The July issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Wednesday morning, features the articles: "Fidelity Exits Prime Inst Space, Though Assets Growing Nicely," which focuses on the closing of some institutional prime money market funds; "T. Rowe Price's Lynagh Says Stay True to MMF Mandate," which profiles the VP and leader of TRP's cash business; and, "AFP Liquidity Survey: Safety, Bank Relationships Still Key," which reviews the latest preferences of corporate treasurers. We've also updated our Money Fund Wisdom database with June 30 statistics, and we sent out our MFI XLS spreadsheet Wednesday a.m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our July Money Fund Portfolio Holdings are scheduled to ship on Friday, July 10, and our July Bond Fund Intelligence is scheduled to go out Wednesday, July 15.
MFI's "Fidelity Exits" article says, 'Fidelity Investments recently announced its 'Fidelity Institutional Prime Money Market Funds Liquidation,' telling us, 'We have decided to liquidate our two institutional prime money market funds: Fidelity Investments Money Market (FIMM) Prime Money Market Portfolio and Fidelity Investments Money Market (FIMM) Prime Reserves Portfolio. Both funds will remain fully accessible to investors until their liquidation on or about August 14, 2020.... It is important to note that this decision does not affect any of our other money market funds -- institutional or retail -- and there is no need to take immediate action. We are committed to working with our institutional clients to determine alternative liquidity investment products that best suit their needs by August 12.'"
The announcement continues, "Our decision to liquidate these two funds was made after thoughtful review and consideration of our experience with investor behavior in institutional prime money market funds during periods of market stress, evolving institutional investor preferences, and our broader money market business. We are choosing to exit the institutional prime segment of the marketplace because we believe we can better meet institutional investors' needs with other cash management products."
Our "Profile" reads, "This month, MFI interviews T. Rowe Price Group Vice President Joseph Lynagh, who runs T. Rowe's cash management operation, and also its ultra-short bond strategies. Lynagh will be retiring early next year after three decades at the Baltimore-based fund manager. We ask him about the recent market turmoil (and past episodes), and he tells us about the firm's history, the latest crisis, fee waivers and a number of other issues. He says we'll have to 'buckle down' again to make it through the latest zero yield environment. Our Q&A follows."
MFI says, "Give us some history." Lynagh tells us, "T. Rowe has been involved in money funds since 1976.... The Prime Reserve Fund was our flagship fund. It was in place ... when interest rates really spiked and money funds were quite the story, posting yields of 10-11 percent. Against the context of today, that sounds like a completely different universe.... We later launched the Tax-Exempt Money Fund to give us a presence in the muni space.... We added a U.S. Treasury Money Fund [and] state-specific funds on the muni side, California, New York and later Maryland. We then introduced what at the time was a low-fee product in our 'Summit' line of funds."
The "Survey" article tells readers, "The Association for Financial Professionals recently released its 'AFP Liquidity Survey,’ and a press release entitled, 'Companies Turn to Bank Deposits as COVID-19 Crisis Continues.' The latter says, 'Companies are holding their short-term investments in banks due to concerns over the economy, according to the 2020 AFP Liquidity Survey, underwritten by Invesco.' It shows that '51% of respondents revealed that they increased their short-term investments in banks. This is the highest percentage in three years and a reversal of a downward trend that began in 2015. Although the survey was taken before the full effect of liquidity preservation efforts had set in due to the COVID-19 outbreak, this flight to caution likely reflects concerns that the pandemic poses a critical threat to the global economy.'"
AFP, which just cancelled its October conference in Las Vegas (see here), explains, "Safety continues to be the most-valued short-term investment objective for 62% of organizations, followed by liquidity at 34% and yield at a distant third with 4%. Given the current recession, we should probably expect larger shares of companies opting for safety in the future. As the crisis surrounding the pandemic unfolds, trust in banking partners will be paramount as the survey reflects. Ninety-three percent of respondents consider the overall relationship with their banks to be the primary driver in bank deposit selection. Seventy-three percent indicated that the credit quality of a bank is a deciding factor in determining where to maintain balances."
The latest MFI also includes the News brief, "Money Fund Assets Plunge in June," which says, "Assets fell by $113.0 billion in June to $5.050 trillion, but they're still up $1.092 trillion YTD. ICI also shows assets falling for 6 straight weeks after 15 straight weeks of inflows. (Assets have rebounded this week though, according to our MFI Daily.)
A second News piece titled, "Money Fund Yields Bottoming," says, "Our flagship Crane 100 inched down by 3 basis points to 0.11% last month, and expense ratios continue to inch lower as fee waivers increase. Watch for our revised MFI XLS and craneindexes.xlsx with updated expense info on 7/9."
Our July MFI XLS, with June 30 data, shows total assets decreased by $113.0 billion in June to $5.050 trillion, after increasing $31.6 billion in May, jumping $417.9 billion in April and skyrocketing $688.1 billion in March. Our broad Crane Money Fund Average 7-Day Yield fell 2 bps to 0.07% during the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) was down 3 bps to 0.11%.
On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA was down 2 bps at 0.33% and the Crane 100 also fell to 0.32%. Charged Expenses averaged 0.26% (unchanged from last month) and 0.21% (unchanged from the previous month), respectively for the Crane MFA and Crane 100. The average WAM (weighted average maturity) for the Crane MFA and Crane 100 was 40 (down 1 day) and 43 days (down 2 days) respectively. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
