Fitch Ratings recently published the update, "French Money Market Funds: Reforms Strengthen Credit Profiles, but Structural Differences Remain," which gives a brief overview of money market funds in France They write, "French MMFs were much less affected by the recently concluded European MMF reforms than other European MMFs. More than 80% of the French MMF industry's assets AUM come from 'Standard' MMFs, which were less affected by the reforms. In other jurisdictions, such as Ireland and Luxembourg, where Constant Net Asset Value (CNAV) funds were prevalent, the effect of the reforms was much more significant, as these funds almost universally converted to the new LVNAV fund type. There were almost no CNAV funds in France prior to the implementation of the MMF reform: the remaining 20% of funds includes mainly Short-Term VNAV funds."
The update explains, "While 'Standard' MMFs qualify as MMFs under applicable regulation, Fitch believes the market risk profile of these funds to be incomparable with MMFs in most other jurisdictions and with Fitch's definition of a MMF. The maximum market risk that 'Standard' MMFs can assume, under the applicable regulation (for example a maximum WAM of six months), goes substantially beyond the level of market risk MMFs can incur in most other jurisdictions. For example, the maximum permissible WAM in US MMFs is 60 days, and Chinese MMFs is 120 days. Accordingly, Fitch rates 'Standard' MMFs under it Global Bond Fund Rating Criteria."
Fitch also tells us, "The French MMF segment is more concentrated by manager than the US MMF industry, but marginally more diverse than the Irish and Luxembourg MMF segments. The top 10 investment management companies in France managed around 87% of total assets at end-2018. The French MMF industry is dominated by Amundi ('A+'/ Stable/'F1'), Ostrum Asset Management and BNP Paribas Asset Management which had shares of 32%, 11% and 10% respectively at end-2018." A chart shows the top French MMF managers as: Amundi (32%), Other (32)%, Ostrum AM (11%), BNP Paribas AM (10%), CM-CIC Am (9%) and BFT IM (6%).
They continue, "Fitch estimates that the French MMF industry reached around EUR325 billion (about USD375 billion) in AUM at end-2018. This total made France the third-largest MMF domicile in Europe after Ireland (about EUR490 billion/USD560 billion) and Luxembourg (around EUR335 billion/USD385 billion) at the same date. On a global scale, France ranks fifth, after China (around USD1.1 trillion) and the US (USD3 trillion). In the first quarter of 2019 French MMF AUM increased by an estimated EUR20 billion to EUR345 billion (about USD385 billion)."
Fitch adds, "Unlike their counterparts in Ireland and Luxembourg, French MMFs are virtually all denominated in euros. Irish and Luxembourg MMFs are denominated in various other currencies, principally US dollars, where MMF demand has benefited from interest rate rises."
Lastly, they write, "The French MMF sector is large compared with the wider asset management sector. French MMFs accounted for 18% of the total industry AUM of EUR1.8 trillion at end-2018. While the MMF share in France is lower than that of China (63%) it is comparable with or higher than other peers (Ireland: 20%, US: 14%; Luxembourg: 8%). Fitch believes that if the 'Standard' MMFs prevalent in France were reclassified as bond funds (as they would be classified in many other jurisdictions), then the French asset allocation would become much more comparable with international norms.... The French MMF segment is highly retail focused, whereas the MMF segments in the US, Ireland and Luxembourg are primarily institutionally focused."
In other news, website RIABiz writes, "Abby Johnson set financial services on fire with a 1.91% 'cash' offer, drawing 'first blood' in an 'accelerating war of rates,' analyst says." The piece tells us, "Abby Johnson set Vanguard's feet on fire with no-fee mutual funds and now appears intent on burning down Charles Schwab's house. The Fidelity Investments' CEO tossed a Molotov cocktail through the window on Aug. 7 by announcing a plan to automatically sweep investors' cash into money market options with rates as high as 1.91% for brokerage and retirement accounts."
The article explains, "The CEO's venture into the industry's 'cash war,' will hit Schwab where it hurts the most -- its lucrative practice of sweeping client cash into its proprietary bank, which now accounts for 57% of its revenues.... RIAs, however, will continue to have to opt-in to Fidelity's money market funds. The current default for their client cash is the lower-yielding FDIC-insured FCash."
They add, "The genius behind Fidelity's move is the way it takes advantage of a little known and somewhat dubious industry practice of defaulting customers' cash into a low-yielding account -- often at an affiliated bank -- with no other option in what's known as a 'cash sweep.'"
The piece quotes our Peter Crane, "president of Westborough, Mass.-based money-market fund tracker Crane Data," "The product-pushing rhetoric is as notable as the product itself.... `It's shocking because to date no major brokerage has dared to push 'cash' as a competitive advantage."
RIABiz adds, "Fidelity started automatically moving retail-side brokerage cash into better paying funds in late 2015, and it made the switch on the retirement-side in May 2019." They also quote Daniel Wiener, who says, "It's entirely possible that Fidelity, if they hammer on it relentlessly ... will begin to make people aware of the costs of working with a low-yield provider."
Crane Data noticed that Fidelity ran another full-page ad in The Wall Street Journal yesterday (8/20, on page A5). Entitled, "At Fidelity, value is automatic. Can your broker say the same?," it compares Fidelity Government Money Market Fund's 1.82% 7-day yield against Schwab's (0.18%), TD Ameritrade's (0.04%) and E*Trade's (0.03%) brokerage sweep rates. The ad explains, "Where you keep your cash matters. At Fidelity, when you open a retail brokerage or retirement account, your cash automatically goes into our money market fund with a current yield of 1.82%. That's 10X more than Schwab. Plus, only Fidelity offers zero account fees and zero minimums -- so you'll know you're getting great value."
