News Archives: March, 2007
Crane 100 Money Fund Index Hits 5.00 Percent on Month-End Rate Bump. Our Crane 100 Money Fund Index, an average of 7-day current annualized yields for the 100 largest money market funds, finally ticked up to hit 5.00% yesterday, the first time ever. (Crane Data and the Crane Indexes are preparing to celebrate their first birthday in May.) But the blip up in rates is temporary due to a jump in the overnight Federal funds rate at quarter-end. Demand for "cash" rises at month-end, quarter-end and year-end, as companies pay salaries, bills, and balance their books ("window dressing"). Strong economic and inflation reports Friday added to the squeeze.
IMMFA, the Institutional Money Market Funds Association Celebrated Record Asset Levels in 2006 said the London group of European money funds at its annual meeting last week. The 30-plus IMMFA members have seen money fund assets grow $100 billion since 2005 to a record $355 billion. Chairman Donald Aiken says, "We continue to punch above our weight -- as we strive to gain appropriate regulatory recognition for our funds ... and to raise awareness of the usefulness of money market funds to support other products".
Money Fund Assets Hit Record Again in Latest Week, But Barely. ICI reported that money fund assets inched up by $1.26 billion to $2.432 trillion in the past week, enough for a new record high. The Investment Company Institute also reported that money market funds had an inflow of $34.4 billion in February, vs. an outflow of $10.8 billion in January. ICI also reports that liquid assets, or the percent in cash, of stock mutual funds continue to flirt with its historical lows at 3.9%.
Deutsche "Lift-Out" from Amvescap Doesn't Involve Money Funds. Yesterday, news hit that Deutsche Bank would be hiring away a number of bond and stable-value managers from Amvescap's Invesco. We hear from Amvescap subsidiary AIM Investments spokesman Ivy McLemore that money market mutual fund managers are not involved in any of the defections. AIM's $45 billion U.S. money market fund operations make it the 14th largest advisor, while the Deutsche DWS unit ranks 17th with $41.2 billion (assets tracked by Crane Data).
Oppenheimer Institutional Money Market Fund was rated AAAm by Standard & Poor's Rating Services. The fund is managed by OppenheimerFunds, which is majority owned by Massachusetts Mutual Life Insurance. Citibank is the fund's custodian and OppenheimerFunds Services is the transfer agent. OppenheimerFunds recently hired Merrill Lynch CMA veteran Mike Walsh to head their cash strategy. The fund's latest yield was 5.25%.
Investment News writes that "Market Fears May Lure Investors to Money Funds" in its latest issue. The piece cites market and mortgage turmoil, and attractive yields, as factors likely to drive money fund inflows to record levels in 2007. "The elements are all there for huge pools of assets to move into money funds at this point," says Crane Data's Peter Crane in the piece, which also contains 10 years worth of money fund assets (ICI) and return averages (our Crane 100 Money Fund Index).
TEXPO 2007, an Annual Conference hosted by the Dallas Association of Financial Professionals in cooperation with the Alliance of Texas Treasury Associations (ATTA), started Sunday with golf and a welcome reception. Today's highlights (for cash investment pros) include: Lee Epstein of Decision Analytics on "Safety, Liquidity, Yield - The Sly Investor", and Kirk Black of Mellon LMS and Michael Howe of Devon Energy Corp. on how to "Supercharge Treasury Investing with Poral Technology". Tuesday, Richard Scott of Credit Suisse Securities speaks on the "Essentials of Liquidity Management". Fifteen institutional money fund providers are exhibiting.
Bank-monitoring site BankDealsBlog.com reports that NJ-based AMBOY Direct is offering a temporary 3-month 6.0% "bonus rate" for New Jersey residents. We aren't listing this, HSBC Direct's, or other temporary offers in our Top Savings rankings due to restrictions and the temporary nature. But we will continue to make http://www.crandata.us visitors and readers of Money Fund Intelligence aware of these questionable marketing tactics.
Bear Stearns filed to launch Bear Stearns Current Yield reports Strategic Insight's FundFiling.com. The new fund, managed by Bear Stearns Asset Management's Scott Pavlak, will "seek as high a level of current income as is consistent with the preservation of capital and liquidity." The fund's shares, or "Creation Units," will only be available to "Authorized Participants" of the "Continuous Net Settlement System of the National Securities Clearing Corporation" and of the DTC (Depository Trust & Clearing Corp.). On March 13, we reported that Standard & Poor's rated Bear Stearns' Enhanced Income Fund 'AAAf/S1+'.
Money market mutual funds rose in the latest week says ICI. Money funds increased by $8 billion to an almost-record $2.431 trillion. Year-to-date assets are up $49 billion (4.5%); over 52 weeks money funds are up $375 billion (18.2%). Yields of 4.5% to 5.25% for money funds continue to draw assets from lower-yielding bank deposits and brokerage sweep options, as well as from bonds and other traditional market "hedges".
The Federal Reserve Board left the target for the Fed funds rate unchanged at 5.25% yesterday. While markets interpreted this as raising the odds of a rate cut, we think it's clear from the statement that the Fed is still leaning towards a tightening. The statement says, "Recent readings on core inflation have been somewhat elevated.... In these circumstances, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information." Click here for a history of Fed actions.
