News Archives: February, 2007

Yesterday's sharp market drop and continued turmoil in the subprime and adjustible rate mortgage sector caused a spike of cash into money market funds and raised the odds of a Fed rate cut. Growing problems are also increasing the chances of the contagion snowballing and impacting the tiny slice of esoteric mortgage-backed, money fund-eligible securities. Thankfully, though, very few money market funds held the potentially-troubled "extendibles" as of their latest public disclosures. Contact Pete for an update or watch for the March Money Fund Intelligence for details.

Janus Institutional Money Market Fund and Janus Institutional Government Money Market Fund maintain their AAA ratings says S&P following their separation from Janus Money Market Fund and Janus Govt MMF, respectively, into separate retail (now unrated) portfolios. Yesterday, Janus shareholders approved the separation of the retail and institutional classes into separate portfolios.

Huntington Bank is offering a new online High Interest Anywhere Savings account says a company press release. The account is currently paying a 5.2% rate (5.3% APY), has a minimum of $1,000 and a maximum of $1 million. "DirectHuntington.com's high yield online savings account is making it easier to plan for the future and save," says senior exec. vp Mary Navarro.

Calamos Investments of Naperville, Ill., has filed to launch Calamos Government Money Market Fund says FundFiling.com. The Institutional Govt fund will have a $1 million minimum and be run by John Calamos and former Zurich/Scudder veteran Frank Rachwalski. This is the first money market fund for the Calamos family of funds; the company is known for its convertible bond and preferred stock expertise.

The SIFMA (Security Industry and Financial Markets Association, formerly the Bond Market Association) says "Money Market Outstandings" exceeded $4.06 Trillion in 2006, according to its latest "Research Quarterly". Total money market instruments, which include commercial paper (CP), large time deposits (CDs) and bankers' acceptances, ended 2006 up 18.7% over yearend 2005 and up 6.3% for the quarter. "CP growth has been driven by corporate investment, asset-backed CP product development and the recent surge in M&A activity. Investors are attracted to short-term markets by the current inverted yield curve," says the publication.

Fidelity Investments released its "Shareholder Update 2006" citing "significant flows into our money market funds" as a major factor in the company's record asset totals. Chairman Edward C. Johnson 3d said, "Our money funds continued to beat more than 80% of their peers and led the way in asset gathering in 2006, pulling in nearly 94% of our complexwide $50.9 billion in managed net flows." Strategic Insight shows Fidelity gaining $45.1 billion in net new flows in 2006, almost as much as Vanguard's $26.4 billion and Schwab's $19.3 billion (Nos. 2 and 3) combined.

Money market mutual funds set a second consecutive weekly record, breaking above $2.4 trillion for the first time ever, according to ICI statistics. Assets increased by $25.7 billion to $2.42 trillion. Institutional assets rose by $18.9 billion to $$1.43 trillion while Retail assets rose by $6.8 billion to $993.8 billion. After losing $26 billion in January, money fund assets have surged by $64 billion in February month-to-date. Funds are seeing flight-to-quality money due to sub-prime mortgage defaults.

Standard & Poor's has rated the $680 million `Solano County Treasurer's Investment Pool AAAf/S1. "Solano County joins San Bernadino County, San Diego County, and Ventura County to become the fourth California county pool rated" by S&P says the release. The Solano pool is managed by Charles Lomeli and Union Bank of California is the custodian.

Fidelity Investments has filed with the SEC to launch new Institutional and Service classes of its MA, CA, NJ, and NY AMT Tax Free Money Market Funds says Strategic Insight's FundFiling.com website. The Institutional classes will charge 0.20% in expenses and have a minimum of $1 million, while the Service classes will charge 0.45%.

BlackRock Managing Directors Rich Hoerner and Chris Stavrokos write on "The Future of Cash Management" in the most recent AFP Exchange. They note the buildup in corporate cash balances, saying, "We believe that today's record corporate cash balances are likely to remain high relative to historical averages for quite some time.... [C]orporate treasurers have grown accustomed to the operational and strategic flexibility that cash on balance sheet allows."

Brokerage firm A.G. Edwards annnounced today that it will pay extremely competitive interest rates on its new Bank Deposit Program says Insurancenews.net. Current interest rates range from 4.5% to 4.9%, making this program the highest-yielding "bankerage" plan available, according to Crane Data. "The rates on our new AGE Bank Deposit Program are certainly some of the most competitive in the industry right now," says Peter Miller, executive vp at A.G. Edwards. "With the added protection of FDIC coverage, this program gives our clients an opportunity to make good use of the cash portion of their portfolios along with their other investments.".

Strategic Insight's FundFiling.com shows several new money fund registrations over the past month. American Beacon MM has filed for a new BBH Comset class (charging 0.15%); MFS Cash Reserves has filed for a Class I and Class R (0.49% and 0.99% expenses); and, Smith Barney Institutional MM, Govt and Muni will have new B classes (0.23% expense).

The Investment Company Institute, the trade group for the mutual fund industry, reported its weekly money market mutual fund asset totals yesterday. Money fund assets jumped of $8.57 billion to a new record high of $2.393 billion, breaking the old record of $2.392 trillion set in December 2002 (and tied in the first week of January 2007). Assets have increased by $37 billion in the past two weeks, following an unusual (estimated) $26 billion outflow in January.

