News Archives: June, 2007
Bloomberg's Chet Currier Ponders Stock Funds' Record Low Cash Levels. As we also noted in our "Link of the Day" yesterday, stock mutual funds are holding record low levels of cash (3.6%). Currier writes, "From as high as 6.5 percent in late 2000, the ratio dropped to 3.9 percent of total assets in August 2005, going below 4 percent for the first time ever in ICI records dating back to 1975. It hovered at or slightly above that point for the next year and a half." While he questions whether this is indeed bad news for stocks, we've been arguing that it's good news for money funds -- stocks can't reduce their money market holdings any lower.
Wells Fargo Advantage Going Live With 13 Basis Point Funds Monday. Wells Fargo is poised to launch two new low-cost institutional funds on Monday, July 2. Wells Fargo Advantage Cash Investment Money Market Fund Select and Wells Fargo Advantage Heritage Money Market Select will both have expense ratios of 13 basis points (0.13%). Cash Investment will have a minimum of $50 million; no minimum is listed for Heritage Select. In a growing response to demand from the high end of the money market, Wells joins a growing list of firms bringing out, or preparing to bring out, low-expense institutional money funds.
More New Money Funds In Pipeline From Old Mutual, Putnam, SEI, UMB. There have been a number of recent SEC filings for new money market funds, and several of these are preparing to go live. Old Mutual appears ready to launch with Old Mutual Cash Reserves (Institutional and Retail class). Putnam Investments has filed to launch a number of classes (including an Institutional) for Putnam Municipal Money Market. Putnam Muni MMF is expected to launch August 15. SEI Investments has filed to launch SEI SIMT Prime Obligation. UMB Scout Funds is launching Service classes on their Federal, Prime and Tax-Free money funds, which are scheduled to debut July 17 and will be used for sweep investment cash. UMB also plans to file for an Institutional class later this year.
Flight-to-Safety Cash Pushes Money Fund Assets Up Despite Quarter-End. Though money market mutual funds rose just $2.1 billion to a record $2.536 trillion in the week ended June 28 (according to the Investment Company Institute), the fact that there weren't quarter-end related outflows demonstrates that money funds experienced significant "flight-to-quality" inflows in the past week. (Last year, money funds saw outflows of $16 billion during the same week.) Money fund assets, which have been rising at an almost 20 percent pace over the past 52 weeks (up $416 billion, or 19.6%), appear poised to step it up a notch. Judging from recent flows, we expect to see a guargantuan asset jump in the first week of July. The first week of the new quarter normally sees big flows due to dividends, bond rollovers and a surge in balance sheet related cash.
Federal Reserve Stays On Hold at 1-Year Anniversary of Last Rate Hike. The Federal Reserve Board of Governors left its short-term benchmark Federal funds target rate unchanged at 5.25%. (See the Fed's statement and our "Link of the Day".) It's been exactly one year since the Fed last raised rates, making this the longest stretch of unchanged rates since the record low 1% rate July 2003 through June 2004 (long spells of unchanged rates are rare). An 18-month stretch of 5.5% rates from April 1997 through September 1998 ranks as the next longest unchanged time, a period -- with 5+% nominal rates and 3% (or so) real rates, a booming economy and rising stock market -- that looks very much like the current one. The latter 1990's saw one of the best stretches of money fund asset growth in history. In 1997, funds grew by 17.4%, and, in 1998, assets grew by 27.7%. Today's statement says the "Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected", so all indications are that rates will remain on hold and that flat is very good for money funds.
UBS Files to Launch Select Institutional, Preferred and Investor Funds. According to Simfund Filing, UBS Global Asset Management has filed with the SEC to launch seven new money market mutual funds. UBS Select Tax-Free Institutional, UBS Select Prime Preferred, UBS Select Treasury Preferred, and UBS Tax-Free Preferred will be aimed at the institutional market with expense ratios of 0.18% (Inst) and 0.l4% (Preferred). UBS Select Treasury Investor and UBS Select Tax-Free Investor will sport 0.43% ratios (including a 0.25% 12b-1 fee) for retail distribution. The new funds fill several major holes in UBS's institutional fund lineup. Currently, the company offers only the 0.18% expense UBS Select Treasury and UBS Select MMF, along with the former PaineWebber retail money funds, UBS CashFund and UBS RMA MMF.
