Daily Links Archives: December, 2018

Kraneshares Funds Advisors, known for its China ETFs and majority owned by China International Capital Corporation (CICC), filed to launch CICC US Government Money Market Fund. The filing explains, "The CICC US Government Money Market Fund seeks to provide current income consistent with the preservation of capital. The Fund invests in a portfolio of U.S. Treasury and government securities maturing in 397 days or less and repurchase agreements collateralized fully by U.S. Treasury and government securities. The Fund may also hold cash. In pursuing its investment objective and implementing its investment strategies, the Fund will comply with Rule 2a-7 under the Investment Company Act of 1940 and will operate as a 'government money market fund' under Rule 2a-7 under the Investment Company Act of 1940, as amended. 'Government money market funds' are required to invest at least 99.5% of their total assets in: (i) cash; (ii) securities issued or guaranteed by the United States or certain U.S. government agencies or instrumentalities; and/or (iii) repurchase agreements that are collateralized fully. Certain of the government securities in which the Fund invests are not backed by the full faith and credit of the U.S. government, such as those issued by the Federal Home Loan Mortgage Corporation ('Freddie Mac'), the Federal National Mortgage Association ('Fannie Mae'), the Federal Farm Credit Banks and the Federal Home Loan Bank System. These entities are, however, supported through federal subsidies, loans or other benefits. The Fund may also invest in government securities that are supported by the full faith and credit of the U.S. government, such as those issued by the Government National Mortgage Association ('Ginnie Mae'). Finally, the Fund may invest in government securities that are issued by entities whose activities are sponsored by the federal government, but that have no explicit financial support. Government money market funds, such as the Fund, are exempt from requirements that permit money market funds to impose a liquidity fee and/or temporary redemption gates. The Fund has not elected to be subject to the liquidity fees and gates requirement at this time." The Registration Statement adds, "CICC Wealth Management (USA), LLC serves as the investment adviser to the Fund. Federated Investment Management Company serves as the sub-adviser to the Fund.... The Adviser is a wholly-owned subsidiary of Krane Funds Advisors, LLC, which has received 'manager of managers' exemptive relief from the SEC that permits the Adviser, subject to the approval of the Board of Trustees, to appoint an unaffiliated sub-adviser or co-adviser or to change the terms of an advisory agreement with an unaffiliated sub-adviser or co-adviser for the Fund without first obtaining shareholder approval.... SEI Investments Global Funds Services ... serves as the Fund's administrator and accounting services agent.... SEI Investments Distribution Co. … is a registered broker-dealer and serves as the distributor of the Fund's shares.... Brown Brothers Harriman & Co. ... serves as the Fund's custodian.... DST Systems, Inc. ... serves as the Fund's transfer agent.... CICC Wealth Management (USA), LLC serves as investment adviser to the Fund pursuant to an Investment Advisory Agreement between the Trust and the Adviser.... The Adviser ... is a wholly-owned subsidiary of Krane Funds Advisors, LLC. China International Capital Corporation (USA) Holdings Inc., a wholly-owned, indirect subsidiary of China International Capital Corporation Limited owns a majority stake in Krane. As of March 31, 2018, Central Huijin Investment Limited, a mainland Chinese-domiciled entity, held approximately 55.7% of the shares of China International Capital Corporation Limited. Central Huijin Investment Limited is a wholly-owned subsidiary of China Investment Corporation, which is a mainland Chinese sovereign wealth fund."

