News Archives: April, 2007

Columbia Mgmt Hires Pat Ford in Cash Investment Group from BlackRock. On Tuesday, Columbia Management, which manages $200 billion in "cash", will announce the hiring of former PNC and BlackRock 20+ year veteran Patrick Ford as managing director and senior portfolio manager for Cash Investments. Columbia Head of Cash Investments Randall Royther says, "Cash management is a vital and rapidly growing part of Columbia's investment business. Investors -- both institutional and retail -- want to maximize risk-adjusted returns in their cash strategies. Patrick has proven expertise in generating alpha through cash and short-term investments, and we welcome his addition to the team". Ford will "develop and execute overall portfolio strategy for the cash investments platform, supervise a team of portfolio managers and co-manage Columbia's prime 2a-7 funds," said a draft of the pending press shared exclusively with Crane Data.

Moody's, Too, Rates American Beacon MMF's ComSet Class Aaa. Tuesday, Crane Data reported that S&P had rated the new American Beacon Money Market Fund ComSet Class AAA. Now Moody's also has assigned its highest rating to the new feeder for Brown Brothers Harriman's commodities platform. The "Aaa rating reflects the strong overall credit quality of the fund's investments, solid liquidity management, as well as the conservative investment guidelines and practices of the advisor, American Beacon Advisors, Inc. of Fort Worth, Texas," says Moody's press release.

Money Fund Assets Decline For a 2nd Week on Tax-Related Outflows. The Investment Company Institute said money market mutual fund assets decreased by $6.3 billion to $2.435 trillion in the week ended April 25. Institutional money funds increased by $2.5 billion to $1.434 trillion, while retail money funds decreased by $8.8 billion to $1.001 trillion. Tax-related outflows have caused money funds to decline by $31.1 billion over the past two weeks. Separately, ICI reports that money fund assets increased by $35.2 billion for the month of March and by $81.4 billion, or 3.5%, in the first quarter of 2007.

Charles Schwab Launches 4.25 Percent APY Checking Account Offer. Charles Schwab today introduced a checking account paying 4.25% interest, one of the highest checking rates in the country. The move is certain to increase the company's $11 billion in bank deposits. The San Francisco Chronicle describes the new program in an article, "Interest in Schwab's checking", saying the offer isn't temporary, and that the account has no minimum, no monthly charge and no ATM fees. While the competitive yields won't apply to brokerage sweep accounts, they should allow the vigilant to obtain a competitive rate on transactional cash. The move follows the February launch of ING Direct's Electric Orange 4.0% checking.

SIFMA Testifies on Brokerages With Industrial Bank Holding Companies. The Securities Industry and Financial Markets Association testified before the House Committee on Financial Services yesterday attempting to change The Industrial Bank Holding Company Act of 2007. SIFMA wants a special exemption for securities firm industrial bank owners, including Bear Stearns, Goldman Sachs, Lehman Brothers, Merrill Lynch and Morgan Stanley. As currently written, the law could require diverstiture of banks by some brokerages, thereby endangering some "bankerage" programs -- brokerages sweeping customer cash into their own banks.

UmbrellaBank Backs Away From 5.5 Percent APY MM Account Promotion Says Bank Deals Blog. The internet arm of Alabama-based New South Federal Savings Bank is offering a 5.5% APY (5.35% rate, $1,000 minimum) on its Pot O'Gold Money Market account through July 31, 2007. Previously, the market-leading 5.5% offer was pledged through Dec. 31, 2007, says Bank Deals. Bank savers await a new No. 1 as HSBC Direct's temporary 6.0% on savings rate drops after April 30. (Note: Crane Data doesn't list temporary offers among our Highest Savings/MMDAs tables.)

American Beacon Money Market Fund BBH ComSet Class Is Rated AAA says Standard & Poor's. "The ComSet Class shares will be offered through Brown Brothers Harriman & Co. (BBH) ... exclusively through the BBH ComSet Plus money fund platform and through selected financial clearing house platforms to futures commission merchants, financial exchanges, financial clearing houses, broker dealers, and companies engaged in the business of investing in, trading, or market making financial and nonfinancial derivative contracts, securities, and other financial contracts," states the release. American Beacon Advisors, a subsidiary of AMR Corp., manages the fund; the minimum is $10 million and the expense ratio is 0.15%.

