News Archives: December, 2006

Some money funds will be closed Tuesday, Jan. 2, along with the NYSE, to mourn President Ford. Most will close early, which BMA suggests, but some will be open all day. So far, we've heard Citi, DWS, Fidelity, Goldman, and Janus will be closed; American Beacon, Barclays, Dreyfus, HSBC, Lehman, Merrimac, Morgan Stanley and UBS will close early; AIM and Reserve will be open.

The Investment Company Institute reports money fund assets increased $6.54 billion this week to $2.382 trillion, just $10 billion shy of the all-time weekly record of $2.392 trillion set Dec. 11, 2002. Assets broke the monthly record ($2.31 trillion) in November and will break the year-end record (2001's $2.285 tril) with 2006's totals.

Don't be fooled by the temporary year-end spike in tax-exempt money fund yields! They look extremely attractive now, but should drop in early January. (Demand for Holiday cash drives rates up.) The top 5, ranked by 7-day yield, are: (12/27): 1) Alpine Municipal MMF (3.79%); 2) Evergreen Inst Muni MMF (3.78%); 3) Morgan Stanley Inst Liq T-E I (3.77%); 3) Vanguard PA T-E MMF (3.77%) ; and, 5) Vanguard Tax Exempt MMF and Vanguard OH (3.75%).

Dan Wiener, editor of The Independent Adviser for Vanguard Investors, reminds us that the traditional year-end spike in municipal money fund yields is in full swing. "Since Dec. 12 ... Vanguard's Tax-Exempt Money Market has seen its yield bound from 3.37% to 3.73% over the past 8 days. Various state tax-exempt money funds are up between 36 and 38 basis points," he says.

The Top-Performing Money Market Mutual Funds for 2006 are (425 total): #1 Credit Suisse Institutional Prime Money Market Fund A (5.10% return est.); #2 Barclays Institutional MMF I and Morgan Stanley Instit Liq MMP I (5.09%); #4 American Beacon Money Market Select (5.07%); and tied for #5 AIM STIC Prime Inst and Vanguard Prime MMF Inst (5.06%).

"In a Happy Year for Stocks, What Happened to Yield?", an article in the Sunday New York Times says, "If you're an income investor, many Wall Street strategists offer this first piece of advice: hoard cash. They say it's hard to beat the 5 percent that many money market accounta and certificates of deposit are now paying."

Crane Data's Tips for Holiday Cash: 1) pay off debts and credit cards first and keep some cash in checking; 2) weight convenience over yield for small balances (1.0% on $1,000 is just $10 a year); 3) favor money funds over banks (they're more liquid and higher yielding historically); 4) look for yields of at least 4.8% currently; and, 5) consider checkwriting, minimums, brokerage/fund family and other options.

A.G. Edwards says in its latest earnings release, "Along with these results, we are pleased to announce the Office of Thrift Supervision has approved the expansion of powers of A.G. Edwards Trust Company FSB, which will be able to accept clients' cash deposits from our FDIC-insured bank deposit program."

ICI says money fund assets declined by $1.6 billion to $2.375 trillion, the first drop in 8 weeks. Holiday spending, quarterly taxes, and year-end "window dressing" all make cash assets dear during the Holidays. Assets should move to new highs in January, though, as bonuses, gifts and dividends are deposited.

Crane Data and Money Fund Intelligence is offering a quarterly "Distribution and Competitor Update". This PDF will include an overview of the money fund marketplace, and a look at the strategies, staffs and standings of the 25 largest families, including Fidelity, JPMorgan, BlackRock, Federated, Columbia, Dreyfus, and Western.

Some of the top bank money market deposit and savings products have begun changing their rates after a period of relatively flat APYs. Former market leader ING Direct recently brought its yield up to 4.5% from 4.4% while new entrant E*Loan backed off its 5.5% APY (to 5.38%APY/5.26% rate). Countrywide is the new No. 1.

"Money Market Funds Bask in Growing Popularity," says Tuesday's ignites.com, describing the recent record asset run. It cites gains from bank savings and ultra short bond funds, and stock market gains as factors in the runup and mentions Fidelity, Vanguard and Dreyfus as big gainers.

Standard and Poor's announced a change to its Principal Stability (money fund) ratings, allowing exclusion of Federally guaranteed student loans from S&P's "illiquid basket" criteria. The company says all extendible asset-backed CP (XABCP) should be "illiquid" unless a list of criteria is met. Money Fund Intelligence, which lists AAA ratings, says triple-A's account for almost 40% of all money fund assets.