Crane Data continues to make plans and take registrations for our third annual Bond Fund Symposium conference, which will be held March 25-26, 2019 at the Loews Philadelphia Hotel. Our second event last year in Los Angeles attracted 120 bond fund managers, marketers, fixed-income issuers, investors and service providers, and we expect our Philadelphia show to be even bigger. See our latest agenda here and details below. Our Bond Fund Symposium offers a concentrated and affordable educational experience, as well as an excellent and informal networking venue. Registration for Bond Fund Symposium is $750; exhibit space is $2,000 (includes 2 tickets); and sponsorship opportunities are $3K, $4K, $5K, and $6K. Our mission is to deliver the best possible conference content at a reasonable price to bond fund professionals and investors. Portfolio managers, analysts, investors, issuers, service providers, and anyone interested in expanding their knowledge of bond funds and fixed-income investing will benefit from our comprehensive program. A block of rooms has been reserved at the Loews Philadelphia. We'd like to thank our sponsors -- Wells Fargo Securities, Dechert, Fitch Ratings, Fidelity Investments, Investortools, J.P. Morgan Asset Management, Wells Fargo Asset Management, Invesco, S&P Global Ratings, Payden & Rygel, PIMCO, DTCC, INTL FCStone, and Goldman Sachs -- for their support (we're still accepting sponsors for our 2019 show). E-mail us for more details. Crane Data is also making preparations and still accepting registrations for our "basic training" Money Fund University. Our ninth annual MFU will be held at the The Stamford Marriott Hotel in Stamford, Conn., Jan. 17-18, 2019. Crane's Money Fund University is designed for those new to the money market fund industry or those in need of a concentrated refresher on the basics. The event also focuses on hot topics like money market regulations, money fund alternatives, offshore markets, and other recent industry trends. For those attending, please make hotel reservations soon; our discounted room rates expire December 21 or until our room block is filled. Also, mark your calendars for our "big show," Money Fund Symposium, which will be held June 24-26, 2019, at the Renaissance Boston in Boston, Mass. Watch for the preliminary agenda in coming days at www.moneyfundsymposium.com and let us know if you'd like more details on sponsoring this event. We have also set the dates and location for our next European Money Fund Symposium, which is scheduled for Sept. 23-24, 2019, in Dublin, Ireland. Watch for more details in early 2019.... We hope to see you at one of our events in 2019!

Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics and summary Wednesday, which tracks a shifting subset of our monthly Portfolio Holdings collection. The latest cut, with data as of Dec. 21, includes Holdings information from 82 money funds (up from 68 on Nov. 30), representing $1.423 trillion (up from $1.121 trillion) of the $2.984T (47.7%) in total money fund assets tracked by Crane Data. (For our latest monthly Money Fund Portfolio Holdings numbers, see our Dec. 13 News, "Dec. MF Portfolio Holdings Break 3.0 Tril; T-Bills Up, Repo Breaks 1.0T.") Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $527.1 billion (up from $459.8 billion on Dec. 14), or 37.0% of holdings, Treasury debt totaling $460.1 billion (up from $413.0 billion) or 32.3%, and Government Agency securities totaling $269.7 billion (up from $224.0 billion), or 19.0%. Commercial Paper (CP) totaled $67.1 billion (up from $50.5 billion), or 4.7%, and Certificates of Deposit (CDs) totaled $44.3 billion (up from $39.3 billion), or 3.1%. A total of $29.5 billion or 2.1% was listed in the Other category (primarily Time Deposits), and VRDNs accounted for $25.0 billion, or 1.8%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $460.1 billion (32.3% of total holdings), Federal Home Loan Bank with $201.8B (14.2%), RBC with $60.3 billion (4.2%), Federal Farm Credit Bank with $50.2B (3.5%), Fixed Income Clearing Co with $48.8B (3.4%), BNP Paribas with $47.7B (3.4%), Barclays PLC $32.7B (2.3%), Wells Fargo with $28.8B (2.0%), Credit Agricole with $26.5B (1.9%) and JPMorgan with $25.1B (2.2%). The Ten Largest Funds tracked in our latest Weekly Holdings update include: Fidelity Inv MM: Govt Port ($120.9B), Goldman Sachs FS Govt ($103.2B), BlackRock Lq FedFund ($91.7B), Wells Fargo Govt MMkt ($77.1B), Federated Govt Oblig ($72.8B), BlackRock Lq T-Fund ($69.1B), Goldman Sachs FS Trs Instruments ($60.4B), Dreyfus Govt Cash Mgmt ($58.1B), Morgan Stanley Inst Liq Govt ($48.6B) and State Street Inst US Govt ($47.4B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)

