, [especially] on the Prime side.... So I would say that's one concern on our end.... The other is ... there is more competition from the buyer base ... in terms of some non-money market funds investors stepping into our base."
With the World Cup going on, Crane joked that being a portfolio manager is like being a soccer goalie -- 99 percent boredom and one percent sheer terror. He asked Tobin, "What are you buying now? What aren't you buying?" Tobin answered, "In terms of credit ... we're happy to stay relatively short and liquid." He mentioned floaters, and added, "We're holding more cash and more liquidity [due to repatriation and due to] the Fed tightening cycle."
Brignac said, "When we sit here and talk about what could go wrong: the good news is [from a] credit perspective, I think we are in pretty good shape. We really haven't had a whole lot of changes to our approved list. I think if we think about risk right now, it is all idiosyncratic risk. It is event risk. That is the kind of stuff that has been keeping us up at night.... We don't know what tweets are coming out, with trade wars, Brexit and the EU, etc. So, there is definitely a lot of event risk out there that you have to be mindful of.... From our perspective, we really [focus on] keeping a lot of liquidity and making sure these don't hurt you."
Walczak added, "On the buy side, to echo John's point, we've generally been pretty favorable on floating rate securities. They've served us pretty well ever since the Fed started hiking.... Back in March, we saw the 3-month LIBOR get particularly attractive as we saw the widening there.... But recently, we've seen the spreads come in on floaters.... We've finally seen more interest come back in. A little bit less being issuance too has also helped spreads compress. But we continue to like floaters in this environment ... given our outlook for the Fed."
Finally, on portfolio construction and procedures, Brignac stated, "There are a couple ways to look at it -- top-down, bottom-up, etc.... But one of the things I love about the liquidity space is, the details really matter, so that very much is bottom-up. The first thing you have to do is obviously know your clients [and know that you've got] plenty of liquidity on that side.... On the credit side, we work off approved lists and have separate reporting lines.... We can talk about a macro view, but we deal in such short-time periods. We don't lead with yield, we lead with liquidity and safety."
In other news, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics and summary Tuesday. Our weekly holdings track a shifting subset of our monthly Portfolio Holdings collection, and the latest cut (with data as of June 29) includes Holdings information from 52 money funds (down from 78 on June 22), representing $936.9 billion (down from $1.260 billion on June 22) of the $2.925 (32.0%) in total money fund assets tracked by Crane Data. (See our June 12 News, "June Money Fund Portfolio Holdings: Repo Jumps Again, Treasuries Fall" for commentary on our full monthly series.)
Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $329.4 billion (down from $437.6 billion on June 22), or 35.2%, Treasury debt totaling $304.7 billion (down from $371.6 billion) or 32.5%, and Government Agency securities totaling $202.2 billion (down from $280.1 billion), or 21.6%. Commercial Paper (CP) totaled $29.0 billion (down from $56.0 billion), or 3.1%, and Certificates of Deposit (CDs) totaled $26.0 billion (down from $40.9 billion), or 2.8%. A total of $22.3 billion or 2.4%, was listed in the Other category (primarily Time Deposits), and VRDNs accounted for $23.3 billion, or 2.5%.
The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $304.7 billion (32.5% of total holdings), Federal Home Loan Bank with $162.0B (17.3%), BNP Paribas with $42.9 billion (4.6%), RBC with $33.6B (3.6%), Federal Farm Credit Bank with $33.0B (3.5%), Federal Reserve Bank of New York with $25.3B (2.7%), Wells Fargo with $22.8B (2.4%), Nomura with $19.1B (2.0%), HSBC with $18.9B (2.0%), and JP Morgan with $14.2B (1.5%).
The Ten Largest Funds tracked in our latest Weekly include: JP Morgan US Govt ($131.5B), Goldman Sachs FS Govt ($97.2B), Wells Fargo Govt MMkt ($73.4B), Dreyfus Govt Cash Mgmt ($64.9B), Goldman Sachs FS Trs Instruments ($56.1B), Morgan Stanley Inst Liq Govt ($53.8B), State Street Inst US Govt ($52.5B), JP Morgan Prime MM ($38.7B), JP Morgan 100% US Trs MMkt ($37.7B), and First American Govt Oblig ($36.1B). (Note: BlackRock and Federated, among others, don't report weekly but report twice a month, so these funds normally only appear in mid-month cuts. 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.)
