The August issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Tuesday morning, features the articles: "Rising MF Yields Turn Up Heat on Sweeps, Bank Deposits," which discusses the growing spread between money funds and other cash options; "PGIM Still Rocking in Cash: Q&A w/D'Angelo, Nicholson," which profiles the money funds formerly named Prudential; and, "European MMF Reforms Go Live; Ready for Symposium," which reviews the latest on European money fund regulations. We've also updated our Money Fund Wisdom database with July 31, 2018, statistics, and sent out our MFI XLS spreadsheet Tuesday a.m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our August Money Fund Portfolio Holdings are scheduled to ship on Thursday, August 9, and our August Bond Fund Intelligence is scheduled to go out Tuesday, August 14.
MFI's "Rising MF Yields" article says, "Money fund yields have risen from a near record-low average of 0.04% three years ago to 1.75% currently (as measured by our Crane 100 MF Index), while bank deposit rates, and in particular brokerage sweep rates, have lagged dramatically. Brokerage sweep rates have risen from 0.01% to 0.22%, while bank money market deposit rates still average a ridiculously low 0.20% (according to the FDIC's averages). Even the highest-yielding deposits average just 1.26%."
The lead piece continues, "While asset flows into money market funds attracted by these huge yield differentials remain subdued, we suspect this is beginning to change. One reason that investors haven't moved is that the news that money fund yields are back is still slow getting out. But this is changing too. A steady stream of articles pointing out these attractive spreads are appearing."
It adds, "J.P. Morgan Securities comments in a recent 'Short Duration Strategy' piece, "With the Fed on the move and interest rates steadily rising, the topic of deposit betas and outflows has garnered significant attention from the financial community. Indeed, deposit growth at US commercial banks has slowed to 3.0-3.5% on a year-over-year basis, from a high of 5.0-7.0% in 2015 before the Fed embarked on its mission to lift interest rates.... [W]e have seen flows into other liquidity alternatives such as MMFs and short duration bond funds for both retail and institutional investors. More notably, the magnitude of the flows this year has been above and beyond what typically takes place during this time period."
Our PGIM Profile" reads, "This month, Money Fund Intelligence interviews Joe D'Angelo, Managing Director of PGIM Fixed Income, who runs the money market desk, and Chris Nicholson, Vice President of Fixed-Income Product Management at PGIM Investments, the distributor of the PGIM funds. PGIM's funds formerly carried the Prudential moniker, but they changed names earlier this summer to synch the funds with that of their advisor. Our Q&A follows."
MFI asks, "How long have you been running cash?" D'Angelo answers, "We were running cash before I started here, which was 30 years ago.... PGIM Fixed Income evolved from three internal fixed income groups focused on mutual funds, separate accounts, and proprietary accounts. These three separate groups were each managing money independently in the infant stages of money markets, going back to the early '80s or even late '70's.... Ultimately, all fixed income asset management was brought together. At that time, in roughly 2000, the firm had about $130 billion in assets under management. Now, PGIM Fixed Income is up to 600-plus clients with over $700 billion under management as of June 2018."
He continues, "I grew up on the issuance side of Prudential, coming here in the late '80s to work under the Treasurer. We were a prominent direct issuer of commercial paper. I moved from the direct issuer desk to securities lending, then jumped to investments around 2000."
Nicholson adds, "I've worked in various roles in financial services for the last 15 years [and] came over to Prudential, or PGIM now, in November of 2014.... I head up the fixed income product management efforts on the mutual fund side of things." (Watch for more excerpts from our "profile" on www.cranedata.com later this month or ask us to see the full MFI issue.)
MFI's "European Reforms" piece says, "New European Money Market Fund Reforms went into effect July 21. While existing funds don't need to comply until Jan. 31, 2019, discussions and preparations have shifted into high gear. Several of the largest managers of the 'offshore' stable value funds likely to be most-impacted by the changes have announced reform plans, with most expecting investors to stay put and go 'LVNAV.' Moody's Investors Service and Fitch Ratings recently commented on the changes, one in the form of a Q&A and the other via webinar. (See our July 23 News, "European Money Market Fund Reforms Go Live; Moody's, Fitch Comment.")
Our August MFI XLS, with July 31, 2018, data, shows total assets increased $36.3 billion in July to $3.044 trillion, after decreasing $49.9 billion in June, increasing $53.7 billion in May, and $19.9 billion in April. Our broad Crane Money Fund Average 7-Day Yield rose 2 bps to 1.57% during the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) was up 2 bps to 1.76%.
On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA rose 1 bps to 2.03% and the Crane 100 rose to 2.04%. Charged Expenses averaged 0.46% and 0.28% (unchanged), respectively for the Crane MFA and Crane 100. The average WAM (weighted average maturity) for the Crane MFA and Crane 100 were 27 and 28 days, respectively (down two days and one day from last month). (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
