News Archives: May, 2007

Brokerage and Business Gains Driving MM Fund Asset Growth. Our new quarterly Money Fund Intelligence Distribution Survey features an analysis of market share gains and losses among the 30 largest money market fund advisors. The first quarter of 2007 showed money fund managers with exposure to the brokerage sector, such as Fidelity and Federated, as big winners, as well as those fund companies that serve large corporations. Businesses continue growing profits and cash, and continue to favor the safety, diversity, liquidity and yield of money funds in this flat yield curve environment. Brokerage customers, meanwhile, continue fleeing lower-yielding "sweep" options in favor of 4% to 5% yields.

Crane Data Online MM Portal Survey Estimates Market at $230 Billion. Money Fund Intelligence recently surveyed its readership of money market mutual fund managers and marketers, and money market issuers, servicers and investors on the topic of online money market trading portals. The preliminary results will be presented at today's 4pm New York Cash Exchange in a session entitled, "Cash Supermarket Shopping: Comparing Online Money Market Trading Portals". Survey respondents estimate that 16%, or $230 billion, of institutional money market fund assets are distributed via "portals" and that BNY's MoneyFundsDirect, Mellon LMS and SunGard STN are the three largest players. Peter Crane will host a discussion featuring portal experts Marianne Bamonte from LaSalle MoneyMarkets Express, Paul Rice from Treasury Curve, and Elyse Wiener from Citibank Online Investments. The full survey results will be featured in upcoming June issue of Money Fund Intelligence.

"SEC Seen Unlikely to Rein in Money Fund Business": Investment News. While apparently confused between money market mutual funds and brokerage-affiliated FDIC-insured money market deposit accounts, this week's Investment News article does get a general theme of last week's Reserve Cash Summit correct -- that regulators likely won't move into "bankerage" with a heavy hand. Recently proposed "Broker Financial Reponsibility" rules, if adopted, will require much more onerous disclosure from brokerages, but will not ban the practice of paying low interest rates on "bankerage" sweep cash, as some have speculated. Contrary to the IN article's title, there are currently no discussions to "rein in" money market mutual funds. Quite the contrary, current proposals should only add fuel to money funds' surging asset levels.

Fidelity Investments E-Newsletter Features AMT-Free Money Fund Lineup. The Boston-based fund company's E-News e-mail update contains "AMT-Free, Lower Fees: New Tax-Smart Money Market Funds, which lists a lineup of AMT-averse money funds, including: "core-eligible" (for sweep) Fidelity Tax-Free Money Market Fund, Fidelity AMT Tax-Free Money Fund, Fidelity Institutional Money Market: Tax-Exempt, and $25K and $1M minimum options for CA, MA, NJ and NY. The page also links to an explanation of the AMT, which includes who's exposed to the tax, how much Fidelity municipal funds invested in AMT paper, and a calculator to measure your chances of hitting this insanely complex boondoggle.

Learn from Money Fund Masters at New York Cash Exchange Workshop. Next week's New York Cash Exchange includes a Friday morning workshop, hosted by Crane Data's Peter Crane, entitled, "Money Market & Cash Investing Pointers: Strategies from the Money Fund Masters". The session will feature three senior money fund portfolio managers -- Deutsche Asset Management's Geoffrey Gibbs, Morgan Stanley Asset Management's Jonas Kolk, and The Reserve's Patrick Ledford -- discussing tips and tactics for managing money market securities, such as commercial paper, asset-backed CP (ABCP), and more esoteric securities like extendible commercial notes (ECNs).

Money Fund Assets Hit Record High $2.5 Trillion in Latest Week Says ICI. For the third straight week, money market mutual fund assets set a new record high, totalling $2.5 trillion for the first time. Assets have risen by over $60 billion in May so far, and by $116 billion, or 5%, year-to-date. Over the past 52 weeks, money fund assets have surged $403 billion, or 19.2%. For the week ended May 23, money funds gained $11.6 billion to $2.498 trillion, said the ICI's weekly release. Institutional assets grew $7.1 billion to $1.482 trillion and retail assets grew $4.6 billion to $1.016 trillion. Money funds continue to attract both retail and institutional cash from banks, bonds, hedges that have failed, and other asset classes due to the magnetic allure of 5% risk-free returns.

