News Archives: July, 2007

"A Stumble for 'Bank Loan' Mutual Funds" Writes Wall Street Journal. Bank loan funds, which have often been marketed as higher-yielding alternatives to money market funds, have lost 1.43% in the past month and investors have started pulling money from them reports today's Wall Street Journal. "While that decline may seem relatively slight, it contrasts with the stability the funds, which sometimes get compared with ultrasafe money-market funds, have offered in the past several years," says the article. It cites Financial Research Corp. data estimating the bank loan fund sector to be $42.8 billion in June. Bank loan funds, stable value funds, and ultra-short bond funds attempt to offer higher returns than money funds, but they lack the regulatory quality, maturity and diversity mandates, and lower expense ratios, of money funds and often end up reaching too far for yield.

FinancialWeek: Super-Premium Shares "Big Drop in Money-Market Fees". Following up on Crane Data's July Money Fund Intelligence article "How Low Can Money Fund Expenses Go?", this week's Financial Week writes on the "Big drop in money-market fees". "With corporate finance execs and institutional asset managers shopping around for the best deals on money-market funds, expense ratios are falling to new lows. And a new segment of money-market funds is cropping up as a result, catering to the so-called super-premium end of the market". The article quotes Peter Crane, "As investors use more money funds and become more yield sensitive, the money is getting hotter. And that money moving around is causing a lot of companies that heretofore could bank on their good name or credit quality to ask 'Can we afford to have 20 basis points as our lowest-cost institutional money fund?'." It mentions the recent introduction of Wells Fargo Advantage Cash Inv MM Select and new filings for UBS and State Street funds.

ICI Monthly Assets: Money Funds Up $42.7 Billion in June; $183.2 YTD. The Investment Company Institute just released its "Trends in Mutual Fund Investing: June 2007", showing that money funds were practically the only asset gainer among mutual fund categories last month. (Taxable bond funds eked out a gain, but all stock and other fund classes showed declines.) Money fund assets rose $42.7 billion to a record $2.538 trillion. New money (inflows) accounted for $34.6 billion of the increase. (Crane Data normally focuses its analysis on ICI's weekly series since it's released in a much more timely manner.) Year-to-date through June 30, money funds increased by $183.2 billion, or 7.8%. Net new cash flow, which excludes dividends, totalled $128.97 billion YTD in '07 vs. a YTD total of $36 billion for the first half of 2006. Liquid assets of stock mutual funds reached a new record low of 3.5%.

Return Is Risk: "Generous Yields Should Have Alerted Them to Risks". Today's New York Times has the quote of the week in a story "Summer School For Investors Is in Session". Columnist Gretchen Morgenson discusses the CDO (collateralized debt obligation and mortgage market meltdown, saying, "Investors bought into the myth of highly rated securities even though their generous yields should have alerted them to risks." We're always been believers that risk equals return, that there's no free lunch, and that you can learn everything you need to know about an investment by just looking at the yield. The article also has a chart entitled, "Everybody Gets AAA".

Luxembourg-Based AXA IM US LIBOR Plus Strategy Fund NAV Plummets. The NAVs of two AXA IM US Libor Plus strategy funds, funds whose objective is to "outperform US Libor by 50 basis points", fell by 13.45% and 12.6% last week following a "major correction ... in the US MBS/SS asset-class" and downgrades in securities in this sector. AXA has implemented temporary measures "in light of extraordinary market conditions" to purchases any shares wishing to redeem at "the prevailing NAV". AXA will bear "the full market risk" for these shares. The fund, based offshore, is not a money market fund. Some LIBOR plus strategies, however, are marketed as "money fund plus" vehicles.

Federated Earnings Ride High on Money Fund Asset Surge in Q2. Federated Investors announced impressive Q2 2007 earnings last night and hosted its conference call this morning. Assets and earnings were up 23% over the year earlier period. "The environment for cash management products during the second quarter benefited Federated across our distribution channels, as the firm saw $8.6 billion in asset growth in our money market funds, said CEO J. Christopher Donohue. Federated's money fund assets reached a record $193.4 billion, up $35.1 billion (22%) over 1 year and up $7.4 billion (4%) in Q2. Increases were largest in the broker-dealer segment (up $5 billion) -- the acceleration was caused by "interest rates making money funds more attractive". The company now manages $450 million in CFTC and $800 million in OCC "functional equivalency" collateral cash. Federated continues to lobby for 15c3-3 broker cash, noting the introduction of House bill 1171. Money funds account for 48% of Federated's revenue, so the company serves as a bellwether for the industry overall.