Barclays Distributing US Dollar, Pound, Euro Money Funds Via SunGard. Barclays Global Investors Limited (BGI's) US dollar-, Pound sterling- and Euro- denominated money market funds are available on the SunGard Transaction Network's (STN's) Money Market portal, said SunGard yesterday in a press release. James Finch, head of BGI's liquidity sales for UK/Europe, says, "We are pleased to offer BGI's range of international cash funds through the SunGard Transaction Network."

April MFI: Western Asset's Kevin Kennedy Bullish on Money Market Funds. Money Fund Intelligence's most recent monthly fund profile, "Best of Western: Citi Institutional Liquid Reserves", quotes manager Kevin Kennedy: "Institutional funds are certainly an attractive alternative in today's current yield environment. There just aren't that many options unless you are willing to make an aggressive interest rate bet, or step down in credit quality. With the Fed unlikely to be extremely active this year, we believe that corporate treasurers and other large institutional cash investors will be quite satisfied with the steady 5% to 5.25% yields offered by the funds."

Money Market Funds See Big Outlflows as Uncle Sam Rakes In Tax Cash. That giant sucking sound you hear this week is the sound of the IRS cashing checks. Money flowed out of money market funds to the tune of $26.6 billion as assets declined to $2.44 trillion said ICI. Institutional assets declined by $25.0 billion to $1.43 trillion, while retail assets declined by just $1.5 billion to $1.01 trillion. Expect more outflows in the next week or two too, as April 17 payments continue to clear. But assets should resume their run-for-the-record come May.

Tax-Exempt Yields Rise But Don't Spike in 2007; Top Tax-Exempt Funds. The week following April 15 brings large outflows from money market funds, particularly Tax-Exempt ones. But yields, which normally rise dramatically, rose only several basis points this year from March 31 through yesterday. Investors should take care not to choose tax-free funds based on a temporarily high rate; check the yield once the squeeze has abated. Currently, the top-yielding (7-day as of 4/18) Tax-Exempt (and Municipal, which can hold over 20% AMT paper) funds are: 1) Lehman Bros. National Muni (3.67%); 2) Morgan Stanley Inst Liq T-E (3.63%) and Vanguard PA T-E MM; 4) Alpine Muni MM and Vanguard Tax-Exempt MM (3.62%); and 6) Federated Muni Obligations, Vanguard OH T-E MM, and Vanguard NY T-E MM (3.59%).

Inside Futures "Getting a Handle on the Market's Money Flow" discusses using money market mutual fund assets and liquid assets of mutual fund ratios as indicators for market timing. We believe that money fund flows are driven by calendar, seasonal and other factors independent of stock and bond markets, but we do subscribe to the theory that near record low liquid assets in stock funds is indeed a bearish sign.

Fitch Prepares to Release Institutional Tax-Exempt Money Fund Survey says Viktoria Baklanova, director of Fitch's fund and asset manager group. Respondents seem unconcerned with overall credit quality and feel comfortable with the current market. But lack of diversification, high concentrations in bank and insurance guarantors, and consolidation of enhancement providers are cited as challenges, Baklanova tells us. When formulating investment strategy, the economic environment ranked as the most important factor, followed by interest rate expectations and spread.

Ex-SEC Director: Should've Let Money Funds "Break the Buck" in '80's reports Former SEC Division of Investment Management Director and current Willkie Farr & Gallagher Partner Joel Goldberg said at last week's "Practising Law Institute Investment Management" conference that if he could change one decision of his at the SEC, it would have been to "let a fund or two break the buck" in the early 1980's instead of having advisors protect the funds. Goldberg believes the preoccupation with the $1.00 a share has commoditized money funds and removed flexibility to seek yield, recounted ignites. He clarified for Crane Data, "I was talking about back then. We can't go back.... Rule 2a-7 is a good rule."

Fidelity, Western, Vanguard, and Schwab Show Biggest Q1 Asset Gains. Money Fund Intelligence XLS's monthly asset rankings of money fund complexes, show No. 1-ranked Fidelity Investments continues to win big in Q12007 with an asset increase of $17.2 billion, or 6.9%, to $268.7 billion, a 12.2% market share, up from 11.8%. Legg Mason's Western Asset ranked 2nd in dollar increase terms, gaining $11.0 billion, or 15.0%, while 3rd-largest complex Vanguard had the 3rd largest money fund asset increase at $10.8 billion, or 7.5%. Schwab placed 4th with a gain of $8.2 billion (6.1%) and Federated Investors placed 5th with a gain of $6.7 billion (4.6%). Money market mutual fund assets overall grew $72.3 billion, or 3.4%, in Q1'07.