Money market funds will be closed for President's Day, Monday, February 19. While most funds are closing early on the 16th, some will be open all day Friday. The following fund groups have announced regular hours (bond markets close at 2pm): American Beacon, Citi, Fidelity, and Reserve. Closing early will be: Barclays, Lehman, Merrill, Merrimac, Milestone, Morgan Stanley.

Money fund portfolio managers doubt that recent problems in the sub-prime mortage sector will spread as far as money funds. CDs, CP and ABCP are likely immune, but a broader contagion could possibly impact some extendible asset-backed commercial paper and secured liquidity notes. Problems with HSBC's Household unit, New Century, and Washington Mutual could become an issue, though at this point it seems that money funds' stringent quality, maturity and diversity regulations should protect them from harm. Money fund plus and enhanced cash funds, too, should be safe for now, though managers and investors continue to monitor the situation.

Treasury Curve, which launched in October, is fully live and functional with its "online trading platform for global institutional cash investing" and is preparing to expand its institutional money fund lineup. The Menlo Park, Calif.-based company was founded by money fund industry veterans Aron Chazen, Chris Kaminski, and Paul Rice. Treasury Curve has teamed with PFPC and RiskMetrics to allow investors one-stop shopping to "research, trade, report and analyze" cash investments.

For the year ended Jan. 31, 2007, Money Fund Intelligence ranked Credit Suisse Inst MMF Prime A No. 1 with a 5.20% return; current 7-day yield leader Barclays Inst MMF Inst and Morgan Stanley Inst Liq MMF I trailed by a basis point at 5.19%. The top-performing Individual money fund was Phoenix Insight MMF A with a return of 5.02%, followed by TIAA-CREF Money Market Fund and current yield leader Vanguard Prime MMF at 4.98%. Alpine Municipal MMF was No. 1 among Tax-Exempt Money Funds with a 3.48% return; Lehman Brothers National Muni MF and Phoenix Insight Tax-Exempt I were 2nd with a 3.46% return.

New Crain corporate finance publication Financial Week features an article "Money fund fees squeezed", which describes competition in the institutional money fund market. Crane Data's most recent expense figures show Institutional money funds averaging 0.19 percent as of Jan. 31, 2007, unchanged from the prior month. The Crane 100 averaged expenses of 0.38 percent, while the overall money market fund universe averaged expenses of 0.47 percent.

USA Today's John Waggoner says "Mix and Match". He writes, "Right now, though, the lowly money market fund is probably your best diversifier. Not only do money funds have a low correlation to bonds and stocks; they also yield as much as - or more than - many Treasury notes, bonds or bills."

Wells Fargo Advantage Funds is ranked best money fund website by Crane Data's Money Fund Intelligence. The February issue, due out Friday, shows Wells as the most impressive website among the 20 largest fund families. Wells' new site scored the highest grades in ease of use, information, performance statistics, and educational material. Goldman Sachs Asset Management and Federated Investors also received 'A' grades.

The February issue of Money Fund Intelligence features a story on AAA-rated money funds, and how they continue to grow domestically, as well as internationally and via new "enhanced cash" products. Almost 1,000 funds, half of all U.S. money fund assets are rated AAA by Standard and Poor's, Moody's, and Fitch Ratings.

This weekend's New York Times and yesterday's Wall Street Journal both contained Vanguard's recent "Keep more of what's yours" advertisements. Meanwhile, Fidelity continues its "Make your money work harder" banner ads on nytimes.com, wsj.com, and other national sites, and is featuring money funds on http://www.fidelity.com. Funds see the flat 5% rate scenario as ideal for cash, as do banks like E*Trade, which ran a SuperBowl ad on its 5.05% money market offer, and HSBC Direct, which is running TV and banner ads on its temporary 6% APY savings offer.

JPMorgan Asset Management and the U.K.'s ACT (Association of Corporate Treasurers) just released "Global Cash Survey 2006" results. Among the interesting findings: reputation/brand ranked ahead of yield as a desirable characteristic for a fund provider; treasurers want more return, but in general are unwilling to take on risk to increase returns; and, 3/4 of US treasurers use automated sweeping for surplus cash compared to 30% in Europe.

Q4 GDP "Vampire Slayer" Says PNC. In the most recent "National Economic Outlook", PNC Financial Services Chief Economist Stuart Hoffman says, "Recent solid economic data is a stake through the heart of the 'vampires' forecasting that the blood has been sucked out of the U.S. economy."

The Investment Company Institute's weekly money market mutual fund asset series decreased sharply, losing $35.2 billion for the week ended Jan. 31. The decline was primarily institutional funds, which lost $30.4 billion vs. $4.8 billion for retail. Assets normally decline at month-end due to payrolls, payments and "window dressing". A sharp reversal in the market's Fed expectations -- from lower to higher rates -- also undoubtedly pulled cash into repos from funds. We expect fund asses to rebound next week.

ICI released their December and year-end mutual fund statistics Tuesday and confirmed that money funds ended 2006 at a record $2.355 trillion, up $314.8 billion, or 15.4%, for 2006. Net new cash flow to money funds was $247.3 billion (the 2nd best year ever), while dividends added $67.5 billion. Money funds had an inflow of $41.5 billion in December following a $54.8 billion November.