Treasury Strategies' "The New Era of Liquidity Management" Webinar. Earlier today, consulting firm Treasury Strategies hosted a WebEx seminar on corporate liquidity. TSI, which recently began its "2007 U.S. Corporate Liquidity Research Program", introduced this event, "Liquidity remains at an all time high. Companies are facing greater challenges in managing their global liquidity and effectively leveraging technology." During the Webinar, which contained discussions on online money market trading portals, sweep accounts, and liquidity management, 38% of attendees indicated that they use investment "portals". Another nugget of wisdom included the finding that sweep balances are larger than DDA (demand deposit account) balances. TSI estimated total global liquidity at $12-13 trillion (of which $5.5 trillion is in the U.S.). A link to the recording of the event and slides will be available in a week.

TRACS Financial to Host LGIP and Muni Investment Symposium in Utah. TRACS Financial, a research firm which covers the state, county, and local government investment pool market, and which publishes "The Public Interest" newsletter, will be hosting a conference August 5-8 in Park City, Utah. TRACS Director, host and LGIP monitor Jeff Flynn tells us that cash-related speakers will include Jack Winters from Credit Suisse Asset Management (who is also interviewed in the Money Fund Intelligence August issue), Chriss Street, Treasurer of Orange County, Calif., Thomas Jordan of MBIA Asset Management and Peter Rizzo of S&P. For more information on the conference or on LGIP newsletter "The Public Interest", e-mail

Futures Industry Association Discusses "Managing Cash and Collateral". The Futures Industry Association (FIA) hosted a recent conference, OpTech 2007, featuring a panel on "Managing Cash and Collateral". It involved several major participants in the world of money market funds and collateral held by Futures Commission Merchants (FCMs). Since 2001, money market funds have been permissible investments for FCM collateral under the Commodity Futures Trading Commission's Rule 1.25. Brown Brothers Harriman's ComSet Plus platform, the Chicago Mercantile Exchange, and others sponsored the event, and "Cash" panel speakers included Maureen Burke from Merrill Lynch, Michael Kobida from the Chicago Mercantile Exchange's IEF2 Money Funds Program, Arthur McCoy from NYMEX, Ken Nehlson from Fimat, and Frank Perrone from BBH. A recording of the session is available here.

SSgA Files for Premium Classes; Schwab Enters State AMT-Free Arena. State Street Global Advisors has filed to launch new Premium and Investment share classes on its SSgA Treasury, SSgA Treasury Plus, SSgA Government, and SSgA Institutional Tax-Free Money Market Funds. All the new classes will have $25 million minimums and 0.10% management fees. While total expense ratios aren't available, it appears that the Premium classes are meant to complement the 0.12% expense State Street ILR. State Street appears to be joining Wells Fargo, which recently launched 13 bps Select classes, UBS, which has filed for 14 bps classes, and others, in launching "premium institutional" classes with super-size minimums and very competitive expense ratios. In other news, Schwab joined the state AMT-free revolution, filing for Schwab CA AMT Tax Free Money Fund. Until now, Fidelity has had the only state AMT-free funds; it recently launched Institutional classes for its CA, MA, and NY AMT Free money funds.

S and P Rates UMB Scout MMF Prime and Victory Institutional MMF AAAm. Standard & Poor's Ratings Services announced that it has awarded its AAAm principal stability fund rating to UMB Scout Money Market Fund Prime (UMPXX), managed by UMB Bank subsidiary Scout Investment Advisors, and to Victory Institutional Money Market Fund, managed by Key Bank subsidiary Victory Capital Management. A triple-A rating reflects "the fund's extremely strong capacity to maintain principal stability and to limit exposure to principal losses due to credit, market and/or liquidity risks." Separately, S&P said it rated the Broward County Investment Portfolio AAAf/S1+, the first county local government investment pool in Florida to receive this rating. Many institutional investors require independent AAA ratings in their capacity as fiduciaries.