SEC Extends Broker-Dealer Responsibility Rule Comment Period a Month. The Securities and Exchange Commission has extended until June 18 the comment period for its Amendments to Financial Responsibility Rules for Broker-Dealers. The proposed changes to Rule 15c3-3 and Rule 15c3-1 would allow large treasury money market funds to be used as special reserves and collateral for brokerage firms. The proposal also includes a dramatic increase in disclosure requirements for lower-yielding brokerage "sweep" accounts to banks. Commments to date may be seen here. Federated Investors, which spearheaded the money fund-related changes, and counsel Dechert LLP expressed disappointment in the rules as currently written, saying, "Unfortunately, we believe that the proposed changes ... fall short of the needs of the marketplace."

Dreyfus Municipal Reserves Changing to Dreyfus AMT Tax-Free Reserves. As of January 2008, Dreyfus Municipal Reserves will change its name to Dreyfus AMT Tax-Free Reserves according to FundFiling.com. Dreyfus joins Fidelity and Schwab in naming "AMT-Free" money funds that avoid investing in securities subject to the alternative minimum tax (AMT). Money Market Funds Closed Memorial Day; Most Closing Early Friday. All money market mutual funds will be closed on Monday, May 28, Memorial Day, along with the New York Stock Exchange and U.S. financial markets. On Friday, most will shut down early with noon being a popular close, though some will be operating normal hours.

Money Fund Intelligence Conducting an Online MM Trading Portal Survey. In preparation for next week's New York Cash Exchange presentation, "Cash Supermarket Shopping: Comparing Online Money Market Trading Portals", Crane Data sent out brief surveys to our reader base asking about market share of various "portals", the amounts (basis points) charged by portals, and the overall size of the portal market. To participate in the survey (which is anonymous and includes a summary of results for respondents), e-mail pete@cranedata.us. We'd love to hear your feedback, and we hope to see you in New York next week! On another note, we've just implemented an upgrade of CraneData.us to increase the speed of the site, so please let us know if you encounter any problems.

Financial Week's "Rising Money-Fund Risks Raise Specter of Default", subtitled, "Growth in assets and yield-hungry CFOs lead money managers to invest in everything from credit card debt to auto loans", discusses growing risks in money market mutual funds. The article cites a Moody's seminar and survey where 47% of respondents thought money funds had gotten riskier (up from 39% in 2005). It also discusses the growing complexity of structured securities (quoting Peter Crane among others). Henry Shilling, senior VP at Moody's, said, "Quite frankly, not all of them [146 money fund complexes] have the resources that are required given the new reality associated with the type of securities they're buying."

"Bankerage" Cash Hits the Big Time Theme at The Reserve Cash Summit. Money market mutual fund and FDIC-insured sweep account pioneer The Reserve hosted The Reserve Cash Summit Thursday and Friday in New York. The diverse group of brokerages, banks, funds and cash industry attendees discussed trends in the $2.5 trillion money market fund business, the $500 billion FDIC insured sweep account sector, the movement of brokerages into banking ("bankerage") and the growing popularity of "cash" overall as an investment. Reserve Senior V.P. of Sales, Joe Martin, said to attendees of the new convergence of banking and investments and the battle for wallet share, "You're not going to want to have your account at a place that doesn't have checks, cards and cash." He added, "Possession of the cash is 9/10ths of the trade."

Money Market Mutual Fund Assets Hit a Record High of $2.5 Trillion. The spectacular growth of money funds continues with assets rising $18 billion in the week ended May 16 to $2.5 trillion ($2.485) according to ICI statistics. For May so far, money funds have risen by $50 billion; year-to-date, they're up $103 billion, or 4.3%; and over 52 weeks assets have surged by $407 billion, or 20%. The asset blast continues to be double-barrelled; both individual and institutional assets have risen sharply. Retail assets added $6.6 billion in the latest week and institutional assets added $11.7 billion. We expect inflows to continue and even to strengthen; we're projecting a $500 billion, 20+% gain, for calendar 2007.