April's AFP Exchange Features Article "Updating Your Investment Policy" by Ron Hart of Citi. The piece tells corporations and treasurers to review their cash investment guidelines to reflect new investment opportunities and to stay compliant. Hart says four areas of risk should be addressed: credit quality, duration (maturity), diversification, and vendors. Objectives, quality, liquidity and compliance should also be discussed. Hart says, "A conservative policy might include: T-Bills, agencies, BAs, CDs, A1 CP, 7- to 35-day Auction Rate Debt, VRDNs and Auction Rate Preferreds."

New Sweep Regulations to Help Investors; Hurt Brokerages, Banks. Yesterday's "Link of the Day" cited an Investment News article on proposed SEC regulations on brokerage cash sweeps. We took another read through the "Amendments to Financial Responsibility Rules for Broker-Dealers" and found the news is unabashedly good for investors and money funds, and very bad for brokerages with banks. After years, the SEC is finally addressing the trend of brokerages sweeping client cash into lower-yielding banks instead of money funds with a host of investor authorization requirements, waiting periods, quarterly disclosures, and disclosures. Brokerages would have to tell investors exactly what options are available and how to move back into competitively priced cash options, a move sure to be a boon for the higher-yielding money funds.

Money Fund Assets Surge Ahead of Next Week's April 17 Tax Payment Date. Total money market mutual funds jumped by $15.3 billion in the week ended April 11, said the ICI, to a record $2.47 trillion. Assets will temporarily decrease as income tax payments divert the cash torrent over the next several weeks. Year-to-date, money fund assets have grown by $84.1 billion, or 3.5%. Over the past 52 weeks, money fund assets have grown by an eye-popping $409 billion, or 20%. We expect inflows to resume with a vengeance in May, as money funds begin to take market share in earnest from banks, bonds, and alternative investments.

SunGard (STN) Money Markets Adds Enhanced Cash Products to Portal. SunGard Transaction Network says it has added "enhanced cash," a "longer-term, higher yielding" option, to complement its money market fund, commercial paper (CP), and certificate of deposit (CD) online offerings. COO Bob Ward says, "Expanding the STN investment portal with the ability to trade enhanced cash products will help investors to take advantage of higher-yielding opportunities. By providing our customers with a single view across multiple cash positions, STN can help give corporate investors a consolidated portal for their cash management needs."

Just Released Fed Meeting Minutes Show Fed Watching Fed Watchers. Minutes of the Federal Reserve's March 20-21 Meeting show that the Federal Reserve Board is acutely aware of the market's reaction to its statements. The Fed explains its prior statement change, saying, "The Committee agreed that further policy firming might prove necessary to foster lower inflation, but in light of the increased uncertainty about the outlook for both growth and inflation, the Committee also agreed that the statement should no longer cite only the possibility of further firming."

Crane Money Fund Indexes Inch Up in March 2007 on Quarter-End. The Crane 100 Money Fund Index, an average of the 100 largest money market mutual funds, has retreated to 4.98% this week. But the Crane 100 rose to 5.00% for the month ended March 31, 2007 (based on 7-day yield). Other Crane Indexes ticked higher in March too. The broader Crane Money Fund Average 7-Day Yield inched up from 4.88% to 4.89% during March. (Its 1-Year Return through 3/31 rose to 4.86% from 4.79% in Feb.) The Crane Institutional MF Index rose to 5.16% from 5.15%, while the Crane Individual MF Index remained at 4.74%. The Crane 100 Index returned 4.91% for the 1-Year period through 3/31/07; 3.15% for the 3-Year; 2.33% for the 5-Year, and 3.67% for the 10-Year.

Record Levels of Corporate Cash: "Greatest Surge Ever Seen". Today, we excerpt from the April issue of Money Fund Intelligence, which ran an article entitled, "Comparing Online Money Market Trading Portals". In it, we're discussing the record levels of corporate cash, and quote Marianne Bamonte of LaSalle MoneyMarkets Express , "It's probably been the greatest surge that I have seen.... We're close to $6 trillion.... Money market funds have been sitting so pretty for awhile now." Citi Online's Elyse Weiner adds, "We know we're looking at historic levels of cash, and there are reasons for it. Now the questions is, 'Is it going to stay or is it going to leave?'"

Bank Deals Blog for Best Certificate of Deposit Rates. Today's Bank Deals Blog compiles a list of websites with top-paying CD mentions. Crane Data has chosen not to track CDs for now -- we think CD's lack of liquidity disqualified them from being "cash" (and that they should be treated like bonds). But for those looking for CDs, this Bank Deals Blog Post has a comprehensive listing of sites.