Pensions & Investments writes that "Cash Is Back in the Fold as Returns Rise." They tell us, "Cash is making its way back onto the list of attractive holdings for money managers and institutional investors as rates increase and returns improve. The latest Bank of America Merrill Lynch Global Research report, published December 18, showed the average cash balance increased to 4.8 percent, up 0.1 percentage point since the previous month." P&I quotes Kathleen Hughes of Goldman Sachs Asset Management in London, "We've definitely seen the trend of cash being more of an active decision rather than a passive decision in addition to people viewing it as an asset class again." The piece says, "She said there are multiple drivers for this interest, which depend on the currency and type of investor. For some clients, "very low or negative interest rates have galvanized them to take a more proactive approach to their cash as opposed to a passive sweep into an investment option that may not offer the best risk-adjusted return for them. On the other end of the spectrum, with rising rates in (U.S. dollar terms), we see some clients getting more proactive to take advantage of higher returns that are maybe available in money market funds and ultra-short duration products as compared to overnight bank deposits." The article adds, "Ms. Hughes said another factor is increased volatility in equities and the perception that the bull market in bonds is over. "We also see some (investors) moving into cash from other asset classes or shortening their fixed-income exposure by switching to short-duration or ultra-short-duration strategies," she said."

EFAMA, the European Fund and Asset Management Association published a press release entitled, "EFAMA reports strong net inflows into money market funds in October." It says, "The European Fund and Asset Management Association (EFAMA) has today published its latest Investment Fund Industry Fact Sheet, which provides net sales of UCITS and AIFs for October 2018. The main developments for October 2018 can be summarized as follows: UCITS and AIFs registered net inflows of EUR 6 billion, compared to net outflows of EUR 22 billion in September. UCITS recorded net outflows of EUR 3 billion, compared to outflows of EUR 31 billion in September. Long-term UCITS (UCITS excluding money market funds) recorded net outflows of EUR 36 billion, compared to net outflows of EUR 11 billion in September. Equity funds registered net inflows of EUR 0.4 billion, compared to EUR 4 billion in September. Bond funds suffered an increase in net outflows to EUR 23 billion, compared to EUR 10 billion in September. Multi-asset funds also recorded an increase in net outflows to EUR 5 billion, compared to EUR 1 billion in September. UCITS money market funds registered net inflows of EUR 33 billion, compared to net outflows of EUR 21 billion in September. Net sales of AIFs recorded the same level of net inflows as in September (EUR 9 billion). Total net assets of UCITS and AIFs decreased by 2.5% to EUR 15,698 billion, compared to EUR 16,102 billion at end September." Bernard Delbecque, Senior Director for Economics and Research, commented, "Investor concerns about rising interest rates and political and economic uncertainty continued to weigh on the demand for long-term UCITS in October, boosting demand for money market funds." EFAMA's "Investment Fund Industry Fact Sheet" shows money funds with their strongest inflow since January 2018 ($38B).

ICI published a press release entitled, "Retirement Assets Total $29.2 Trillion in Third Quarter," which shows that money market funds held in retirement accounts total $364 billion, or 13%, of the total $2.864 trillion in money funds. MMFs represent 3.9% of the total $9.232 mutual funds in retirement accounts. The release says, "Total US retirement assets were $29.2 trillion as of September 30, 2018, up 2.8 percent from June 30, 2018. Retirement assets accounted for 33 percent of all household financial assets in the United States at the end of September 2018. Assets in individual retirement accounts (IRAs) totaled $9.5 trillion at the end of the third quarter of 2018, an increase of 3.0 percent from the end of the second quarter of 2018. Defined contribution (DC) plan assets were $8.1 trillion at the end of the third quarter, up 3.3 percent from June 30, 2018. Government defined benefit (DB) plans—including federal, state, and local government plans—held $6.1 trillion in assets as of the end of September 2018, a 2.9 percent increase from the end of June 2018. Private-sector DB plans held $3.2 trillion in assets at the end of the third quarter of 2018, and annuity reserves outside of retirement accounts accounted for another $2.3 trillion." The ICI tables also show money funds accounting for $240 billion, or 5%, of the $4.468 trillion in IRA mutual fund assets and $124 billion, or 3%, of the $4.763 trillion in defined contribution plan holdings.

