Brokerage sweep rates inched lower in the latest week as Ameriprise, Schwab and UBS all cut rates on their $100K to under $250K middle tier. (The previous week Morgan Stanley Smith Barney and UBS cut rates on this tier.) Our Crane Brokerage Sweep Index inched down to 0.20% from 0.21% in the week ended October 18 for balances of $100K. TD Ameritrade has the lowest rates for balances at this level (0.04%) while Fidelity continues to have the highest rates (0.94%). E*Trade, Merrill and Morgan Stanley are all paying 0.05%, Ameriprise, Schwab and UBS are paying 0.10%, Raymond James is paying 0.15%, and Wells Fargo is paying 0.16% for balances of $100K.
The Wall Street Journal wrote last week on Charles Schwab's Q3 earnings in the article, "Schwab Profit Rises to Record As Cash gain Offsets Rate Cuts." It says, "Charles Schwab Corp. reported record third-quarter earnings that topped expectations, as growing cash balances helped the e-broker offset the impact of falling interest rates.... The Federal Reserve cut rates twice during the period, pinching revenue at banks that profit from lending and investing client cash."
The article continues, "Schwab and other e-brokers make a significant portion of their profits by sweeping cash daily from customers' brokerage accounts into the firms' banking arms. For Schwab, net internet revenue made up 60% of overall revenue during the September quarter." It adds, "One such lever is in rising cash balances, which help make up for less lucrative yields on investments and loans during the quarter. Prompted by growing concerns over the economic outlook, clients moved a bigger share of their portfolios to cash. As a percentage of total client assets, cash rose to 11.4% - the highest since February – as customers pared equity holdings."
Schwab CFO Peter Crawford commented in the earnings release, "Our continued success with clients and full-service model enabled us to deliver third quarter revenues of $2.7 billion, up 5% year-over-year. Net interest revenue rose 7% from a year ago to $1.6 billion, largely a result of generally higher investment yields and higher client cash allocations. Growing client balances in purchased money market funds, advisory solutions, and other third-party mutual funds and ETFs pushed asset management and administration fees to $825 million, increasing 2% year-over-year."
In addition to Schwab's money fund flows, TD Ameritrade recently began featuring money market funds on its website. A notice says, "Now It's Easier to Find Competitive Money Market Funds. You can view funds with no transaction or short-term redemption fees." It explains, "If you're looking for cash management solutions for either short- or long-term strategies, money market funds are one alternative. We recently updated our money market funds page to include only no-load funds with no transaction fees and no short-term redemption fees. You can sort the list by 7-day yield."
In other news, the Financial Times writes, "Money market fund managers bet on a surge in demand for ESG products. The article tell us, "After outsized growth through the first half of 2019, fund managers are expanding their suites of money market funds that incorporate environmental, social and governance factors into their investment decisions. Europe has led the way in this expansion."
The FT says, "In early October, DWS relaunched two existing short duration Europe, Middle East and Africa (Emea) fixed income funds as money market funds with an ESG label, and announced plans to add the ESG moniker to a third fund next year. And in August, BlackRock launched a series of European money market funds that only invest in securities that meet certain ESG criteria.... ESG money market funds saw their assets under management grow 15 per cent to $52bn during the first half of 2019, according to research from Fitch Ratings."
It explains, "Nonetheless, the funds' name change at DWS does not mean their portfolios are changing. 'No changes ... were necessary as the ESG quality was already high in DWS money market funds,' the firm said in a statement. Mr Carstens, however, dismisses any suggestion that this indicates the standards for labelling an ESG fund are too loose. Instead, he points out that DWS has been moving to incorporate ESG for a while, and the funds' management team has had a long lead time to shift these portfolios."
The FT continues, "This process at DWS is an example of what Fitch describes as a shift from 'implicit' consideration of ESG to an 'explicit' consideration. Money market funds have always utilised ESG principles because their 'core investment objectives ... are principal preservation and the provision of timely liquidity,' the rating agency writes. However, recently money funds have begun looking at these factors more proactively."
It adds, "Still, some industry observers are not convinced that the ESG trend is more than what Peter Crane of Crane Data, who tracks money market funds, has previously described as more like a 'fad'. He noted that some of the larger players in the market, like Fidelity, had yet to make a move."
For more on ESG Money Market Funds, see these Crane Data News stories, "Morgan Stanley Latest to Convert MMF to ESG; New DWS European ESG (10/17/19), MFI Intl: European Money Fund Assets Surge Too; BlackRock LEAF; EMFS (8/15/19), BlackRock Launches First Offshore ESG MMF; ICS LEAF in EUR, GBP, USD (7/22/19), Money Fund Assets Up 13th Week Straight; Fitch on ESG in Money Funds (7/19/19), SSGA Goes Live with ESG Money Market Fund; Fitch on Prime MF Flows (7/3/19) and Cap Advisors Group Demystifies ESG Investing; Weekly Portfolio Holdings (6/19/19).