Holiday Schedules and Early Trading Deadlines for 4th and 3rd of July. Money market mutual funds will be closed next Wednesday for the Fourth of July Holiday and most will close early on Tuesday, July 3. The Securities Industry and Financial Markets Association "confirmed its previous recommendation for an early close at 2:00 p.m.", though many fund companies are staying open until 3:00 p.m. or later. Late trading and early closings have become a competitive battleground among funds as online money market trading portals (which often have earlier closing times than the funds) and growing competition in the sector have forced companies to look for any service advantage. Funds have begun staying open later prior to Holidays, and some, like Reserve (which uses the tagline "If you're working, we're working"), make a point of staying open all day.
The Top 10 Most Visited Pages on Crane Data LLC's www.CraneData.us. Today, we rank the 10 most visited web pages on www.cranedata.us, so you can see what others find valuable. CraneData.us receives about 10,000 visitors a month, or over 300 a day, and is fast-becoming the most visited site on the web for everyone from money fund managers to individual investors. Crane Data's Top 10 Web Pages: 1) Homepage (you're on it); 2) Browse Funds (under Resources, now updated with 5/31 data); 3) News; 4) Resources; 5) People (under News); 6) Money Fund Families and Money Fund Portals (Resources Page); 7) Products: Money Fund Intelligence; 8) Search; 9) Link of the Day (Resources); and, 10) Basics (Resources). We're continuously adding to and improving the site, so please send us your feedback and news, and let us know what other features and information you'd like to see here!
Bloomberg.com: Treasury Bill Bull Market Driven by Money Funds. Treasuries are having their "biggest bull market for Treasury bills since the terrorist attacks on Sept. 11" says Bloomberg, writing, "Yields on three-month bills tumbled last week to a 16-month low of 4.53 percent" and "the unexpected surge in tax receipts may pare the budget deficit by 39 percent to $150 billion this fiscal year." It adds that the demand for 4-week, 3-month and 6-month bills is also being fed by money market funds. Government money fund portfolio managers Tim Huyck from Fidelity Investments, David Glocke from the Vanguard Group, and Karen Wiggan from Charles Schwab all are quoted in the piece, which discusses a dramatic shrinkage in Treasury supply and increasing demand from funds. Crane Data's Treasury Institutional Money Fund Index fell from 4.98% to 4.93% in May, and our Treasury Individual benchmark fell from 4.57% to 4.52%. Crane currently tracks approximately $191 billion in money funds which invest in Treasury bills and/or repurchase agreements backed by Treasuries.
Sunday NYT Gets It Wrong (Again) on "Highest 7-Day Yields" AP Tables. We noticed that, yet again, the New York Times has implausible information in its Sunday "Highest 7-Day Yields" table (DataBank, Rates and Yields on p. 9 in the Business section). The table, which is Sourced: Associated Press, shows the top fund as "FrnkIFT" yielding a way-too-high 5.49% simple, 5.92% compound. Franklin IFT (INFXX) should be yielding something like a (mediocre) 4.83%. The rest of their top funds list looks okay, though it's missing several top funds and the abbreviations are almost impossible to read. Money funds do occassionally have "accounting adjustments" which spike yields up temporarily, but these should be caught, and removed, by range checks. NYT/AP has been just plain bad with its Sunday top money fund numbers; yields of over 6.0%, impossible for a money fund, have appeared over the last two months. We've attempted to get them to clean up their tables, but so far to no avail!