Bond mutual funds and ETFs continue to see major outflows in the latest week, according to ICI's "Combined Estimated Long-Term Fund Flows and ETF Net Issuance". The December 19, 2018 release, with data as of Dec. 12, 2018, says, "Total estimated outflows from long-term mutual funds and exchange-traded funds (ETFs) were $34.78 billion for the eight-day period ended December 12, 2018, the Investment Company Institute reported today. Estimated mutual fund outflows were $40.74 billion while estimated net issuance for ETFs was $5.96 billion. Reports of long-term flow estimates and ETF net issuance are available on the ICI website." ICI Chief Economist Sean Collins comments, "This week's outflow from mutual funds, while striking in dollar terms, represents 0.26 percent of long-term mutual fund assets as of October 31, and were offset in part by inflows of $5.96 billion into exchange-traded funds in the same week.... `Consistent with their behavior over seven decades of history, mutual fund investors are reacting moderately to market volatility, and for the most part are maintaining their investment plans and asset allocations." The release adds, "Bond funds had estimated outflows of $12.02 billion for the week, compared to estimated outflows of $5.24 billion during the previous week. Taxable bond funds saw estimated outflows of $12.20 billion, and municipal bond funds had estimated inflows of $178 million." Crane Data, which has begun "beta" testing a new Bond Fund Intelligence Daily product, estimates that bond fund assets have declined $21.8 billion in the week ended December 18. (Let us know if you'd like to see a copy of our new product, which tracks daily assets, yields and NAVs on a subset of the bond fund and ETF universe.)

Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics and summary Tuesday, which tracks a shifting subset of our monthly Portfolio Holdings collection. The latest cut, with data as of Dec. 14, includes Holdings information from 68 money funds (up from 59 on Nov. 30), representing $1.121 trillion (down from $1.127 trillion) of the $2.984T (37.0%) in total money fund assets tracked by Crane Data. (For our latest monthly Money Fund Portfolio Holdings numbers, see our Dec. 13 News, "Dec. MF Portfolio Holdings Break 3.0 Tril; T-Bills Up, Repo Breaks 1.0T.") Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $459.8 billion (up from $429.1 billion on Nov. 30), or 37.6% of holdings, Treasury debt totaling $413.0 billion (up from $356.7 billion) or 33.8%, and Government Agency securities totaling $224.0 billion (up from $222.8 billion), or 19.8%. Commercial Paper (CP) totaled $50.5 billion (up from $46.6 billion), or 4.1%, and Certificates of Deposit (CDs) totaled $39.3 billion (up from $39.0 billion), or 3.2%. A total of $18.1 billion or 1.5% was listed in the Other category (primarily Time Deposits), and VRDNs accounted for $16.7 billion, or 1.4%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $413.0 billion (33.8% of total holdings), Federal Home Loan Bank with $166.1B (13.6%), RBC with $52.8 billion (4.3%), Federal Farm Credit Bank with $42.2B (3.5%), BNP Paribas with $41.3B (3.4%), Credit Agricole with $27.4B (2.2%), JPMorgan with $26.8B (2.2%), Barclays PLC $26.5B (2.2%), HSBC with $24.1B (2.0%), and Fixed Income Clearing Co with $23.7B (1.9%). The Ten Largest Funds tracked in our latest Weekly Holdings update include: Fidelity Inv MM: Govt Port ($119.3B), Goldman Sachs FS Govt ($102.1B), BlackRock Lq FedFund ($90.7B), Wells Fargo Govt MMkt ($77.2B), BlackRock Lq T-Fund ($70.5B), Goldman Sachs FS Trs Instruments ($64.1B), Dreyfus Govt Cash Mgmt ($57.4B), State Street Inst US Govt ($48.6B), Morgan Stanley Inst Liq Govt ($48.2B) and Fidelity Inv MM: MMkt Port ($43.4B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)