Shareholder Accounts in Money Funds Rebound to 38 Million in 2006. In yet another excerpt from the Investment Company Institute's 2007 Fact Book, shareholder accounts in money market mutual funds totalled 38.4 million in 2006, 32.68 million retail and 5.76 million institutional. Table 35 "Total Net Assets, Net New Cash Flow, and Number of Shareholder Accounts of Money Market Mutual Funds by Type of Funds" shows that this total remains well below the year 2000's record of 48.1 million accounts. Undoubtedly, much of the decline can be traced to the "bankerage" trend, brokerages sweeping excess account cash into banks instead of money funds.

Money Market Mutual Fund Sales Transactions Break $15 Trillion in 2006. While net new cash flow to money market mutual funds was a 2nd-highest-ever $247.0 billion in 2006, an even more impressive number is the number of new sales and regular redemptions, both of which total over $15 trillion (with a 't'). The ICI Fact Book's Table 36 shows sales ($15.832 trillion) and redemptions ($15.621 trillion) hitting record highs in 2006, both about 25% higher than the prior year, and more than 3 times their level of a decade ago. In other words, the "velocity" of money fund assets has increased sharply, with more and more customers performing more and more transactions in these accounts.

Money Mkt Mutual Funds Paid Almost $100 Billion in Dividends in 2006. Money funds paid out $97.2 billion last year, their highest level since 2000 and second highest amount ever. Table 37 from the ICI Fact Book, "Paid and Reinvested Dividends of Money Market Mutual Funds by Type of Funds", shows that money fund holders reinvested over $62.0 billion of their $97.2 billion in dividends in 2006, 63.8% of the total. Money fund dividend totals are running well over this $100 billion a year pace so far in 2007, and should approach $120 billion, unless the Fed cuts rates soon or sharply.

CacheMatrix Adds Multiple Currency Option to Money Fund Portal. CacheMatrix Holdings LLC, which provides the back-end online money market fund "portal" trading technology to a number of banks and financial companies, has added the ability to trade multiple currencies to its offerings according to a press release. Founder George Hagerman says, "Our multi-currency enhancement provides banks with a powerful answer to the demand for a global money fund solution." Bank clients may now "trade, monitor and manage money market funds of multiple currencies in a single account; sort portfolio summaries by currency denomination; and research funds in aggregated or delineated view by currency."

Federated Investors' Cunningham Says of the 15c3-3 Market "It's Huge". In the current issue of Money Fund Intelligence, we interview Senior VP & Taxable Money Fund CIO Deborah Cunningham of Federated Investors. We ask about an S.E.C. proposal to modify Rule 15c3-3, which would allow large government money funds to be used as collateral for brokerage firms. She tells us, "We're in the process right now of attempting to get some things [passed by the SEC] that could open up another $100 billion in market assets, if it goes through as we would like it to.... It's huge." Comments are being accepted on the Proposed "Amendments to Financial Responsibility Rules for Broker-Dealers" until May 18. Comments so far may be seen here.

Private Placement 3c-7 Funds Attracting Interest Says Business Finance. In a recent article, "Cash Diets, Nimble Companies" in Business Finance, a publication picked up at the Treasury Management Association of New England show last week, we found a mention of "enhanced cash" funds. The article says these 3c-7 funds are growing in popularily, normally limit liquidity to T+1, and yield 5-10 basis points over money funds, citing Christopher Martin of JPMorgan Chase Liquidity Products. "Cash-plus", "money fund-plus" or "enhanced cash" funds are offered by most large institutional cash managers, including: American Beacon, Barclays, BlackRock, Columbia, Evergreen, General Electric, Lehman, Morgan Stanley, The Reserve and Western. The Crane Enhanced Cash Index, which tracks these funds, returned 5.37% annualized for the month of March 2007 vs. 5.15% for the Crane Institutional Money Fund Index.