Money Market Yields Fall From Flood of Bond Flight-to-Quality Cash. Expect money market mutual fund yields to continue inching lower in coming days as cash continues to "get short". Declines in longer-term bonds and issues with mortgage hedge funds and with esoteric fixed-income instruments are causing a flood into the money markets, driving yields lower. Continued volatility in stocks too is making "cash" very tempting in this environment. To date, the repo, ABCP and money markets have not been impacted by the mortgage and bond problems. Money market funds appear to have limited exposure to CDO debt, and no direct exposure to subprime CDO. Money funds also should benefit from the return of a yield curve, as they become able again to obtain higher-than-overnight yields.
More Comments Posted on SEC Proposed Broker Dealer 15c3-3 Rules. Though the comment period ended Tuesday, a number of last minute responses to the SEC's Proposed "Amendments to Financial Responsibility Rules for Broker-Dealers" have just been posted. The letters, all of which support the SEC's proposal to allow money funds for broker reserve deposit requirements, urge the Commission to allow all money funds, money funds which invest in "first tier" securities only, or AAA money funds. They also argue that the proposed "haircut" applied to money funds be reduced to zero instead of one percent. Just-posted response letters include: American Beacon's Mike Fields, Barclays' David Lonergan, BBH's Frank Perrone, and lawyers from BlackRock, ICI, UBS, and surprisingly strong support from the U.S. Chamber of Commerce. ICI's letter also footnotes the introduction of H.R. 1171 in Congress, the "Money Market Fund Parity Act of 2007", to direct the SEC to expand the use of money funds.
Money Fund Assets Power Through Qtrly Corporate Tax Payment Date. Assets of money market mutual funds rose by $4 billion to a record $2.534 trillion despite the presence of June 15, a quarterly corporate tax payment date which normally drains assets from funds. ICI reports that retail money fund assets increased by $4.9 billion to $1.030 trillion while institutional assets decreased by $967 million to $1.505 trillion. `Money fund assets have grown by $398 billion, or 18.6%, over the past 52 weeks, and by $152 billion, or 6.4%, year-to-date. Assets should decline temporarily as we approach quarter-end, but should continue their skyward march in July.
Barclays Global Revamps BGICash.com Website, Adds Online Trading. Barclays Global Investors has added online trading and an online trading demo to its www.bgicash.com U.S. liquidity funds website. The company has been upgrading and customizing the web areas for its money market funds for several months. The state-of-the-art website now includes account information, trading, daily and long-term fund performance (customized to whether you're a U.S. investor, an "offshore" investor, or both), and a document library. The site also features real-time trade acknowledgments and "facilitates online trading up to the normal fund cut-off time says Barclays. Crane Data conducted a rating of money market mutual fund websites in the February 2007 issue of Money Fund Intelligence. Look for future surveys and rankings on fund websites, and please send us your input!
Money Market Fund Expenses Fall to 40 Bps in 2006 Says ICI Fee Study. The Investment Company Institute released "Fee and Expenses of Mutual Funds, 2006", a study of fund expense ratios and loads over the past 25 years. Money market fund expenses dropped 2 basis points (0.02%) to an asset-weighted average expense ratio of 0.40% in 2006. Since 1980, money fund expenses have declined by 15 basis points, from 55 to 40 bps. ICI's Sean Collins attributes the deline "in part to a dramatic increase in the share of money fund assets held in institutional money market funds ... businesses and other institutions have increasingly recognized the benefits that institutional money funds offer in terms of scale economies, liquidity, diversification, and monitoring of credit risk". He adds that "the market share of retail money funds has been pushed down since the late 1990s because brokerage firms have relied less on money market funds and more on bank deposit accounts as cash management vehicles for their retail clients".
Comments Urge SEC to Allow AAA Rated Money Funds for 15c3 Reserves. The comment period for the SEC's Amendments to Financial Responsibility Rules for Broker-Dealers ended yesterday, though several responses have yet to be posted. Several last-minute comment letters, including ones from The Reserve's Bruce Bent and SIFMA, urge the SEC to allow AAA rated money market funds instead of only Treasury money market funds as "qualified securities" for brokerage reserve account requirements under Rule 15c3-3. The Securities Industry and Financial Markets Association also argued to eliminate the requirement that a money fund not be affiliated with a broker-dealer and argued against many of the more onerous disclosure requirement for free credit balanace "sweep" arrangements. The ICI's comments have yet to be posted.