The Wall Street Journal writes that "Small Banks Brace for Deposit Wars as Interest Rates Rise." They explain, "Rising interest rates were supposed to help banks. They are hurting many of them instead. Three years after the Federal Reserve began raising rates from near zero, bank customers are starting to demand more interest on their deposits, particularly at small and regional U.S. banks. Many of these same banks ramped up lending after the financial crisis by adding long-term, low-rate loans. Now, as they pay out more to depositors, the rates they are earning on loans are barely moving." The Journal adds, "Smaller banks face a more immediate need to raise deposit rates. These banks use more of their deposits to make loans, meaning a loss of customers could jeopardize their ability to cheaply fund that lending. Their depositors often skew toward business accounts and consumers with certificates of deposit, two groups that tend to keep a close eye on rates. The pressure to raise rates to retain deposits has become much more profound in the last six months or so, said Scott Siefers, an analyst at Sandler O'Neill."

It seems the splash made by free brokerage Robinhood last week by announcing 3% yields on checking and savings accounts has backfired. Forbes.com writes "SIPC Head Has Concerns About Robinhood’s Checking and Savings Products," which tells us, "Robinhood, a Menlo Park startup that has built its business offering free stock and cryptocurrency trades, recently announced new checking and savings-account products that pay 3% interest. The accounts are not FDIC insured. 'Cash in Robinhood Checking & Savings is insured up to $250,000 by SIPC,' a Robinhood spokesperson said in an email. But now the head of SIPC (Securities Investor Protection Corporation) says Robinhood is misinterpreting the protection it provides and that the startup failed to contact anyone at SIPC before releasing the new products." It adds, "Big brokerages that don't have banks, like Fidelity, also put customers' cash in interest-bearing accounts. But there's an important difference. Any money in your Fidelity brokerage account that you don't spend on securities like mutual funds or stocks will get swept into a money market account, which is a security. And the customer can choose between different money market funds. In this instance, Fidelity is following the spirit of the SIPC rule because it's putting the customer's money in a security, Harbeck explains.... Since SIPC isn't a regulator, its next step was to alert the regulators. '`I called our colleagues in trading and markets at the SEC, and I asked them to look into it,' Harbeck says. 'I'm sure they'll be doing that today.'" See also, CNBC's "Bank analyst rips Robinhood's new savings account plan, says regulators may get involved".

Forbes.com's "In A Bold Asset Grab, Robinhood Offers 3% Interest On Checking And Savings Accounts" says, "More financial technology startups are wading into a crowded, stodgy business: checking accounts. Last spring, personal finance app Acorns and lending startup SoFi announced new debit cards. 'Neobank' Chime has been offering free online checking accounts since 2014, and it has 2.3 million users today. Now Robinhood is crashing the party, offering 3% interest on both checking and savings accounts. That's the highest rate on the market. It dwarfs the national average of 0.10% for savings accounts, and it's well above the second-highest rate of 2.25% offered by BBVA, according to Bankrate.com." The piece adds, "Founded in 2013, Robinhood has built a base of more than 6 million users by providing commission-free stock and cryptocurrency trades.... Across Robinhood's six million accounts, Forbes estimates its customers' assets are in the tens of billions of dollars (the company declined to comment on total assets). Why is Robinhood expanding into checking accounts? The main reason seems to be to seize market share. As competition for digital-first deposit accounts heats up, and as JPMorgan Chase walks further onto Robinhood's turf by offering free stock trades, Robinhood wants to hoard more customers for their long-term value, even if it loses money in the short term. Co-CEO Baiju Bhatt says Robinhood aims 'to make it so that customers don't need to go anywhere else for financial services.' To help fund the sky-high 3% rate, Bhatt says the startup will invest customers' deposits into other securities like Treasurys. But short-term Treasury yields are well below 3%, so Robinhood will initially take a loss on that spread. It will make up for some of that difference on the interchange fees (charged to merchants) it will collect when someone uses a Robinhood debit card to make a purchase. But the program likely won’t be profitable in the short term." See also, the misguided Bloomberg Opinion piece, "Robinhood's 3% Interest Checking Is Just a Money-Market Fund."

