Last week, our February Money Fund Intelligence newsletter featured the article, "Green Money Funds Become a Thing, But Big Issues Remain," which discussed the nascent segment of ESG money funds. (See our Feb. 7 News, "Feb. MFI: Green Money Funds a Thing; Schwab's Chandoha; MFU Recap.") However, DWS took issue with our statement that "To date, Crane Data sees almost no difference between the portfolio holdings of the DWS fund and normal Prime MMFs," so we wanted to get their response on the record and to take another look at the actual portfolio holdings and guidelines. (On second glance, there are clear differences.) Barron's also comments on the trend (both in money funds and in ultra-short bonds) in this weekend's article, "Earning Income With Socially Responsible ETFs and Mutual Funds." We review these below, and we also give an update on our latest Form N-MFP Portfolio Holdings data.

Sonelius Kendrick-Smith, Head of Liquidity Solutions, Americas, at DWS comments, "We're not just focusing on one particular pillar. It's not just environmental or just social or governance. The approach is for E, S and G. DWS has been living that ESG value for 20+ years. It's in our DNA. To the extent that you know you recognize that there are some differences in the fund compared to others, ESG integration has been part of our credit process for a while.... So when a corporate approached us about the idea of a liquidity fund, I think by and large we were able to move quickly because ESG was already integrated and we already had a proprietary process to evaluate securities along with each of those pillars."

He continues, "One of our clients said [about an ESG fund], 'Perfection should not be the enemy of good.' We know that this will be an evolving space right now. People are jumping in, and we're happy there is a dialogue about this right now. But at the end of the day, our method incorporates a more holistic view. We're doing the financial analysis of credit. We're also doing the risk analysis.... It's important for people to understand it isn't just about trying to create green bonds that are specifically for money market funds. We're trying to identify those companies that are doing the things we consider to be important from an ESG perspective."

DWS's Head of Liquidity Management, Americas, Geoff Gibbs explains, "Just like any other 2a-7 regulated money market fund, we will only purchase issuers from a universe of high-quality short duration names that first meet our strict minimum credit risk standard as evaluated by our credit research team. When you look at this selection of high quality short-term issuers and apply an ESG filter to the names, of course you will see issuers that are purchased by other money market funds. Our process involves picking the best names from that universe. On the surface, it may not look different. But it's what you don't see in the portfolio.... Evaluating information from the leading data vendors in [E]nvironmental, [S]ocial and [G]overnance research, we not only exclude names that may not pass certain environmental standards but we also concentrate in names that are the leaders amongst their peer groups in social and governance issues.... We're sticking with what we consider is the best of the best within the space."

When asked about the impact to yield, Gibbs answers, "To a certain extent, when we look at filtering out those weaker ESG names, we felt that there wasn't that much of a yield give-up.... When you factor in the percentages that would be held in a portfolio within those names and what that contributes in terms of performance to the portfolio, we don't feel that there is a significant difference in performance." (The DWS fund is currently waiving most fees and only charging just 2 basis points, which doesn't hurt either.)

Gibbs adds, "Make no mistake about it. We're happy to have company in this space. It highlights that investors are increasingly aware of investing their dollars in a socially responsible manner. We welcome the BlackRock fund [and the comments from] SSGA [that] the universe of issuers that we have to select from is highly concentrated in financials.... When you evaluate environmental, social and governance issues, in banking matters typically arise surrounding governance. By taking into account all aspects of ESG, we are being much more selective."

Barron's "Socially Responsible" article tells us, "Investors can finally earn a little income on their cash, with money-market and short-term bond funds yielding 2% to 4%. But a few exchange-traded and mutual funds have launched lately that offer income with a socially responsible sheen—using environmental, social, or governance, or ESG, criteria in their investment process. The Calvert Ultra-Short Duration Income NextShares ETF (CRUSC) and the TIAA-CREF Short Duration Impact Bond fund (TSDBX) both launched last year; each one focuses on companies that score well on ESG factors."

Author Darren Fonda continues, "Socially responsible money-market funds are also rolling out. Deutsche Bank's asset-management division launched DWS ESG Liquidity fund (ESRXX) in November, repackaging an existing fund with ESG factors. The fund is aimed at institutional investors with a minimum investment of $1 million. Another sustainable money-market fund may soon be coming from BlackRock (BLK). The firm filed registration paperwork in late January for BlackRock Liquid Environmentally Aware Fund or LEAF."

