The Weekend Wall Street Journal published a brief entitled, "Two Trendy 'Cash Phrases'," which tells us, "A shift in the markets means investors may hear the following phrases used more often this year: The first is 'Cash as a Reasonable Alternative,' and the second is the acronym CITA, which stands for 'Cash Is the Alternative.' For years, the thought was that most investors shouldn't even bother allocating assets to cash because they wouldn't get any return, says Jurrien Timmer, director of global macro at Fidelity Investments in Boston. That has now changed, he says. Indeed, after decades of playing second fiddle to stocks, bonds or commodities, cash became the top-performing asset class last year."
The brief quotes Timmer, "Back to 1960 there was no single year when cash was the top asset class.... Cash has been No. 2 or No. 3, but never No. 1." It continues, "That is, until 2018. The result is that more U.S. investors now see cash as a reasonable alternative. Wobbly stock prices and rising interest rates have made equities and fixed-income securities less desirable relative to cash than they were once. The S&P 500 lost more than 9% in December alone, while bond prices have swung over the past few months."
The Journal adds, "Meanwhile, the cash-like three-month Treasury bill yields a healthy 2.39% annual rate, up from 0.02% in 2015. Five-year bonds offer slightly more yield but with much more risk.... 'Bonds can still offer diversification,' says Mr. Timmer: 'But in this environment cash has a more viable place as a diversifier.' Why? Bond prices drop when interest rates rise. That doesn't happen with cash."
In other news, the Securities and Exchange Commission finally released its November "Money Market Fund Statistics" summary after a lengthy delay due to the Government shutdown. (Their December report is still pending.) It shows that total money fund assets rose by $89.3 billion in November to $3.253 trillion. Prime MMFs gained $28.4 billion to $771.7 billion, while Govt & Treasury funds increased $55.8 billion to $2.338 trillion. Tax Exempt funds rose $5.1 billion to $143.2 billion. Yields rose for Prime, Government and Tax Exempt MMFs in November. The SEC's Division of Investment Management summarizes monthly Form N-MFP data and includes asset totals and averages for yields, liquidity levels, WAMs, WALs, holdings, and other money market fund trends. We review their latest numbers below.
Overall assets increased $89.3 billion in November, after increasing $8.2 billion in October, $12.1 billion in Sept., $29.9 billion in August, and $15.2 billion in July. Total MMFs decreased by $51.8 billion in June, but increased by $45.6 billion in May and $31.0 billion in April. Over the 12 months through 11/30/18, total MMF assets increased $172.95 billion, or 5.6%. (Note that the SEC's series includes a number of private and internal money funds not reported to ICI or others, though Crane Data tracks most of these.)
Of the $3.253 trillion in assets, $771.7 billion was in Prime funds, which grew by $28.4 billion in November after decreasing by $3.1 billion in October. Prime MMFs increased $13.9 billion in September, $31.2 billion in August and $24.3 billion in July. But they decreased by $8.9 billion in June. Prime funds represented 23.7% of total assets at the end of November. They've increased by $105.6 billion, or 15.8%, over the past 12 months. They've increased by $205.9 billion over the past 2 years. (Over $1.1 trillion shifted from Prime to Government money market funds in the year leading up to October 2016's Money Fund Reforms.)
Government & Treasury funds totaled $2.338 trillion, or 71.9% of assets. They rose $55.8 billion in November, were up $8.3 billion in October, but down $1.9 billion in Sept., $1.8 billion in August, $4.4 billion in July, and $39.4 billion in June. Govt & Treas MMFs are up $70.6 billion over 12 months, or 3.1%. Tax Exempt Funds increased $5.1B to $143.2 billion, or 4.4% of all assets. The number of money funds was 379 in November, down 2 funds from the prior month.
Yields on Taxable MMFs moved higher again in November, their 14th month in a row of increases. The Weighted Average Gross 7-Day Yield for Prime Funds on Nov. 30 was 2.43%, up 6 basis points from the previous month and up 1.11% from November 2017. Gross yields increased to 2.28% for Government/Treasury funds, up 0.05% from the previous month, and up 114 bps from November 2017. Tax Exempt Weighted Average Gross Yields rose to 1.74%; they've increased by 74 bps since 11/30/17.
The Weighted Average Net Prime Yield was 2.25%, up 0.06% from the previous month and up 1.13% since 11/30/17. The Weighted Average Prime Expense Ratio was 0.18% in November (the same as the previous 7 months). Prime expense ratios are down by 2 bps over the past year. (Note: These averages are asset-weighted.)
WALs and WAMs were mixed in November. The average Weighted Average Life, or WAL, was 65.3 days (up 5.6 days from last month) for Prime funds, 87.0 days (down 2.1 days) for Government/Treasury funds, and 29.7 days (down 1.2 days) for Tax Exempt funds. The Weighted Average Maturity, or WAM, was 30.9 days (up 3.4 days from the previous month) for Prime funds, 30.6 days (down 1.6 days) for Govt/Treasury funds, and 27.7 days (down 0.8 days) for Tax-Exempt funds. Total Daily Liquidity for Prime funds was 32.4% in November (up 0.5% from previous month). Total Weekly Liquidity was 48.0% (down 1.8% from the previous month) for Prime MMFs.
In the SEC's "Prime MMF Holdings of Bank-Related Securities by Country, November 2018" table, the largest entries included: Canada with $103.3 billion, the U.S. with $82.9 billion, Japan with $71.1 billion, France with $68.3B, and the U.K. with $49.4B. Sweden ($43.1B), Germany ($39.6B), Australia/New Zealand ($39.1B), the Netherlands ($23.8B), and Switzerland ($21.2B) rounded out the top 10 countries.
The gainers among the "Change in Prime MMF Bank-Related Securities, by Country" for the month included: the U.S. (up $6.0 billion), Australia/New Zealand (up $5.3B), Canada (up $4.8B), UK (up $3.1B), Japan (up $2.2B), Belgium (up $2.1B), Switzerland (up $804 million), Spain (up $402M), Singapore (up $368M), Norway (up $272M), and Sweden (up $105M). The biggest drops came from France (down $9.9B), the Netherlands (down $3.1B), Other (down $2.0B), Germany (down $765M), and China (down $758M). The SEC's "Trend in Prime MMF Holdings of Bank-Related Securities by Major Region" table shows Europe had $268.8B (down $8.1B from last month), while the Eurozone subset had $146.2B (down $11.8B). The Americas had $186.8 billion (up $10.6B), while Asia Pacific had $124.8 billion (up $6.3B).
The "Trends in Prime MMF Portfolio Composition" chart shows that of the $771.7 billion in Prime MMF Portfolios as of Nov. 30, $263.0B (34.2%) was in CDs (up from $262.8B), $190.3B (24.8%) was in Government securities (including direct and repo) (up from $172.4B), $106.6B (13.9%) was held in Non-Financial CP and Other Short Term Securities (down from $107.4B), $156.4B (20.4%) was in Financial Company CP (down from $156.7B), and $51.9B (6.8%) was in ABCP (up from $46.8B).
The Proportion of Non-Government Securities in All Taxable Funds was 18.9% at month-end, no change from October. All MMF Repo with the Federal Reserve fell to $2.5B in November from $4.8B the previous month. Finally, the "Trend in Longer Maturity Securities in Prime MMFs" tables shows 40.7% were in maturities of 60 days and over (up from 36.2%), while 8.3% were in maturities of 180 days and over (up from 8.0%).