ICI Urges Audit Firms to Forego Schedule of Investments Says Ignites. Mutual fund news service informs us that the Investment Company Institute is lobbying the AICPA (American Insitute of Certified Public Accountants, writing recently to "enable money market funds to omit the schedule of investments from their shareholder reports, consistent with recent SEC rule changes". Friday's article, "Money Market Proposal Could Save Firms Millions" says the change "would spare fund shops from having to include investment schedules in their shareholder reports" and could save fund groups millions in printing costs. The AICPA still requires portfolio holdings to be listed for fund's mandatory annual audits, though the SEC modified its requirements in 2004 to allow money funds to omit these schedules.

Federated Investors' "Cash Market Update" Says All Good for MMFs. Federated's Deborah Cunningham writes in her most recent (July 9) commentary entitled "Money market funds moved to lengthen maturities in June", "The cash yield curve steepened in June as the preponderance of economic data persuaded investors that growth was strong enough - and inflation persistent enough - to keep Fed policy on hold until next year.... In our view, the backup in interest rates created attractive opportunities at the longer-end of the cash yield curve. Cunningham adds on subprime mortgage and CDO issues, "So far, fallout from weakness in those sectors has mostly been felt in the bond market; spreads on money-market eligible securities have not been effected to any significant degree.

PFPC Institutional Cash Portal Services Adds Offshore Money Funds. Mutual fund transfer agent and accounting company PFPC, which provides the systems, operations and back-end functionality to online money market trading portals including Treasury Curve, recently added offshore money market mutual fund capabilities to its Institutional Cash Portals Support Services. PFPC's Dublin subsidiary provides subaccounting and services for a number of European-domiciled money market funds. "PFPC's liquidity portal capabilities are unique in that they leverage our industry leading mutual fund subaccounting technology ... to provide next generation support for your cash portal," says the company.

Reich and Tang's Daily Dollar International AAAm Rating Was Withdrawn. The AAAm principal stability rating on the $40 million Daily Dollar International Ltd., sponsored by Reich & Tang Asset Management LLC, has been withdrawn at the request of the sponsor, according to a press release from Standard & Poor's. S&P will no longer perform weekly surveilance on the fund. The fund is an "offshore" money market mutual fund registered in the Cayman Islands. The larger, $2.1 billion Daily Dollar International II continues to be rated AAA by S&P and Moody's. Reich & Tang is a subsidiary of Natixis Global Asset Management.

Money Market Assets Pause Record Ascent Due to Institutional Outflows. ICI reports that money market fund assets declined by $6.36 billion in the latest week to $2.573 trillion. Institutional funds declined by $9.24 to $1.531 trillion. July 16 was a Treasury note settlement day, causing overnight "repo" rates to spike up to 5.32% (source: Wrightson ICAP) and drawing cash from funds. Retail assets continued to grow, rising $2.89 billion to $1.042 trillion. Money fund assets have increased by a stunning $425 billion, or 19.8% over the past 52 weeks. Assets should resume their climb next week and should strengthen as we move towards the fall.

BlackRock Files for 18 Bps Merrill Lynch Select Institutional Fund. BlackRock has filed with the Securities & Exchange Commission to launch Merrill Lynch Select Institutional Fund, reports SimFund Filing. The new fund, which will be managed by BlackRock Advisors' Thomas Koligamo, will have a $10 million minimum investment and an expense ratio of 0.18%. FAM Distributors will distribute the fund and State Street Bank & Trust will be the transfer agent and custodian. The fund joins the 23 basis point expense, AAA-rated Merrill Lynch Institutional Fund and the non-rated, 17 bps expense Merrill Lynch Premier Institutional Fund in BlackRock's Merrill Institutional Series lineup.