On Friday evening, Janus Institutional Cash Reserves joined Credit Suisse Inst MM Prime and Putnam Prime Money Market Institutional as the No. 1 money fund in America. (Barclays Treasury MMF Inst, BRIXX, also yields 5.29% but is not yet big enough for our listing.) Competition for the top spot has grown with the surge in assets, flat yield curve and no Fed.

TD Asset Management, a subsidiary of Toronto Dominion Bank, is launching the TDAM Institutional Money Market Fund and TDAM Institutional U.S. Government Fund (both with Institutonal and Service classes) on Monday, December 18, 2006, says Standard and Poor's, which just rated the funds 'AAAm'. Crane Data ranks TDAM as the 24th largest money fund family with $13 billion in "cash".

The Investment Company Institute shows weekly money fund assets up yet another $19 billion, making the YTD increase $320 billion, or 15.6%. Money funds stand just $15 billion below the all-time weekly high of $2.392 trillion set 12/11/02.

With its Merrill fund merger complete, BlackRock has edged out No. 3 JPMorgan Asset Management ($159B) as the 2nd largest U.S. money fund family with $159 billion (11/30/06). Fidelity is No. 1 with $247 billion; Vanguard and Federated rank 4 and 5 with $144 billion and $136 billion, respectively. Crane Data now runs "Fund Family Asset" rankings. E-mail for details.

We would argue that certificates of deposit (CDs) should not be termed or classified as "cash". Now a BankRate.com "CD early withdrawal penalties survey" proves it, finding that there are severe, par-threatening costs to cashing out CDs prior to maturity. CDs should be grouped with bonds and bond funds.

The Federal Reserve Board left its Fed funds target rate at 5.25% Tuesday for the 4th meeting in a row. Flat appears to be the new up. We think those expecting a cut any time soon will be disappointed. "Nonetheless, the Committee judges that some inflation risks remain," said the Fed.

Financial Week's "Outlook '07: Want to ride the yield curve? Fasten your seat belt," quotes Peter Crane, Bear Stearns' Richard Saperstein, and Northern Trust's Steve Everett on next year's cash marketplace.

Institutional Cash Distributors hit $20 billion says ICD co-founder Ed Baldry. The first independent online money market trading portal, ICD offers almost 100 top-yielding, AAA, prime, government, tax-free, offshore, and enhanced money funds.

The Investment Company Institute's most recent weekly figures show institutional money fund assets breaking above $1.4 trillion for the first time ever. Total money fund assets stand at $2.358 trillion, poised to break into record territory. Year-to-date, money fund assets have increased over $300 billion, or 14.6%.

The European Central Bank increased short-term interest rates by one-quarter point to 3.5%, but the Bank of England left its target benchmark at 5.0%, reports WSJ.com. Both Euro and pound sterling rates are at 5-year highs.

Investment News reports that the Securities and Exchange Commission has taken action against International Fiduciary Corp., a "prime bank" scheme. "Prime," prime bank," and "bank loan" have always been popular ways to dupe greedy investors with promises of above-market returns. If it's too good to be true, run away!

The almost $90 billion JPMorgan Prime Money Market Fund now ranks as the largest money fund portfolio, now edging out $87 billion Fidelity Cash Reserves. The JPM fund will be profiled in the pending December issue of Money Fund Intelligence. JPM Prime has approached $100 billion at times during November, and may break it soon as year-end bonuses hit money funds.

The Bank of New York will merge with Mellon Financial, creating the largest custodial bank and one of the largest asset managers. We'll keep you posted on the new Bank of New York Mellon's plans for its BNY Hamilton and Dreyfus mutual fund complexes, and on its plans for its MoneyFundsDirect and Liquidity Management Service money fund trading portals.

Doug Noland on PrudentBear.com's Credit Bubble Bulletin says, "Money Fund Assets have increased $272 billion y-t-d, or 14.3% annualized. It is also worth noting that Money Fund Assets have expanded at a 21.1% rate over the past 20 weeks."

Standard and Poor's says demand for Government Investment Pools and AAA ratings is growing. A new report, "Ratings for Government Investment Funds in U.S. Attract Growing Interest" was released today. S&P rates 71 pools in 24 states with approximately $104 billion in assets.