Bloomberg writes on "The Death of Fed Funds?" The article says, "The debate to replace the Federal Reserve's key interest rate has begun. Spurred by declining volumes and the dominance of a few participants in the market for fed funds, the central bank has started discussing potential alternative policy benchmarks as it seeks firmer control over the nation’s short-term interest rates.... Federal Open Market Committee members brought up two potential alternatives at last month's meeting, and they could hardly be more different. What's more, some strategists say a policy-targeting pivot could come as soon as next year." They quote Bank of America Corp.'s Mark Cabana, "The Fed knows that fed funds is flawed.... It's probably fatally flawed in their mind, and in the market's mind." It's possible to have a new rate by the end of 2019.... The way the Fed will likely do this is if they are targeting a range of money-market rates and looking at fed funds, OBFR and secured funding rates to make a determination of policy. It won't be as specific to fed funds." Bloomberg continues, "Not everyone agrees. Despite its flaws, fed funds is likely to remain the central bank's preferred rate for now, given OBFR's limitations and the dramatic changes to Fed communication that would be necessary to transition to a repo-based rate, according to Barclays Plc strategist Joseph Abate." Abate says, "The Fed is tied to the funds rate now as the funds rate is first of all seen as a measure of liquidity, and more importantly pressure in the rate is seen as an indication of the Fed's future policy path.... If that doesn't change, then -- and this is a philosophical question -- does it matter that there is volume underneath it? It hasn't mattered up until now because there is volume."

Crane Data is gearing up for its next "basic training" conference, Money Fund University. Our 9th annual MFU will take place at the Stamford Marriot Hotel in Stamford, Conn., January 17-18, 2019. Crane's Money Fund University is designed for those new to the money market fund industry or those in need of a concentrated refresher on the basics. The event features a faculty of the money fund industry's top lawyers, strategists, and portfolio managers. (See the agenda here or e-mail us to request the latest brochure.) Money Fund University offers a 2-day crash course on money market mutual funds, educating attendees on the history of money funds, the Fed, interest rates, ratings, rankings, and money market instruments such as commercial paper, CDs and repo. We also cover portfolio construction and credit analysis. At our Stamford event in January, we will also take a look at newly implemented European money market fund regulations and we'll also include a mini "Bond Fund University" segment on ultra-short bond funds and money fund alternatives. Attendee registration for Crane's Money Fund University is just $500, exhibit space is $2,000, and sponsorship opportunities are $3K (Bronze), $4K (Silver), and $5K (Gold). A block of rooms has been reserved at the Stamford Marriot Hotel. We'd like to thank our past and pending MFU sponsors -- Dreyfus/BNY Mellon CIS, J.P. Morgan Asset Management, Fitch Ratings, TD Securities, S&P Global Ratings, Dechert LLP, Fidelity and Federated -- for their support, and we look forward to seeing you in Stamford in January. Visit www.moneyfunduniversity.com to register or for more details. Crane Data is also preparing for its next Bond Fund Symposium (March 25-26, 2019, at the Loews Philadelphia Hotel), and our next "big show," Money Fund Symposium, which will be held June 24-26, 2019, at the Renaissance Boston. Watch for details on these shows in coming weeks and months.

Bloomberg writes "Fidelity dominates money-market industry as assets grow to $629 billion." The article says, "Fidelity Investments is dominating a business that is thriving even as stocks and bonds struggle. Fidelity's money-market assets grew to $629 billion as of Oct. 31 -- nearly twice as much as its closest rival, Vanguard Group, according to Crane Data. The Boston-based fund company has added more than $50 billion this year, mostly from inflows. Rising short-term interest rates have lifted yields on the cash-like funds to about 2%, magnifying their allure at a time when other asset classes are under pressure. The trend has helped companies including Vanguard, JPMorgan Chase & Co. and Goldman Sachs Group Inc. As the biggest provider, Fidelity is benefiting the most, raising its market share to more than 20%." The piece quotes Peter Crane, "Fidelity has more buckets and bigger buckets than anyone else and it is starting to rain again," and they quote Fidelity's Tim Huyck, "Some of the smaller players have exited and we have been the beneficiary of that." Bloomberg adds, "Fidelity has another edge: Its 20 million brokerage customers. When those clients sell securities and leave money in cash, it sits in the firm's money-market funds. Those deposits represent more than one-third of Fidelity's money-fund assets. Industrywide, expense ratios on large money-market funds average about 27 basis points, or 0.27%, according to Crane Data. While their fee levels are below those on most active equity and bond funds, 'it is a relatively attractive business, in part because it is very stable,' said Kenneth Lee, an analyst at RBC Capital Markets.... Fidelity has been offering money funds since 1974, when it became the first provider to allow customers to write checks from their accounts. Closely held Fidelity doesn't publicly break out revenue for the segment, but Crane estimated it could be as much as $1.7 billion annually based on current management fees."