More Flat for Fed Funds Rate; Inflation Remains Bernanke's Main Concern. In his semiannual appearance, Federal Reserve Chairman Ben Bernanke told Congress yesterday that "With the level of resource utilization relatively high and with a sustained moderation in inflation pressures yet to be convincingly demonstrated, the FOMC has consistently stated that upside risks to inflation are its predominant policy concern." The Fed expects the economy to continue growing at around 2.5%, expects inflation to ease to 2%, and expects unemployment to remain at 4.75% in 2008. The Wall Street Journal's Fed watcher Greg Ip writes, "Don't expect interest rate cuts anytime soon.... [T]he Fed continues to see less risk to the overall economy than many investors fear." Money market mutual fund yields follow the Federal funds target rate, currently 5.25%, so cash investors can expect 5% yields to persist and the good times to keep rolling. The entire text of Bernanke's comments, along with the Fed's "Monetary Report to Congress", may be seen here.

June 2007 Crane Money Fund Indexes Show 5% Yields Propagating. The most recent Money Fund Intelligence (July) and Crane Index publications showed money market mutual fund and "cash" averages remaining relatively steady in the month ended June 30, 2007, but longer-term returns continue to be pulled upwards. The Crane Money Fund Average, our broadest measure of money fund performance (740 taxable funds) yielded 4.80% and 4.82% (7-day and 30-day current yields, respectively, as of June 30, 2007). For 1-month, the Crane Average returned 0.40%; for 3-mos. 1.21%; year-to-date (6 mos) 2.42%; 1-year 4.94%; 3-yr 3.47%; 5-yr 2.40%; and, 10-yr 3.50%. The higher-yielding Crane 100 Money Fund Index, an average of the 100 largest funds, returned: 0.41% (1-mo); 1.24% (3-mo); 2.49% (YTD); 5.08% (1-yr, up from 5.06% last month); 3.63% (3-yr, up from 3.52%); 2.56% (5-yr, up from 2.50%); and 3.66% (10-yr). The Crane Brokerage Sweep Index, which tracks the largest "bankerage" programs, returned 2.80% in June (annualized). Contact us to see the July issue of Crane Index.

Recent Advisor and Shareholder Services Agent Changes in SEC Filings. Crane Data has partnered with, a website and consulting firm run by Max Rottersman, to analyze fund advisor, shareholder service agent, auditor, custodian, and investment guideline changes contained in a fund's latest semiannual and annual report SEC filings. Among the recent changes: PFPC (for State Street) is the new shareholder services agent for the Allegiant money funds; Axia (renamed from BoK) is the new administrator for the American Performance Funds; Western Asset Mgmt is the renamed advisor (from Smith Barney); Boston Financial Data Services (for State Street) is the new shareholder services agent for the TIAA-CREF Institutional Money Fund; and, UMB (formerly Bisys) is the new shareholder services agent for Williams Capital Liquid Assets Fund. E-mail Pete for a full listing of recent changes.

Investment News on 15c3: "Dispute Over Broker-Dealer Cash Erupts". Today's article discusses some of the late comment letters on the SEC's Proposed "Financial Responsibility Rules for Broker-Dealers", which will allow the use of money funds, and prohibit the use of affiliated banks, for reserve deposits. "Reserve funds total some $150 billion in assets", said Eugene Maloney, of Federated Investors. Maloney says 30% of reserves are in government paper and 70% are in "unsecured deposits at commercial banks" adding, "Diversified AAA-rated money funds are far superior riskwise to unsecured deposits at one bank."

Three-Way Tie for Year-to-Date Leader Among Money Mkt Fund Returns. According to the latest Money Fund Intelligence XLS rankings, three funds are tied for 1st place in YTD (year-to-date) total returns through June 30, 2007. At the half-year mark, Barclays Institutional MMF Inst, Credit Suisse Inst MMF Prime A, and Morgan Stanley Inst Liq MMP Inst all have returned 2.65%. American Beacon MM Select, Janus Inst Cash Mgmt Inst, Lehman Bros ILF MMP Inst (and LB Prime Inst), MS IL Prime Inst, Putnam Prime MM I, and DWS MM Series Inst all trail the leaders by a mere 1 basis point with 2.64% returns. Our Crane Money Fund Average has returned 2.42% (724 taxable funds), while the Crane 100 Money Fund Index has returned 2.49%. Money market funds have thoroughly outperformed bond funds year-to-date in 2007 (see Sunday's "Link of the Day", and are on course to return over 5% in 2007.

