The Investment Company Institute's latest weekly "Money Market Fund Assets" report shows MMFs skyrocketing in the latest week, their 6th increase in the past 7 weeks and their biggest gain since the last week of April 2020. Money fund assets are up $151 billion, or 3.5%, year-to-date in 2021. Inst MMFs are up $178 billion (6.4%), while Retail MMFs are down $28 billion (-1.8%). Over the past 52 weeks, money fund assets have increased by $226 billion, or 5.4%, with Retail MMFs falling by $13 billion (-0.9%) and Inst MMFs rising by $239 billion (8.8%). We review the latest asset totals, as well as a new ICI study on expenses, below. (Note: Thanks to those who attended our Bond Fund Symposium yesterday afternoon! BFS continues this afternoon from 1-4pm. Attendees and MFI subscribers may access the recordings and binder materials via our Bond Fund Symposium 2021 Download Center. Register here if you'd like to join us!)
ICI's "Assets" release says, "Total money market fund assets increased by $62.10 billion to $4.45 trillion for the week ended Wednesday, March 24.... Among taxable money market funds, government funds increased by $65.36 billion and prime funds decreased by $1.75 billion. Tax-exempt money market funds decreased by $1.52 billion." ICI's stats show Institutional MMFs increasing $65.6 billion and Retail MMFs decreasing $3.5 billion. Total Government MMF assets, including Treasury funds, were $3.834 trillion (86.2% of all money funds), while Total Prime MMFs were $514.2 billion (11.6%). Tax Exempt MMFs totaled $100.0 billion (2.2%). (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're almost $400 billion lower than our asset series.)
It explains, "Assets of retail money market funds decreased by $3.50 billion to $1.50 trillion. Among retail funds, government money market fund assets decreased by $1.13 billion to $1.16 trillion, prime money market fund assets decreased by $1.68 billion to $253.87 billion, and tax-exempt fund assets decreased by $690 million to $88.81 billion." Retail assets account for just over a third of total assets, or 33.7%, and Government Retail assets make up 77.1% of all Retail MMFs.
ICI adds, "Assets of institutional money market funds increased by $65.60 billion to $2.95 trillion. Among institutional funds, government money market fund assets increased by $66.49 billion to $2.68 trillion, prime money market fund assets decreased by $71 million to $260.32 billion, and tax-exempt fund assets decreased by $826 million to $11.22 billion." Institutional assets accounted for 66.3% of all MMF assets, with Government Institutional assets making up 90.8% of all Institutional MMF totals.
The ICI also published the study, "Trends in the Expenses and Fees of Funds, 2020." It tells us, "Average expense ratios for money market funds fell 2 basis points from 0.24 percent in 2019 to 0.22 percent in 2020. Fund advisers increased their use of expense waivers in 2020 as the Federal Reserve sharply reduced short-term interest rates to near-zero levels. Expense waivers had previously been offered widely during the period of near-zero short-term interest rates that had prevailed in the post–financial crisis era."
ICI explains, "On an asset-weighted basis, average expense ratios incurred by mutual fund investors have fallen substantially over the past 24 years.... The average expense ratio for money market funds dropped from 0.52 percent to 0.22 percent over this period.... The average expense ratio of money market funds fell 2 basis points from 0.24 percent in 2019 to 0.22 percent in 2020.... Over the past decade, developments that stemmed from changes in short-term interest rates have been the primary factors affecting average money market fund expense ratios."
They continue, "Over 2008–2009, the Federal Reserve sharply reduced short-term interest rates. By 2009, the federal funds rate was hovering at a little more than zero. Gross yields on taxable money market funds (the yield before deducting the fund's expense ratio) -- which closely track short-term interest rates -- fell to all-time lows. This situation remained in stasis from 2010 to late 2015."
The study elaborates, "In this environment, most money market funds adopted expense waivers to ensure that net yields (the yield on a fund after deducting fund expenses) did not fall below zero. With an expense waiver, a fund's adviser agrees to absorb the cost of all or a portion of a fund's fees and expenses for some time. The expense waiver, by reducing the fund's expense ratio, boosts the fund's net yield. These expense waivers are costly for fund advisers, reducing their revenues and profits. From 2009 to 2015, advisers waived an estimated $36 billion in money market fund expenses.... It was expected that when short-term interest rates rose and pushed up gross yields on money market funds, advisers would reduce or eliminate expense waivers, causing the expense ratios of money market funds to rise somewhat."
It adds, "That, ultimately, is what happened. In December 2015, the Federal Reserve raised the federal funds rate by 0.25 percent, signifying a strengthening economy; it was raised eight more times from 2016 to 2018, each time by 0.25 percent. In 2019, however, this trend reversed -- as global trade tensions grew more uncertain and expectations around future global growth fell, the Federal Reserve lowered the federal funds rate three times. These actions were reflected in short-term interest rates and gross yields on money market funds."
ICI concludes, "In 2020, the Federal Reserve slashed the federal funds rate back to near-zero territory as the COVID-19 pandemic effectively shut down the global economy. With short-term interest rates at nearly zero by the end of April 2020, it became more likely that the net yields of money market funds could fall below zero. Consequently, advisers reinstituted the expense waivers they had provided to their money market funds in the ultralow interest rate environment that persisted from 2009 through 2015. For example, at the end 2019, 68 percent of money market fund share classes had expense waivers, but by the end of 2020, an estimated 94 percent of money market fund share classes had expense waivers. Additionally, the expenses waived increased sharply from an estimated $1.2 billion in 2019 to an estimated $3.1 billion in 2020."
For more on expenses, see too ICI's new Viewpoint publication, "Fund Investors' Expenses Are Falling on Both Sides of the Pond." The piece, authored by Shelly Antoniewicz, James Duvall, and Giles Swan, discusses the decline of UCITs and US mutual fund charges as well as the major differences and misperceptions surrounding them. They comment, "For fixed-income funds, the average rate of decline for UCITS ongoing charges was 3.3 basis points per year from 2014 to 2019 compared with an average annual rate of decline of 2.5 basis points for US mutual funds." (Note Also: ICI's Antoniewicz will speak today at our Bond Fund Symposium, along with our Peter Crane, on "The State of the Bond Fund Market.)