Last week, Forbes.com wrote the article, "Enhanced Yield: Buyer's Guide to Short-Term Bond Funds." They ask, "Where should you put your rainy-day fund?" The piece tells us, "A low-risk piece of paper from the U.S. Treasury yields 2.8%. You're probably not getting anything like that on the cash you have sitting in a bank. What follows is an instruction manual on extracting the most from uninvested cash. We'll look at money funds, CDs, bond ETFs, terminating ETFs and Treasury notes. Some of these options entail a bit of risk. All of them offer better returns than the stingy amounts paid on checking accounts." On "Money funds," Forbes writes, "These days the yield curve is rather flat, which is another way of saying that you don't get a particularly rich reward for stretching out the maturity of your fixed-income portfolio and taking the risk that rates will rise. So, there is much to be said for parking your cash in a money-market fund. You'll be at the low end of the yield curve but you won't be taking chances." The post adds, "The tricky business is attaching a money market fund to your transaction account (where you receive direct deposits and disburse electronic payments).... You can stash your rainy-day kitty in an exchange-traded fund that owns short-term bonds, those due in three years or less."

The Investment Company Institute released its latest weekly "Money Market Fund Assets" report yesterday. It shows a huge drop in money fund assets. (Our MFI Daily, which wasn't published Wednesday due to the Bush Memorial Day, showed a decline of $50.3 billion on Tuesday, Dec. 4, but an increase of $63.3 billion yesterday. We're guessing the outflows were related to the market closing Wednesday.) ICI's latest assets series shows MMFs plunging after 6 straight weeks of strong gains. Government assets plunged, while Prime and Tax Exempt MMFs increased. Overall assets are now up $71 billion, or 2.5%, YTD, and they've increased by $102 billion, or 3.6%, over 52 weeks. Retail MMFs have increased by $103 billion, or 10.1%, while Inst MMFs are down $31 billion, or -1.7%, YTD. Over 52 weeks, Retail money funds have gained $120 billion, or 12.1%, while Inst money funds are down $18 billion, or -1.0%. ICI writes, "Total money market fund assets decreased by $34.50 billion to $2.91 trillion for the six-day period ended Tuesday, December 4, the Investment Company Institute reported today. Among taxable money market funds, government funds decreased by $40.45 billion and prime funds increased by $4.21 billion. Tax-exempt money market funds increased by $1.74 billion." Total Government MMF assets, which include Treasury funds too, stand at $2.217 trillion (76.2% of all money funds), while Total Prime MMFs stand at $548.0 billion (19.0%). Tax Exempt MMFs total $138.5 billion, or 4.8%. They explain, "Assets of retail money market funds decreased by $3.27 billion to $1.12 trillion. Among retail funds, government money market fund assets decreased by $7.78 billion to $658.29 billion, prime money market fund assets increased by $2.85 billion to $326.47 billion, and tax-exempt fund assets increased by $1.66 billion to $131.77 billion." Retail assets account for over a third of total assets, or 38.4%, and Government Retail assets make up 59.0% of all Retail MMFs. ICI's release adds, "Assets of institutional money market funds decreased by $31.23 billion to $1.79 trillion. Among institutional funds, government money market fund assets decreased by $32.67 billion to $1.56 trillion, prime money market fund assets increased by $1.36 billion to $225.75 billion, and tax-exempt fund assets increased by $78 million to $8.45 billion." Institutional assets account for 61.6% of all MMF assets, with Government Inst assets making up 86.9% of all Institutional MMFs.