Treasury Strategies Inc. Launches Latest Corporate Liquidity Survey. Chicago-based Treasury Strategies announced this afternoon that it has begun conducting its annual U.S. Corporate Liquidity Survey, the "leading study on short-term investments and liquidity practice". Managing Director Jeff Avers says, "Last year, the number of corporate treasuries that projected a year-over-year increase in their cash balances equaled the number that projected a decline. Those treasuries projecting an increase cited improved operating cash generation." This year's survey includes new questions on online money market investment portals, as well as the traditional investment policies and short-term investment allocations. Last year, Treasury Strategies estimated the total size of the U.S. "liquidity" market at $5.4 trillion. Click here to take the survey (by July 27).

Bound for $3 Trillion: Money Mkt Fund Assets Continue Dramatic Surge. Money market mutual fund assets continue to climb sharply, rising $20.2 billion to a record $2.579 trillion, according to the most recent weekly totals from the Investment Company Institute. Money funds have gained a stunning $30 billion over the past two weeks, $197.6 billion year-to-date (8.3%), and $440.0 billion (20.6%) over the past 52 weeks. Institutional assets have risen by $300 billion, or 24.2%, to a record $1.54 trillion over the past year; retail assets have grown by $140 billion, or 15.6%, to a record $1.04 trillion. If the recent 20% growth rate of assets holds -- and we believe it will even accelerate -- money fund assets should reach $3.0 trillion in less than 10 months.

State Street Global Advisors Profiled in Latest Money Fund Intelligence. Crane Data's monthly Money Fund Intelligence interviews State Street Global Advisors Senior MD and Head of Cash Management Steven Meier and Senior Portfolio Manager Jeff St. Peters in its latest issue. The pair discuss State Street's "Big Footprint" in the cash marketplace and the world of securities lending cash collateral. Regarding the policies of SSgA Prime Money Market Fund, Meier says, "Our clients are looking to get 100% of their principal back. We manage their assets accordingly. We tend to buy high quality large, liquid names that we know and like." The article also highlights investing in alternative collateral repo holdings and the "significant yield pickup associated" with this investment tactic.

World's Biggest Mutual Fund: Fidelity Cash Reserves Breaks $100 Billion. The largest money market mutual fund, Fidelity Cash Reserves (FDRXX), broke above the $100 billion mark this week for the first time ever. We consider Fidelity Cash Reserves to be the largest mutual fund in the world, and the only one, at least for now, bigger than $100 billion, though others will argue with this contention. JPMorgan Prime Money Market briefly broke above the $100 billion mark earlier this year, but one had to add up all of its nine share classes to get there. FDRXX, which yields 4.98% currently, stands alone -- the first true "fund" to break $100 billion. JPM Prime MM ranks 2nd in total portfolio size, holding almost $93 billion. Vanguard Prime Money Fund would rank 2nd if one were counting only single share classes as "funds". VMMXX yields 5.14% and now totals over $80 billion ($90 billion counting its Institutional class too). It's becoming increasingly clear that 5% yields are cash magnets, drawing assets away from lower-yielding banks and brokerages.

"Cash Comeback" Segment on CNBC Closing Bell Interviews Peter Crane. CNBC's Closing Bell with Maria Bartiromo featured a segment entitled "Cash Comeback" with Peter Crane of Crane Data LLC touting the virtues of money markets and Ron Insana, now running a hedge fund (Insana Capital Partners) though still a contributing editor to CNBC, arguing against a large cash buildup. The segment notes the record $2.56 trillion level of money fund asssets and the attractiveness of 5% yields, and also discusses the low levels of cash held by stock funds. Click here to see the video!

American Beacon Launches Dublin-Domiciled Offshore Money Market Fund. Yesterday, Standard & Poor's rated American Beacon USD Liquidity Fund AAAm, marking American Beacon's entry into the European marketplace. American Beacon VP & Director of Sales and Marketing Brian Brett tells us, "[M]any clients and prospects say they could only invest in Dublin based offshore funds with their stringent regulatory standards. It also creates a better distribution platform to develop if we ever decide to offer additional offshore fixed income, equity or alternative products." American Beacon USD Liquidity Fund is a new feeder fund of American Beacon Master Trust Money Market Portfolio and a new sub fund of American Beacon Global Funds PLC.