The April issue of Money Magazine, which arrived this week, advises readers to "Stick with money funds" over bank deposit products. "A bank regularly changes savings rates.... Money funds, however, closely track Fed moves," says the article, "Yield Chasing Done Right". Money also advises subscibers to "Stay fully invested" or to "Take your cash elsewhere" if your brokerage is sweeping "idle cash into in-house savings accounts" in a brief entitled "Earn It".
Is the FDIC asleep at the switch on high-yield deposit banks? Today, Reuters writes "FDIC says subprime woes to affect bank earnings". They quotes FDIC Chairman Sheila Blair as saying there is no risk of failure, only earnings impacts. Crane Data wonders though why regulators allow some companies with exposure to continue to pay above-market rates on bank money market deposit accounts. A glance at any highest-yielding bank savings table reveals a number of institutions whose yields aren't the only things making headlines. We hope these bank rates are drawing scrutiny by people other than investors.
The U.S. Securities and Exchange Commission's implementation of the recent "Credit Rating Agency Reform Act of 2006", legislation is meant to increase competition among ratings agencies (NRSROs, or nationally recognized statistical ratings organizations). But it will also impact money market mutual funds. The Investment Company Institute comments, "Given the large numbers of investors [nearly 40 million] and assets [$2.4 trillion] in money market funds, we recommend that the Commission evaluate the need for any appropriate changes to Rule 2a-7. The Commission's review can ensure that there are no unintended consequences for money market funds caused by the new NRSRO regulatory structure."
"SEC Allows Auction-Rate Manipulators When They Disclose Intent" writes Bloomberg.com. Dealers of auction-rate securities got off with a slap on the wrist, it seems, merely requiring more disclosure about the "insider" setting of rates. We were unable to locate any new official SEC information on the topic, however. In our November 2006 Money Fund Intelligence, we wrote "Is Index Volatility Hurting Tax-Exempt Money Funds" describing alleged manipulation in the BMA Swap Index and variable rate demand note market.
Last week, the SEC proposed amendments on broker-dealer responsibility rules which included several impacting money funds. Rule 15c3-3 would allow unaffiliated, large government money funds to be used for customer reserve deposit requirements, a change pushed by Federated Investors and Treasury Strategies, and a proposed change to Rule 15c3-1 would reduce the net capital required "haircut" for money funds from 2% to 1%. Changes in the treatment of free credit balances and sweep account options are also in store, and additional securities lending and repo oversight is proposed.
The Wyoming Government Investment Fund, a "comprehensive cash management program available to Wyoming public entities", had its "Liquid Asset Series" rated AAAm by Standard & Poor's Ratings Services today. The $168 million pool is advised by PFM Asset Management, which manages 17 AAAm rated funds, according to S&P. The fund is not a registered money market fund, but will "operate similar to a 2a-7 money market fund."
While browsing Reed Smith's "Money Market Research and Compliance Page" (yesterday's "Link of the Day"), we ran into a perhaps timely 6-page PDF, "Events Requiring Action by a Money Market Fund". The brief explains what money funds must do in the event of a default or downgrade, actions which include dumping the security or taking action in the "best interest of the fund and its shareholders". We don't expect bailouts, and certainly no breaking-the-buck, over the subprime implosion. But, as the safest and most liquid of securities, money funds must always be prepared.
New Century Financial filed 8-Ks stating that credit providers have pulled the plug on the company and its two affiliated asset-backed commercial paper (ABCP) programs. "The Company relies on short-term repurchase agreements and aggregation credit facilities and an asset-backed commercial paper facility to fund mortgage loan originations and purchases pending the pooling and sale of such mortgage loans," says a March 12 filing. We don't find any money fund filings showing New Century asset-backed vehicles St. Andrew Funding Trust and Von Karman Funding. So money market investors likely have little to fear. But the situation remains in flux.
Moody's Investors Service has postponed new bank ratings criteria following market concerns. Two weeks ago, Moody's upgraded a number of Nordic banks, including giants Nordea and Danske Bank, to AAA based on a new "joint default analysis (JDA)," the idea that governments would back these banks. After an uproar, however, the agency is "considering refinements" and may backtrack on some of its upgrades.
Standard & Poor's rated the new Bear Stearns Enhanced Income Fund 'AAAf/S1+'. The fund is advised by Bear Stearns Asset Management and may invest in repo, CDs, CP, LOCs, corporates, MBS and foreign securities denominated in U.S. dollars. No word yet on whether the NAV will attempt to remain stable, but this fund joins a growing list of cash plus funds seeking to produce "incremental returns over money market funds".
E*Trade Financial announced the launch of a "high-yield checking account", E*Trade Max-Rate Checking Account. The account starts with an APY (annual percetage yield) of 3.25%, and includes unlimited check writing, ATM fee refunds, online bill pay, and a Visa debit card. "Consumers want a high yield on their transactional cash but not at the expense of functionality," says MD Michael Curcio.