The piece adds, "Are these new fixed-income funds really socially responsible? It depends on your criteria. BlackRock, for instance, says it will use its screening methodology and third-party scoring to weed out non-environmentally friendly firms. Companies involved in fossil-fuel mining, refining, and coal or nuclear power production will be excluded from the fund. BlackRock plans to devote 5% of the fund's management fees to carbon credits. And the firm says it will work with the World Wildlife Fund on an annual conservation report. Whether these measures will qualify the fund for investors who want strict ESG guidelines remains to be seen."

Fore more Crane Data News on Green or ESG money funds, see these articles: "SSGA's 2019 Global Cash Outlook Discusses ESG MMF Challenges, Tech, AI (2/4/19)," "BlackRock to Launch Environmental MF (1/23/19)," "DWS ESG Liquidity Goes Live (9/7/18)," and "DWS Converts Variable NAV to DWS ESG Money Fund, First ESG Offering (8/13/18)." (See BlackRock's pending fund filing here and also Reuters' "BlackRock Plans Environmentally Conscious Money Market Fund". Watch for our Money Fund Portfolio Holdings to be released Monday, and let us know if you'd like to see a comparison of the DWS ESG Liquidity Fund against the overall Prime MMF universe.)

In other news, Crane Data's latest monthly Money Fund Portfolio Holdings statistics will be published Monday, Feb. 11, and we'll be writing our normal monthly update on the Jan. 31 data for Tueday's News. But we also generate a separate and broader Portfolio Holdings data set based on the SEC's Form N-MFP filings. (We continue to merge the two series, and the N-MFP version is now available via Holdings file listings to Money Fund Wisdom subscribers.) Our summary, with data as of Jan. 31, 2019, includes holdings information from 1,179 money funds (the same number as last month), representing assets of $3.368 trillion (up from $3.344 trillion). We review the latest data below.

Our latest Form N-MFP Summary for All Funds (taxable and tax-exempt) shows Repurchase Agreement (Repo) holdings in money market funds totaling $1,097.8 billion (up from $1,057.8 billion on Dec. 31), or 32.6% of all assets. Treasury holdings total $851.7 billion (down from $945.1 billion, or 25.3%, and Government Agency securities total $682.0 billion (up from $680.1 billion), or 20.2%. Commercial Paper (CP) totals $257.7 billion (up from $237.6 billion), or 7.7%, and Certificates of Deposit (CDs) total $225.4 billion (up from $194.7 billion), or 6.7%. The Other category (primarily Time Deposits) totals $146.8 billion (up from $115.7 billion), or 4.4%, and VRDNs account for $106.8 billion (down from $112.6 billion), or 3.2%.

Broken out into the SEC's more detailed categories, the CP totals were comprised of: $160.7 billion, or 4.8%, in Financial Company Commercial Paper; $57.6 billion or 1.7%, in Asset Backed Commercial Paper; and, $39.3 billion, or 1.2%, in Non-Financial Company Commercial Paper. The Repo totals were made up of: U.S. Treasury Repo ($641.9B, or 19.1%), U.S. Govt Agency Repo ($419.2B, or 12.4%), and Other Repo ($36.7B, or 1.1%).

The N-MFP Holdings summary for the 215 Prime Money Market Funds shows: CP holdings of $252.6 billion (up from $232.8 billion), or 30.7%; CD holdings of $225.4B (up from $194.7B), or 27.4%; Repo holdings of $148.1B (up from $140.3B), or 18.0%; Other (primarily Time Deposits) holdings of $86.4B (up from $73.6B), or 10.5%; Treasury holdings of $67.2B (down from $82.4B), or 8.2%; Government Agency holdings of $37.5B (up from $32.5B), or 4.6%; and VRDN holdings of $6.8B (up from $6.6B), or 0.8%.

The SEC's more detailed categories show CP in Prime MMFs made up of: $160.7 billion, or 19.5%, in Financial Company Commercial Paper; $57.6 billion, or 7.0%, in Asset Backed Commercial Paper; and, $34.2 billion, or 4.2%, in Non-Financial Company Commercial Paper. The Repo totals include: U.S. Treasury Repo ($45.3B, or 5.5%), U.S. Govt Agency Repo ($66.2B, or 8.0%), and Other Repo ($36.7B, or 4.5%).

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