CP, Repo, and Corporate Notes Among Most Popular Money Fund Holdings. At year end 2006, the "Asset Composition of Taxable Money Market Mutual Funds" was as follows: commercial paper (31.2%); repurchase agreements (20.3%); corporate notes (17.0%); certificates of deposit (10.0%); U.S. government agency issues (6.8%); Eurodollar CDs (4.3%); U.S. Treasury bills/securities (4.3%); bank notes (1.9%); cash reserves (0.3%); and other assets (3.9%). This according to the recently-released "2007 Investment Company Fact Book". The data tables show 5% jumps in both repo holdings and CP, and a 3% increase in corporate notes over the past two years. These increases came primarily at the expense of government agency holdings, which plunged from 17.2% at year end 2004 to 6.8%.

Mutual Funds Are Still the Biggest and Best Deal in Financial Services. At the Investment Company Institute's annual meeting, ICI Chairman and President of AMVESCAP Martin Flanagan summarized why mutual funds are still the biggest and best deal in the financial services indutry. He said, "In 1980, registered investment companies held nearly 3 percent of the financial assets of American households. In 2006, that figure was over 23 percent.... That's more than bank deposits, more than insurance policies, more than the individual securities in brokerage accounts. Investment in funds has grown because they provide the average American investor tremendous benefits. For a small investment, at a relatively low cost, an investor receives: A diversified portfolio; Professional investment management; Liquidity; and A wide range of choices and service levels. In my view, mutual funds provide the best value in financial services."

"Dreyfus's Larkin Times the Money Market to Beat Her Fund Rivals". Bloomberg Markets features a "profile" on Dreyfus Institutional Cash Advantage Fund and Patricia Larkin. "As interest rates approached a record low in 2002, Dreyfus Corp.'s Patricia Larkin found a way to beat most of her 120 competitors by setting up a money-market mutual fund to profit from Federal Reserve increases," says the article, which also cites Crane Data indexes and performance.

Phoenix Insight Money Market Fund Extends Trading Deadline to 4:30pm. As of Monday, May 14, two taxable Phoenix Funds, formerly Harris Insight, Phoenix Insight Money Market Fund and Phoenix Insight Government Money Fund, will extend their trading cutoff time from 3:30 to 4:30pm EST. Phoenix Insight Tax Exempt Money Market Fund will continue to close at 12:00pm. While 3:00 and 4:00pm closings remain popular, a number of the largest institutional money market funds will accept sales and redemption orders until 5:00pm. BlackRock TempFund and some other BlackRock Liquidity Funds are the only money market funds with 5:30 closing times.

Corporations and Nonprofits Increased Money Mkt Fund Holdings in 2006. This week, we've been recommending ICI's new "2007 Investment Company Fact Book" as a wealth of statistical information. Table 47 (p. 139) caught our eye, "Assets of Institutional Investors in Taxable Money Market Funds". It shows Business Corporations increasing their money fund holdings by 18.7% in 2006, from $331 to $393 billion. ICI also has a table showing that businesses increased their short-term assets allocation to money funds to 27% from 22% last year. (The all-time high was 28% in 2002; businesses have likely broken above that so far in '07.) Nonprofits showed the biggest percentage gain, increasing their money fund holdings 22% to almost $44 billion in 2006; Financial Institutions increased their holdings just 7% to $199 billion.

Crane Data LLC and Money Fund Intelligence Celebrate Their 1st Birthday. The May issue of Money Fund Intelligence marks the 1-year anniversary of the founding of Crane Data LLC and the first issue of MFI. We launched our company with the mission of faster, cheaper, cleaner money market and mutual fund information, and we continue to pursue this goal relentlessly. We'd like to thank all our early supporters, subscribers, reporters, and contributors. We look forward to many more years of serving the money markets! Please do not hesitate to contact us with any comments, questions, or requests. Sincerely, Peter G. Crane.