More "almost cash", ultra-short bond ETFs are on the way to fill the gaping void left by brokerages for a decent-yielding parking place. SSgA has filed to launch two new short-term bond ETFs, SPDR Lehman 1-3 Mo T-Bill ETF and SPDR Lehman Short-Term Treasury ETF. Barclays 1-3 Lehman Treasury ETF (symbol: SHY) has been the closest thing to a "money fund" ETF to date.
We're pleased to announce Version 3.0 of www.cranedata.us. We've added a number of new features to the website, though most now require registration. Existing subscribers may manage their accounts in our "Subscription Services" area, new users may sign up for free web access or subscribe to Money Fund Intelligence or one of our other products, and all users may now "Search" the entire free and subscription areas of www.cranedata.us, as well as the entire Money Fund Intelligence, MFI XLS and MFI Distribution Survey archives.
This week we saw massive inflows into money funds. Commentators quickly seized on this as a sign that investors are fleeing stocks. While that may be the case, we want to point out that distortions are beginning to occur due to the use of banks as the default sweeps by brokerages. Whereas before "safe harbor" money would quickly appear in money fund flows, now there's a lag before investors manually shift the cash info money funds. We also want to remind people of the seasonal and volatile nature of "cash". Because month-end was on a Wednesday (when ICI's numbers come out), last week's outflow, and then this week's inflows, were magnified.
MarketWatch's Chuck Jaffe interviews Crane Data's Pete Crane on money market mutual funds Friday. "Pick big, high yield money-market funds" says the MarketWatch brief, which offers the full radio interview from Jaffe's new Your Money program. Other topics include whether a "wall of cash" will support stocks, money funds vs. inflation, and the new Calamos Government Money Fund.
Following month-end outflows last week, money fund assets jumped by $32.9 billion said the ICI late Thursday in the week ended Wednesday, to a record $2.431 trillion. Retail assets surged by $14.4 billion breaking the $1.0 trillion level and institutional assets skyrocketed $18.5 billion to $1.4 trillion.
The restructured Janus Institutional Cash Management Inst has emerged from Janus's separation of its retail and institutional money fund portfolios tied for No. 1 with Barclays BGIXX. Both yielded 5.28% as of yesterday, March 7. The Janus fund was formerly Institutional Cash Reserves, and is now under ticker JCAXX. Janus ICM also has new Premium, S, C and A shares.
Money market mutual fund online trading portal Institutional Cash Distributors (ICD) has launched a new version of their website at www.icdfunds.com. According to the website, ICD distributes $18 billion for over 150 institutional clients in over 80 institutional money funds.
Dreyfus Investments has announced that it is merging its Dreyfus California Tax Exempt Money Market into its General California Municipal Money Market, Class A on Friday, March 9. California remains the most popular state for Tax Exempt Money Funds due to its punishing 9.3% income tax (for income over $40K). Money Fund Intelligence tracks 43 CA funds with over $50 billion in assets. These funds currently average yields of 3.02% (as of 2/28).
Short-Term Bond ETFs, like iShares 1-3 Year Treasury (SHY), were big winners in the recent market downturn. Money Market ETF's don't exist yet, though it's likely just a matter of time. Because most brokerages are no longer paying competitive interest rates on sweep accounts, advisors and investors are seeking higher-yielding parking spots during market declines.
The Victory Funds, KeyBank's fund family, has announced the liquididation of the $130 million Victory Institutional Liquid Reserves (VLRXX). The site says, "On February 8, 2007, the Board of Trustees of the Victory Institutional Liquid Reserves Fund approved a plan of liquidation which is scheduled for Wednesday, February 28, 2007. Shareholders have been notified that the fund is no longer available, and have been advised of the options available to them prior to the liquidation." The trading deadline for Victory Institutional Money Market Fund was also extended to 5pm.
Lehman Brothers ILF Money Market Portfolio (LBBXX) has joined the CraneData.us "Top-Yielding Institutional Money Funds" list for the first time, debuting at No. 2 (out of 184) with a yield of 5.28%. The $186 million fund, managed by Lehman Brothers Asset Management Portfolio Manager John Donohue was launched in December 2006 and was just added to Money Fund Intelligence. Its now $1.4 billion AAA-rated sibling, Lehman Brothers ILF Prime Inst (LBLXX) is yielding 5.26% currently.
ICI reported weekly money market mutual fund assets, which showed a decline of $22.9 billion to $2.397 trillion. The drop, almost entirely institutional (-$21.2 billion), should be temporary though. The week ended on month end (2/28) when funds always see big outflows due to payrolls, bills, and window-dressing. Cash was also drawn out of funds and into overnight repo due to an unusually high Fed funds rate Wednesday. (It was 5.41% according to Wrightson ICAP.) Expect assets to rebound briskly next week as flight-to-safety money and beginning of month dividends appear.
When choosing money market investments, make sure you're making "apples-to-apples" comparisons. Important factors to note are: date and time period, compounding (or not), net vs. gross (and whether there are other trading costs), and the type of annualization. Money market mutual funds, like all mutual funds, use a calendar 365 day annualization and quote a 7-day current (simple, SEC) yield. But many money market securities, like CP and CDs, continue to use the bank interest convention and annualize using 360 days. (Multiply by 365/360 to normalize.)