A press release entitled, "Fitch Ratings 2019 Outlook: Global Money Market Funds" tells us, "Fitch Ratings expects ratings to remain stable across its portfolio of global money market funds (MMFs) in 2019. European money fund reform will reach completion in 2019, regulatory intervention will likely persist in China where assets have seen significant growth, and U.S. MMFs, having adjusted to 2016 reforms, could benefit from rising rates and the return of foreign cash. While the European reforms will bring about changes in the form of new structures and more stringent liquidity and diversification standards, the process has been a gradual one and the transition to the new operating environment is expected to be smooth with a number of managers having already successfully converted to post-reform formats. The U.S. remains the largest region in terms of money fund assets under management; however, China's MMF industry has experienced sustained demand hitting record asset levels and is expected to continue to grow throughout 2019. Chinese regulators remain active in tightening policy in order to manage potential liquidity and concentration risks as inflows persist and the industry could possibly adopt certain products and procedures that have been popularized by recent U.S. and European reforms. While expressively slower than the growth rate seen in China, Fitch anticipates U.S. money funds to continue to attract investors back to the space as yields rise and funds continue to exhibit muted net asset value volatility. U.S. tax reform enacted at the end of 2017 could also lead to additional flows into U.S. funds as corporations bring money back on shore."

BlackRock's BIF Money Fund, which was formerly the Merrill Lynch CMA Money Fund and at one time was the largest money fund in the world, liquidated on Friday, as Merrill Lynch takes steps to squeeze out the last segments of brokerage sweep assets left in money market funds. A Prospectus Supplement for the BBIF Money Fund and BBIF Treasury Fund says, "On September 26, 2018, the Board of Trustees of BBIF Money Fund and BBIF Treasury Fund (each individually, a 'Fund' and collectively, the 'Funds') approved a proposal to liquidate the Funds. Accordingly, on or about November 30, 2018 (the 'Liquidation Date'), all of the assets of the Funds will be liquidated completely, the shares of any shareholders holding shares on the Liquidation Date will be redeemed at the net asset value per share and each Fund will then be terminated. Shareholders may continue to redeem their Fund shares at any time prior to the Liquidation Date. The Funds may not achieve their investment objective as the Liquidation Date approaches. Shareholders should consult their personal tax advisers concerning their tax situation and the impact of the liquidations on their tax situation." For more on brokerages shifting sweep assets from money funds into lower-paying bank deposits, see our Nov. 28 News, "SF Chronicle on Brokerage Sweeps; Bloomberg on Europe Rejecting RDM," which says, "Here's a look at what some brokerage firms are doing with their sweep accounts. Merrill Lynch: Before September, Merrill Lynch clients had a choice of money market funds or bank deposits as their sweep account, but only 4 percent chose money market funds, according to a company spokeswoman. In September, Merrill made bank accounts the only sweep option for most new accounts."

A video on Charles Schwab's website asks, "Are You Going Too Short-Term in Your Bond Portfolio?" Schwab's Kathy Jones explains, "With the Federal Reserve raising interest rates over the past couple of years, short-term investments like treasury bills and CDs with maturities of under a year or so have become very popular with investors, and rightly so. In the treasury bill market, a one-year T-bill right now will generally yield around 2.3%. A year ago, you would have had to buy a seven-year treasury note to get that much yield. So, naturally, investors have gravitated to the part of the market where they can get more yield with less interest-rate risk over time. But one of the concerns that we have is that investors may be getting too short-term in their bond portfolios." She adds, "As the Federal Reserve has been raising short-term interest rates over the past couple of years, we've suggested investors focus the average duration in their fixed income portfolios in the short-to-intermediate-term area -- that is, two to five years for treasuries and investment-grade corporate bonds. And the reason is that as the Fed raises short-term rates, the yield curve tends to flatten, the difference between long- and short-term rates tends to narrow, and you get more return for less interest rate risk at the shorter end of the yield curve. But we don't think investors should abandon intermediate- or longer-term bonds entirely in their portfolios."