Will The Bond Market Meltdown Hurt Cash Plus and Enhanced Cash Funds? Any time any market experiences a downturn, macabre observers and paranoid fiduciaries look for casualties. The recent short, sharp drop in bond prices is sure to reveal some additional damage, though, of course, money market funds will be unscathed. (See The Times Online's "Bond meltdown: how it will hit your investment portfolio".) This got us wondering whether the nascent, heretofore rapidly growing sector just beyond money market funds -- cash plus, enhanced cash and ultrashort bond funds -- may be adversely impacted. But since most of these funds are "private placements" or "3c-7" funds which don't have the daily "mark-to-market" requirements of mutual funds, it may take some time to gauge the impact. We'll be watching though....
Reuters Covers Lawsuit Over Low-Yielding Brokerage "Sweep" Accounts. In what could be very bad news for brokerages with low-rate bank sweep accounts, Reuters just posted a story "Wachovia added to lawsuit over brokerage sweeps". Until now, only Investment News and Crane Data have covered the news, but the Reuters piece has already been picked up by several outlets. The lawsuit says Wachovia, Citigroup, Merrill Lynch, Morgan Stanley, and Charles Schwab "automatically sweep cash into bank accounts that pay low rates, rather than money market or savings accounts yielding 4 percent to 5 percent." The potentially class-action lawsuit claims that these accounts "cover about $186 billion of client cash, and typically penalize customers with less than $250,000 or $500,000 in their accounts the most", says the Reuters story. The average brokerage sweep rate is 2.77%, as measured by our Crane Brokerage Sweep Index while the average money market mutual fund rate is 4.98%, as measured by the Crane 100 Money Fund Index (the 100 largest money funds).
HSBC's Knight Writes on "Five Effective Principals of Cash Management". The latest GTNews.com (see yesterday's "Link of the Day" for more) includes a number of money fund-focused articles. The lead, by HSBC Investment's Peter Knight, discusses "five principals that have proven to be effective cash management for corporations". These tenets include: "Manage cash flows effectively, "Forecast cash flows accurately, "Tranche cash flows intelligently (into short-term "operational" cash, medium-term "core" cash, and long-term "strategic" cash)", "Establish an appropriate investment policy", and "Implement effective investment management". Knight, former Chair of IMMFA is currently overseeing HSBC's expansion into the U.S. institutional money fund business.
Money Fund Assets Eke Out Another Record in Latest Week Say ICI #'s. The Investment Company Institute's weekly money market mutual fund series show assets rising $1.3 billion to a (barely) record high of $2.53 trillion for the week ended June 13. Retail funds rose $1.2 billion to $1.025 trillion and institutional funds rose $54 million to $1.506 trillion. Year-to-date, money fund assets have increased by $148.2 billion, or 6.2%. Over the past 52 weeks, money fund assets have increased by $401 billion, or 18.8%. Assets should dip as we approach June 29 due to normal quarter-end outflows, but should continue their rapid expansion in early July.
IMMFA Considers Pushing for the Regulation of European Money Funds. The Institutional Money Market Funds Association (IMMFA), a group representing European AAA-rated money funds, is "consulting Members, Associate Members and other interested parties that operate within the money market fund industry about the most appropriate approach to the regulation of 'treasury style' money market funds and in particular on the possibility of creating a standard local regulatory regime to replace the existing IMMFA Code of Practice." Europe currently has no standardized definition or regulation of "money market funds", but has a growing cadre of Dublin-registered, stable-value "liquidity" funds (270 billion pound sterling or $355 billion in assets says the document). We urge IMMFA members to resist half-measures and to back full Europe-wide regulation, defining money market funds with quality, maturity, and diversity standards equivalent to the U.S.'s Rule 2a-7. (E-mail info@cranedata.us if you'd like to participate in a trial of Money Fund Intelligence International, a publication covering non-US money funds, which will be rolled out in the coming months.)
