The Investment Company Institute's latest weekly "Money Market Fund Assets" report shows money fund assets dipped again in the past week after jumping two weeks ago, but Prime balances continue to inch higher. Money fund assets remain barely positive on a year-to-date basis. They're now up $5 billion, or 0.2%, YTD, and they've increased by $203 billion, or 7.7%, over 52 weeks. We review the latest asset totals below, and also quote from a recent Pensions & Investments article on enhanced cash and a New York Times article on rising savings rates. (Note: Federated Investors, which released earnings Thursday night, hosts its Q2'18 earnings call at 9am Friday. Watch for coverage in Monday's News.)
ICI writes, "Total money market fund assets decreased by $3.02 billion to $2.84 trillion for the week ended Wednesday, July 25, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $3.60 billion and prime funds increased by $3.80 billion. Tax-exempt money market funds decreased by $3.22 billion." Total Government MMF assets, which include Treasury funds too, stand at $2.213 trillion (77.8% of all money funds), while Total Prime MMFs stand at $496.3 billion (17.5%). Tax Exempt MMFs total $133.8 billion, or 4.7%.
They explain, "Assets of retail money market funds decreased by $2.68 billion to $1.04 trillion. Among retail funds, government money market fund assets decreased by $2.75 billion to $628.12 billion, prime money market fund assets increased by $3.22 billion to $283.80 billion, and tax-exempt fund assets decreased by $3.15 billion to $124.90 billion." Retail assets account for over a third of total assets, or 36.5%, and Government Retail assets make up 60.6% of all Retail MMFs.
ICI's release adds, "Assets of institutional money market funds decreased by $334 million to $1.81 trillion. Among institutional funds, government money market fund assets decreased by $849 million to $1.58 trillion, prime money market fund assets increased by $585 million to $212.47 billion, and tax-exempt fund assets decreased by $70 million to $8.85 billion." Institutional assets account for 63.5% of all MMF assets, with Government Inst assets making up 87.7% of all Institutional MMFs.
Finally, it explains, "ICI reports money market fund assets to the Federal Reserve each week. Data for previous weeks reflect revisions due to data adjustments, reclassifications, and changes in the number of funds reporting. Weekly money market assets for the last 20 weeks are available on the ICI website." (Note: ICI's weekly and monthly asset totals are separate data series from Crane Data's monthly MFI XLS and daily MFI Daily asset totals, and they're also separate from the monthly SEC totals from Form N-MFP.)
In other news, Pensions & Investments this week includes an article entitled, "Investors' needs have cash managers trying new strategy tweaks," which discussed cash segmenting and quotes from several managers of "offshore" money market funds. They tells us, "As interest rates go higher globally, cash managers say they are seeing an uptick in interest in their services.... With the average U.S. money market fund 7-day yield at 1.69% and a number of money market funds already offering 2% 7-day yield, according to data provider Crane Data, compared to S&P 500 dividend yield of 1.9%, investors are getting better returns from cash allocations."
P&I writes, "Asset owners also are increasingly looking for different segments of cash management. But in Europe, they say, "Sources said the need to segment cash has become much more pronounced given persistent low-yield market conditions. As a result of central banks' quantitative easing, investors sought short-term cash strategies like overnight cash instruments to avoid low or negative bond yields. And 'as a result of banks complying with Basel III regulations, clients holding cash have had to bear the cost of carrying that liquidity,' said Beccy Milchem [of] BlackRock [in] London."
They also quote Northern Trust's Peter Yi, "Now they are looking for that cash to work harder for them." He comments, "[C]ash has become a real asset class and is no longer considered insurance for a portfolio.... Investors went to risk-controlled assets and they are looking for an overall stability in their asset allocation."
The piece continues, "Cash managers said the emergence of cash segmentation strategies have allowed investors to allocate portions of their cash into "strategic buckets" and have prompted investors to move into ultra-short bond mandates with inflows into six-month duration products, Mr. Yi said, adding cash necessary for daily liquidity continues to be allocated to 35-day money market funds."
P&I adds, "Much of the recent changes to the cash business have been catalyzed by the 2016 U.S. money market reform, and the European money market reform that started this month, sources said.... The U.S. reform ... sparked an exodus into government money market funds from prime funds and had investors turning to cash managers for assistance in rethinking cash allocations."
Finally, the New York Times wrote last weekend, "At Least Online, Interest Rates on Savings Finally Move Up." They explain, "After years of anemic rates, savings accounts are finally offering interest that approaches the rate of inflation -- especially if they're digital. Online banks, in particular, are offering more competitive savings rates, often close to or even exceeding 2 percent on federally insured deposits."
The article tells us, "Though hardly breathtaking, those yields are far better than the minuscule rates below 1 percent that many big, traditional banks are still offering. 'Online rates have been going up at a much faster rate,' said Nick Clements, a co-founder of the financial website MagnifyMoney."
But they say, "Before you move your cash to a higher-yielding account, it's best to check the details, because accounts with some of the most attractive rates may come with a few asterisks. Marcus, the consumer lending arm of Goldman Sachs, is offering an online savings account with a rate of 1.80 percent, with no minimum deposit. But the account doesn't come with a debit or A.T.M. card. Withdrawals must be done electronically to another bank account, through the automated clearinghouse network. Such transfers can take a couple of days, so consider how quickly you expect to want your cash."
The NY Times adds, "Synchrony Bank's rate on its high-yield savings account is slightly lower at 1.75 percent, but it offers an A.T.M. card for quick access. Some banks may offer high rates but require relatively large deposits or balances. Northpointe Bank in Grand Rapids, Mich., is offering 1.95 percent for 12 months, with a minimum balance of $25,000. If you have cash on hand -- whether it's an emergency reserve, a down payment fund or a lump sum from the sale of a house that needs to be parked temporarily -- it's worth checking around for higher rates online, said Greg McBride, chief financial analyst at the rate comparison site Bankrate."