FNBO Direct Bank Offers 6.0% APY on Savings Through Sept. 28, 2007. The online subsidiary of First National of Nebraska, FNBO Direct, is offering a temporary 6.0% APY on its Online Savings Account. The move makes this little-known "largest privately held banking company in the U.S." the new No. 1 savings rate, following the expiration of HSBC Direct's 6.0% offer, at least until Sept. 28, 2007 (when the rate is pledged through). Even though these online banks are FDIC insured, we always wonder why someone is willing to pay interest rates so far above the market. We may be biased, and perhaps a bit paranoid, but we think over time you are better off, and safer, in a money market mutual fund. Note also that we don't include temporary offers in our "Highest Bank Savings/MMDAs" rankings.

ICI About To Release Its Annual "2007 Investment Company Fact Book". On Monday, the Investment Company Institute will post what is argueably the single most valuable publication for mutual fund researchers, the "2007 Investment Company Fact Book". The entire PDF, which contains everything from an "Overview of U.S. Registered Investment Companies" to Data Tables on "Worldwide Mutual Fund Totals", should be available late today at: www.icifactbook.org. The little book contains several section on money market mutual funds, and includes data tables on money fund assets, investors, portfolio composition and more. Look for more excerpts here, and for plenty of analysis, charts and tables in an upcoming issue of Money Fund Intelligence.

Money Fund Assets Rebound, Says ICI, Following Tax-Related Outflows. Total money market mutual fund assets rose by $11.8 billion in the latest week (5/2) follwing a two-week decline, according to the Investment Company Institute's weekly statistical release. Retail money fund assets continue to be impacted by April 15-related outflows; these funds lost $4.1 billion, dropping back to just below $1.0 trillion. Institutional fund assets increased by $15.9 billion to $1.45 trillion. Total money fund assets stand at $2.45 trillion, up $64 billion year-to-date (2.7%) and up $408 billion, or 20%, over the past 52 weeks.

"Money Market Funds Make a Quiet Comeback" Says Currier in IHT Article Today's International Herald Tribune and Boston Globe feature a money fund piece by Chet Currier of Bloomberg News, calling money market funds as a "hot property". Money funds, he says, have "been piling up the assets lately at an impressive pace, although with far less accompanying hype" than investments such as hedge funds and ETFs. They've grown by almost $600 billion, or 33 percent, in less than two years, as events have "enhanced their appeal on both sides of the risk-reward calculation". While PIMCO's Bill Gross warns of falling rates, the non-fringe consensus looks for yields to remain around 5.0%. The article cites our Crane 100 Money Fund Index, currently at 4.98%.

Bear Stearns Files to Launch the First "Cash" ETF, Current Yield Fund. Bear Stearns Current Yield will be actively-managed with the symbol YYY. It emphasizes that it is not a money market fund and that it will not attempt to maintain a $1.00 a share price. But it's mandate is very money fund, seeking "as high a level of current income as is consistent with the preservation of capital and liquidity" The Wall Street Journal says of the new ETF, "The new fund would seek to fill the same role in investors' portfolios as a money market fund, but will aim to offer higher yields in exchange for risk to investors' principal."

American Beacon Municipal Cash Plus Fund LLC Rated AAAf/S1+ by S&P. In a busy day for ratings, S&P assigned a AAA rating to the first ever municipal "enhanced cash" fund, American Beacon Municipal Cash Plus Fund. The LLC is managed by American Beacon Advisors and launched May 1. In other news, S&P also affirmed the AAAm rating of New York Liquid Asset Fund - Liquid Portfolio and MAX Portfolio as the advisor changes from Key Bank's Victory Capital Management to RBC Dain Rauscher's Voyager Asset Management. The NYLAF government investment pool is exclusively for New York school districts, municipal corporations, boards of cooperative educational services, and fire districts.

S&P Rates First Japanese Yen-Denominated Money Market Mutual Fund. Goldman Sachs Yen Liquid Reserves Fund, a subfund of Dublin-registered Goldman Sachs Funds PLC, was assigned an AAAm Principal Stability Fund Rating by Standard & Poor's Ratings Services today in London. Its the first Japanese yen money market fund rated by S&P. Moody's rates nine Japanese-domiciled yen funds, including offerings from Daiwa, Mitsubishi, Nikko, Nomura, Shinto, and Toyota. But this appears to be the first AAA yen offering from a worldwide money market fund provider designed for multinational institutional investors.