Tax-Exempt Money Fund Managers Concerned About TOBs Says Fitch. Fitch Ratings just released the results of a "Survey of Tax-Exempt Money Fund Portfolio Managers, Credit Analysts and Traders," authored by Viktoria Baklanova, Jennifer Minelli, Louis Lazzara, and Fritz Gallagher. Highlights include: "About one-third of survey participants are concerned about the massive use of TOB products"; While 73% believe the demand for tax-exempt money funds will continue to grow, 52% do not expect significant growth; and, the most important challenges, according to managers, involve "Changes in the economic and/or interest rate environment", "Compressed spreads", and, "New muni entrants such as hedge funds and CDO managers".
Mellon LMS Adds Common Fund and GE Enhanced Cash, Cash+ to Portal. A press release today announced that The Common Fund for Short Term Investments, a "bank common trust fund maintained by Wachovia Bank" is now available to nonprofit, educational and trust customers via Mellon's LMS online trading "portal". "Commonfund has a long history of serving higher education institutions with investment advice and products," says Steve Cobain of Mellon. LMS also now offers GE Enhanced Cash and GE Cash Plus, private placement "3c-7" funds available only to qualified investors. In addition, the Mellon portal now offers enhanced "pre-trade compliance functionality" for monitoring investment guidelines. Mellon LMS is the industry's largest online money market trading portal with over $25 billion in assets, according to a recent Money Fund Intelligence survey.
Four Brokerages Sued Over Low-Paying Deposit Sweep Accounts. Investment News reports that Merrill Lynch, Morgan Stanley, Smith Barney, and Charles Schwab are being "sued for allegedly forcing clients into lower paying deposit accounts". (Wachovia was also just added to the suit Monday.) The class action suit, filed in U.S. District Court for Southern New York, was launched by Joel Laitmain of Schoengold Sporn Laitman & Lometti PC. "The crux of the lawsuit is that at the same time the firms have positioned their brokers as objective financial advisers, they are forcing customers into bank deposits that pay less than market rates, while failing to disclose their large profits from deposit programs, and the attendant conflicts," says the article.
Money Fund Intelligence Is "Measuring Money Fund Trading Portals" in its June issue. The article ranks online money market trading portals and platforms by Crane Data's estimates of money fund assets under management as well as by a Money Fund Intelligence reader survey. The piece says Mellon LMS, SunGard STN, and Institutional Cash Distributors rank as the largest "portals" with over $20 billion each. Over 20 portals and platforms currently distribute as much approximately 16% of institutional assets, says MFI, which also explores whether there is a "dark side" to the rapid growth of portals.
E*Trade Extends $25 Signup Bonus on 5.05 Percent APY Savings Account The blog Bank Deals says E*Trade has extended its new signup offer until Dec. 31, 2007. However, judging from blog postings, there appears to be confusion over who gets the new account $25 credit. Some have had to complain to get it. Recent stock and bond market drops are beginning to heat up competition in the already hot money market space. We expect to see bond investors in particular continue to flee for the safety of cash.
Money Mkt. Mutual Fund Assets Explode in June, Up $40 Billion in Week. The Investment Company Institute reported that money market mutual fund assets skyrocketed in the first week June, rising $39.85 billion to an all-time record $2.526 trillion. Though money fund asset flows are volatile and heavily dependent on calendar and seasonal effects, this was one of the strongest weeks ever. Institutional money funds continued their Q2 surge with a $31 billion increase, breaking above the $1.5 trillion level for the first time ever. Money fund assets have increased by $411 billion over the past 52 weeks (19.6%), and have increased by $144.2 billion (6.2%) year-to-date in 2007. Money funds are taking market share from brokerage sweep programs, bank deposits, and other asset classes as investors realize that 5% yields may be here for awhile.
