EFAMA, the European Fund and Asset Management Association and the trade group for European mutual funds, recently published its annual "Fact Book," which includes a wealth of statistics on European funds and a section on European money market funds. A press release entitled, "EFAMA's latest Fact Book shows sustainable funds and ETFs bucked the outflow trend in 2022," tells us, "EFAMA ... published its 2023 industry Fact Book, which provides an in-depth analysis of trends in the European fund industry, with an emphasis on what happened in 2022. It also includes an extensive overview of the regulatory developments across 28 European countries as well as a series of info-boxes addressing important regulatory issues EFAMA is actively working on." See the full EFAMA 2023 Fact Book here. (Note: Please join us too for our European Money Fund Symposium, which is Sept. 25-26, 2023 in Edinburgh, U.K. Registrations are being accepted and our discounted hotel rate expires August 18.) (Note too: Money fund assets broke above $5.9 trillion for the first time ever on Tuesday, according to Crane Data's MFI Daily. Assets rose $24.0 billion on 7/25 to a record $5.909 trillion. Month-to-date, assets have risen by $63.3 billion.)
EFAMA Director General Tanguy van de Werve comments, "Despite a very challenging economic, financial and geopolitical environment, 2022 saw a resilient demand for sustainable funds, continued decline in average fund costs and maintained retail investors' confidence. This is an encouraging message for the asset management industry. Looking ahead, EFAMA will continue advocating for the best possible regulatory framework for UCITS and AIFs -- including ELTIFs -- as this will ultimately benefit investors and help them reach their financial goals."
The section on "UCITS money market funds," explains, "Net assets of MMFs ended the year at EUR 1.5 trillion. MMFs attracted net inflows over the full year (EUR 28 billion), but demand was volatile over the course of the year. The early months registered net outflows as investors were expecting imminent rate hikes. October 2022 on the other hand, accounted for the largest-ever monthly net inflows (EUR 124 billion). These exceptional net inflows, mainly into Sterling MMFs, were driven by UK pension funds using liability-driven investment (LDI) strategies, which experienced margin calls during the gilt market turmoil."
It continues, "Net asset growth of MMFs amounted to around 3% in 2022, similar to 2021. Compared to long-term UCITS, MMF asset growth reflects net sales rather more closely, as the valuation of the short-term instruments that MMFs mainly invest in varies little over time. Exchange rate effects can, however, have an impact on MMF asset growth."
EFAMA states, "In general, interest rate changes have an impact on the demand for MMFs. MMFs mainly invest in very short-term debt, often with a maturity of less than one month. Hence when interest rates rise, the yield on MMFs also tends to increase, making them more attractive to investors. However, the demand for MMFs is also influenced by other factors, in particular investor sentiment and the use of MMFs as a 'safe-haven' investment in times of crisis. This was clearly demonstrated in 2020, when the uncertainty and volatility caused by the COVID-19 pandemic led to a sharp rise in demand for MMFs."
They write, "Breaking down the net assets of MMF UCITS by fund size, we can see that the MMF market is highly concentrated. Some 70% of total MMF net assets are invested in funds larger than EUR 10 billion, a further 26% are in funds between EUR 1 billion and EUR 10 billion. Only 4% is invested in MMFs between 100 million and EUR 1 billion, while the proportion of MMFs smaller than EUR 100 million is negligible (0.2%)."
EFAMA's Fact Book continues, "Net sales of MMF UCITS by type of SFDR fund show that all 2022 net inflows were concentrated in Article 8 funds (EUR 70 billion). Compared to long-term UCITS, Article 9 funds had almost no net inflows, but this is because there are almost no Article 9 MMFs."
It adds, "The MMF market is heavily concentrated in three domiciles. Ireland holds the largest market share of UCITS MMF net assets (45%), followed by Luxembourg (27%) and France (22%). Combined, they represent 94% of the European total at end 2022."
Discussing "Types of MMFs," EFAMA says, "The EU Money Market Fund Regulation (MMFR) was adopted in 2016 and came into full effect in January 2019. The MMFR distinguishes between three main categories of money market funds: Public Debt Constant Asset Value (PDCNAV) MMFs; Low Volatility Net Asset Value (LVNAV) MMFs; Variable Net Asset Value (VNAV) MMFs. Aside from these categories, the MMFR also distinguishes between Short-term and Standard MMFs. Short-term MMFs are required to adhere to tighter investment rules than Standard MMFs. All three types may be categorised as Short-term MMFs: Public Debt CNAV, LVNAV and Short-term VNAV. Standard MMFs must be variably priced, therefore making all Standard MMFs VNAV funds."
It tells us, "PDCNAV and LVNAV MMFs use amortised cost accounting -- provided certain conditions are met -- to value all of their assets and maintain a net asset value (NAV), or value of a share of the fund, at €1/£1/$1. Public Debt CNAV MMFs must invest a minimum of 99.5% of their assets in public debt. Units/shares in an LVNAV MMF can be purchased or redeemed at a constant price, as long as the value of the assets in the fund does not deviate by more than 0.2% from par. VNAV MMFs refer to funds that use mark-to-market accounting to value some of their assets. The NAV of these funds will vary with the changing value of the assets and -- in the case of an accumulating fund -- by the amount of income received."
The Fact Book continues, "LVNAV have been growing steadily in recent years, with their market share rising from 44% of the MMF market to 48% at end 2022. Net assets of VNAV increased strongly in 2020, but decreased in 2021 as outflows that year were mainly concentrated in that segment of the MMF market. VNAV net assets in 2022 stayed roughly at the same level. PDCNAV accounted for about 8.8% of MMF net assets at end 2022, a slight increase compared on the 2019 share (7.6%)."
It adds, "Investors in 2022 had a clear preference for short-term MMFs as these funds in the three major currencies (EUR, GBP and USD) attracted net inflows. Standard MMFs, however, registered negative or flat net sales over the year. The stricter investment rules for short-term MMFs, combined with higher short-term interest rates, clearly marked them out as a 'safe haven' investment or as an interesting alternative to cash during a turbulent 2022."
On "Currency breakdown," EFAMA says, "MMFs net assets can be broken down by base currency. Three main base currencies accounted for 99.5% of UCITS net assets at end 2022. EUR was the leader with 41% of net assets, followed by USD (35%) and GBP (23%). The share of EUR-dominated MMFs has been falling gradually, from 50% in 2012 to 42% in 2018. Consequently, the market shares of USD- and GBP-denominated MMFs have risen over the same period, edged up by generally higher interest rates in those currencies. In recent years, market shares of MMFs by base currency have tended to remain more stable."
Finally, discussing "Regional breakdown," they write, "An overview of the 2022 holdings of MMFs by geographical region shows that 40% of the short-term paper held by UCITS MMFs was issued in Europe. The US accounted for 31% and Asia-Pacific for 12%." Talking about "Country breakdown," they add, "After the US and Asia-Pacific, short-term securities issued in France made up 23% of the MMF assets at end 2022. Canada (17%), Australia (8%) and the UK (6%) complete the top five. Comparing the asset breakdown by base currency and issuing country shows that MMFs with a USD or GDP base currency invested a substantial proportion of their assets in securities issued in a non-base currency country. Often, countries such as Canada or Australia (and companies based there) issue short-term debt in a major currency to attract more international investors. MMFs can also invest in non-base currency-denominated debt and then hedge the currency exposure. The MMFR does require all non-base currency exposures to be fully hedged."