Strong Payroll and Inflation Numbers Drop Rate Cut Odds to Almost Zero. Friday's unexpectedly strong economic news, an 180K jump in March payrolls and a drop in the unemployment rate to 4.4%, puts the kibosh on hopes of a rate cut any time soon. Fed funds futures still predict a single quarter-point reduction by December 2007. (See the CBOT website and take 100 minus the "Close" value to get the "market's" estimate on where rates will be.) But futures, like everyone else, are very bad at predictions. William Poole of The St. Louis Fed has found that Eurodollar futures are accurate less than 30% of the time. Crane Data believes rates will remain flat all year, and are more likely to rise than fall in 2008.

Money Market Fund Assets Jumped $18 Billion to a Record $2.45 Trillion in the week ended April 4, said the ICI. Retail MMFs rose $3.7 billion to $1.00 trillion while Institutional MMFs rose $14.6 billion to $1.44 trillion. Inflows remain unusually strong. For the first quarter of 2007, money funds increased by about $50 billion vs. a decrease of $1 billion in Q1'06. Money fund assets increased about $34 billion in March and returned 0.42% on average. In Q1'07, they're up $67.8 billion, or 2.9%, and have returned 1.23% on average.

Crane Data Launches Money Fund Detail Pages and Full Fund Listings. While we're hesitant to treat product launches as news, our new "Fund Detail" profile pages and full fund listings are now available under the "Resources, Browse Funds" menu option. These added features fulfill Crane Data's mission of bringing money fund info to the masses. Free Web Access registrants may now click on any fund or symbol to view a compact table of the fund's 7-day and 30-day yield, assets, expenses, AM, rank, type, category, 800 number and website. MFI Subscribers have additional premium access to a host of "Fund Detail" performance statistics and rankings: 1-month, 3-mo, YTD, 1-year, 3-yr, 5-yr, 10-yr and since inception returns. If you haven't signed up already, Register Today!

Fidelity Filed to Liquidate its $1.5 billion Florida Municipal Money Market Fund. The fund is another casualty of The State of Florida's repeal of its "intangible" personal property tax, which became effective January 1, 2007. Evergreen, Federated, Reserve, and USAA continue to run FL funds, though they too will likely be liquididated, merged or repurposed. The Sept. 2006 issue of Money Fund Intelligence reported that Schwab FL Muni MF changed its name and mission to Schwab AMT Tax-Free MF.

Over 1/3 of Americans Say They'll Save Tax Refunds Reports a Gallup Poll. If Americans aren't lying, 38.6% of the approximately $230 billion in tax refunds ($89 billion) will be added to savings during the March, April and May according to a USA Today article. This total is up from last year's 35.2%; income tax refunds overall should be up 3.2% over last year says the IRS. The average refund through March 23 was $2,771. While refunds are spread out over months, payments should hit with a vengeance in the days following April 17.

Deutsche DWS Scudder in Midst of Fund Housecleaning, Consolidation. Deutsche Bank's DWS Scudder is undergoing a reorganization of its money fund lineup, merging old into new funds, liquidating, and changes fees and policies. Filings say the funds are moving towards a master-feeder fund structure. MD Joe Sarbinowski tells us, "Deutsche had acquired a lot of asset management companies ... and the boards wanted to create opportunities to lower costs for clients by creating larger funds".

Most Money Funds Closed for Good Friday, But Open Thursday, Monday. While most money market funds will be closed this Good Friday, April 6, some will be open. These include: BNY Hamilton, Dreyfus Inst Cash Adv, Janus (all), Reserve (all), and selected Wells Fargo funds. Some "offshore" money funds will also be closed Monday, April 9, for Easter, but U.S. funds will be open. Most funds have normal closing times this Thursday.

Municipal Money Fund Investors Getting Hit by Alternative Minimum Tax. Advisors and investors have been receiving interest tax form 1099's listing tax-exempt interest income. But these forms also list interest subject to the AMT, the nightmarish parallel tax system which taxes "private activity" bonds like stadiums backed by local governments. While Tax-Exempt and Tax-Free Money Funds may only invest up to 20% in AMT paper, Municipal Money Funds have no restrictions. For example, while the largest tax-exempt fund, Vanguard Tax Exempt Money Fund shows a 16.2% AMT holding (as of 2/28), the largest muni fund, Fidelity Municipal MMF shows a 68.5% AMT position (as of 2/28). Fidelity and Schwab have recently also launched "AMT Tax-Free" funds, which refuse to hold any amounts of the pesky paper.

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