SEC Releases Final NRSRO Regulations; No Rule 2a-7 Changes, For Now. The Securities & Exchange Commission has issued its final rule on "Oversight of Credit Ratings Agencies Registered as Nationally Recognized Statistical Ratings Organizations", which allows for more competition in the space currently dominated by Moody's, Standard & Poor's and Fitch Ratings. Money fund professionals are concerned about the possible impact to and weakening of Rule 2a-7, the regulations governing money funds, because the rule defines "Eligible Securities" ("First Tier" and "Second Tier") based on ratings from NRSROs. The SEC release mentions some concerns of money funds and says, "As the program develops, the Commission will evaluate whether modifications to these rules [2a-7] would be appropriate." Note: Thanks to Reed Smith's Stephen Keen for pointing these changes out.
Calamos Investments Up-and-Running With Its Money Market Mutual Fund Calamos Government Money Market Fund is a new institutional, or institutions-only, fund, which launched on May 16. The fund is currently yielding 5.05% (7-day simple as of 6/5/07) and has a weighted average maturity (WAM) of 26 days. Senior Strategy Analyst and former Scudder Kemper veteran Frank Rachwalski, Director of Fixed Income Matthew Toms, and Co-Chief Investment Officers John P. Calamos, Sr. and Nick P. Calamos will oversee the government-security only fund. Calamos Government Money Market Fund's NASD ticker symbol is CGIXX; its CUSIP is 128119328; its minimum is $1 million; and its expense ratio is 0.27%. The fund will appear in the pending June issue of Money Fund Intelligence and will be listed among the "Fund Detail" pages on http://www.cranedata.us soon thereafter. Visit http://www.calamos.com or call 1-800-582-6959 for more information.
ICI Opposes Move to Include Stable Value Funds Among 401k Defaults. The Investment Company Institute has written a letter to the Office of Management and Budget (OMB) opposing the American Council of Life Insurer's (ACLI) request to return stable value funds to a list of automatically selected default options for 401k plan participants. Companies may now designate balanced, lifecycle, and asset allocation funds for automatic enrollment in 401k plans, but money funds and stable value funds are currently excluded from the "default" options list. The ICI letter says that "approximately $83 billion of 401(k) assets is invested in money market mutual funds" and "money market funds are equally inappropriate as default investments for retirement savings." For more, see WSJ's "Funds Argue Against 401(k) Insurance Options" and Investment News' "Trade groups facing off over stable-value funds".
MarketWatch features Money Markets in "Safe Havens to Stash Cash". Subtitled, "Attractive yields make money markets, CDs strong alternatives to bond funds," the article reviews money market funds (includes Crane Data quotes, rankings and indexes), bank money market deposit accounts, and certificates of deposit (CDs). "In the choice between short-term bond funds and more liquid accounts, money markets are the better deal nowadays," says MarketWatch.
Wachovia Merger Likely Bad News for A.G. Edwards' Cash Sweep Rates. Saturday's Wall Street Journal features an article, "What to Watch As Big Brokers Tie the Knot". The piece says, "A.G. Edwards customers also could see yields fall on their idle cash, which brokers park in so-called sweep accounts. According to Money Fund Intelligence, A.G. Edwards currently pays the highest rates among all major brokerages on "sweep" cash (4.64%), while Wachovia pays the lowest (1.00% or less). Friday's Journal piece on the merger said Wachovia's, "Mr. Thompson said he plans to boost the Edwards brokers' productivity, partly by shifting more client cash from money-market funds into its own insured bank accounts, where customers often get low rates but Wachovia can reinvest the funds more profitably."
Money Fund Assets Fall on May Month-End; Decline $6.2 Billion for April. ICI's latest weekly statistics show money market mutual fund assets declining by $8.7 billion to $2.489 trillion for the week ended May 30. Fund assets almost always temporarily decline at month-end due to "window-dressing" and demand for cash from payrolls and such. Retail funds increased by $1.5 billion, but Institutional funds decreased by $10.2 billion. Year-to-date, money funds have increased by $107.3 billion, or 4.5%. For April, money fund assets declined by a light-for-tax-season $6.2 billion, according to ICI's monthly asset series.
