Money fund assets rose for the 13th week in a row and rose above the $3.26 trillion level for the first time since January 2010. The Investment Company Institute's latest "Money Market Fund Assets" report shows that MMF assets have increased by $218.9 billion, or 7.2%, since April 17, and they've increased by $214 billion, or 7.0%, year-to-date. Over the past 52 weeks, ICI's money fund asset series has increased by $416 billion, or 14.6%, with Retail MMFs rising by $212 billion (20.4%) and Inst MMFs rising by $205 billion (11.3%). We review the latest asset totals and also quote from a Fitch Ratings update on ESG Money Funds.

They write, "Total money market fund assets increased by $9.28 billion to $3.26 trillion for the week ended Wednesday, July 17, the Investment Company Institute reported today. Among taxable money market funds, government funds decreased by $225 million and prime funds increased by $9.98 billion. Tax-exempt money market funds decreased by $472 million." ICI's weekly series shows Institutional MMFs rising $1.98 billion and Retail MMFs rising $7.30 billion. Total Government MMF assets, including Treasury funds, stood at $2.431 trillion (74.5% of all money funds), while Total Prime MMFs rose to $692.0 billion (21.2%). Tax Exempt MMFs totaled $138.7 billion, or 4.3%.

ICI states, "Assets of retail money market funds increased by $7.30 billion to $1.25 trillion. Among retail funds, government money market fund assets increased by $4.65 billion to $711.18 billion, prime money market fund assets increased by $2.91 billion to $412.58 billion, and tax-exempt fund assets decreased by $259 million to $127.30 billion." Retail assets account for over a third of total assets, or 38.4%, and Government Retail assets make up 56.8% of all Retail MMFs.

The release adds, "Assets of institutional money market funds increased by $1.98 billion to $2.01 trillion. Among institutional funds, government money market fund assets decreased by $4.87 billion to $1.72 trillion, prime money market fund assets increased by $7.07 billion to $279.43 billion, and tax-exempt fund assets decreased by $212 million to $11.40 billion." Institutional assets accounted for 61.6% of all MMF assets, with Government Institutional assets making up 85.5% of all Institutional MMF totals.

Crane Data's separate and broader Money Fund Intelligence Daily series shows money fund assets rising by $10.3 billion to $3.407 trillion in the week ended July 17, 2019. Month-to-date in July, MFI Daily shows money fund assets up by $78.3 billion, with $44.0 billion of the gains coming from Govt MMFs and $32.0 billion coming from Prime MMFs. Our latest monthly Money Fund Intelligence and MFI XLS, which tracks an even broader set of funds than our MFI Daily, showed assets rising $78.3 billion to $3.407 trillion in June. We expect asset inflows to remain strong in coming months, particularly in the fourth quarter.

In other news, Fitch Ratings released a brief entitled, "ESG in Money Market Funds" earlier this week. The article says, "Fitch Ratings says that money market funds (MMFs) readily adjust portfolio holdings in response to environmental, societal and governance (ESG) factors, although only recently has market attention turned to explicit ESG strategies within MMFs. For example, rated MMFs reduced their exposure to Danske Bank AS in 2018 in response to governance risk factors, despite its stable short-term credit profile at the time." (See our July 15 Link of the Day, "FT, Fitch Say ESG MMFs Growing.")

It explains, "Recent launches of ESG MMFs -- and conversions of existing MMFs -- may signal increasing demand for MMFs with an explicit ESG overlay. On the other hand, assets under management (AUM) in existing ESG MMFs are low, albeit growing.... Fitch estimates that total global AUM in ESG MMFs was $44.9 billion at 31 December 2018, compared with AUM of $6.1 trillion in global MMFs. ESG MMF AUM increased 15% in 1H19. Existing ESG MMFs are highly concentrated in France in terms of size, accounting for approximately 88% of total ESG MMF assets."

Fitch tells us, "Interest in ESG as applied to MMFs has increased recently, consistent with the wider market's growing interest. Fitch recently surveyed senior professionals at major MMF managers for their post-reform priorities in Europe: the two top-ranked options were getting back to business as usual in managing MMFs and ESG. These views are consistent with recent developments: SSGA's ... ESG MMF launch in July 2019, while BlackRock launched an environmental-focused MMF (the BlackRock Liquid Environmentally Aware Fund) in April 2019. DWS converted an existing MMF to an ESG-focused MMF in September 2018. These new or converted funds complement a number of existing [European] ESG MMFs."

They write, "Fitch counts 19 MMFs that follow explicit ESG strategies (i.e. their investment objective makes specific reference to ESG factors) at end-June 2019. France and Norway hold the reins of MMFs with sustainable focus, since 14 out of 19 funds are domiciled in France and Norway. Fitch believes investor demand is the reason there are so many ESG MMFs in Europe. The ESG MMF universe is concentrated in France, accounting for approximately 88% of total ESG MMF AUM."

The report also comments, "Fitch anticipates that future developments in the ESG MMF sector may move beyond exclusions to other ESG techniques, such as portfolio 'tilts' with higher exposures to higher-ranked ESG issuers, or potentially to issuers showing the strongest improvements in ESG factors, while underweighting issuers with lower or weakening ESG credentials. Some funds have also considered approaches for emphasizing ESG in their distribution channels (rather than in portfolio construction) since the way ESG is implemented by MMFs can show material variation."

It adds, "A key issue market participants raise with regard to implementing ESG strategies is a lack of standardisation of approach or terms of reference.... Fitch believes that Governance will be the most pertinent factor in driving exclusions from MMF portfolios, given that the primary constituent of MMF portfolios is bank securities.... A key complexity faced by MMF managers is applying an ESG approach to asset-backed commercial paper (ABCP) which is typically bank-backed (allowing for an assessment at the level of the bank) but also engages in other activities, such as funding trade finance receivable, thus entailing a look through in the ESG analysis to the activities of the ABCP conduit itself."

Finally, they say, "The addition of an ESG filter may reduce the eligible investible universe, leading to higher potential concentration risk in ESG-MMFs compared with non-ESG MMFs, all else being equal. On the flipside, an increase in demand for ESG-compliant issuers may positively affect market liquidity for these issuers, to the detriment of non-ESG-compliant issuers. Fitch believes the effect would be modest at most in both cases. ESG exclusions may reduce the size of investible universe but not to such an extent that concentration risk would be materially higher for ESG MMFs than non-ESG MMFs. Market liquidity is multi-faceted so any ESG effect would be muted."

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