Money Fund Assets Explode In First Week of July With New Record High. The Investment Company Institute reports that money market mutual fund assets jumped by $23.13 billion to a record $2.560 trillion in the latest week. Year-to-date, money funds have risen by $110 billion, or 7.5%; over 52 weeks, money funds have grown by a massive $420 billion, or 19.6%. The first week in a new quarter almost always sees strong inflows as dividends, bond coupon payments, and freshly budgeted money is deposited in cash. But cash inflows continue to surprise on the upside. While cash flow factors are always difficult to pin down, we believe money fund assets are being boosted by a renewed disintermediation of bank deposits. Strong start-of-quarter inflows of course push yields down. The Crane 100 Money Fund Index fell by one basis point to 4.96% yesterday.

Vanguard Stays The Course With "Keep More" Money Fund Ad Campaign. While other money market mutual fund advertising has trailed off somewhat, The Vanguard Group continues to "stay the course" with its "Keep More of What's Yours" print (and banner) advertisements. The latest spotted ran on the front (lower right) of Tuesday's "Investing in Funds" quarterly insert in "The Wall Street Journal" and featured low expenses and Vanguard Prime Money Market Fund, the No. 1-ranked fund for Individual investors (according to Crane Data's most recent performance statistics). While it remains difficult to find the fund's attractive 5.14% (7-day simple, 5.26% compound) yield, the ads continue to refer interested parties to Vanguard's "Money Market Primer", a website collection of news, resources, and recordings on money market funds. Vanguard has been advertising its money market mutual funds consistently since rates moved above 5% a year ago.

The Reserve Launches Online Trader for Institutions' Cash Management announced the release of Online Trader, a "cash portal" offering institutional clients access to The Reserve's money fund and enhanced cash offerings." Vice Chairman and President Bruce Bent II says, "The growth of money fund portals has often been at the expense of clients having to sacrifice their personal relationships.... Online Trader combines the benefits of automation and the flexibility of an online offering with the expertise and sophistication of a dedicated institutional investment manager." Peter Crane comments in The Reserve's announcement, "Investors have grown money market mutual funds into a $2.5 trillion asset class, not only because of yields and safety, but also because of the convenience. Online trading is making cash investing faster, safer and more convenient. It's another reason to use money funds."

No Word Yet on Bank Mergers' Impact on Money Market Fund Space. Yesterday's announcement that The Bank of New York and Mellon Financial Corporation have completed their merger means it may not be long before the $100 billion Dreyfus and $15 billion BNY Hamilton money fund families are integrated. The logical move would be for the Hamilton funds to merge into Dreyfus, but it's unclear what will happen with the online money market trading portals, BNY MoneyFundsDirect and Mellon LMS. The money fund, and especially the fund custodial and securities lending landscapes, will also be altered by the completion of the `State Street and Investors Financial Services (IBT) merger. While it's also unclear whether IBT's Merrimac funds will be merged into SSgA funds, Merrimac's money market fund employees have already been given pink slips. Finally, Bank of America's acquisition of U.S. Trust from Schwab includes the $4+ billion Excelsior money fund family. Schwab ran Excelsior separately, but it remains to be seen what BoA's Columbia Funds will do.

Valiant Funds Transfer Assets Into Dreyfus Cash Management Funds. Assets from the Valiant money fund complex have moved into Dreyfus Cash Management, Dreyfus Cash Management Plus, Dreyfus Treasury Cash Management, and Dreyfus Tax Exempt Cash Management. Rich Curcio, who started the Valiant funds in 1993, will continue to service the bank client base and will distribute Dreyfus funds via the Venice, Florida-based Integrity Investments. Standard & Poor's rated two newly-created share classes of the $7.1 billion Dreyfus Treasury Cash Management Fund (Service and Select) AAAm following the transfer of $125 million of assets from Valiant U.S. Treasury Money Market Fund. "This follows a purchase and transfer agreement whereby the Dreyfus Corp. assumed the advisory responsibilities for the Valiant U.S. Treasury MMF," says the S&P ratings release.

Wall Street Journal Online's "Investments to Soothe a Worried Mind" advocates short-term investment options such as money funds and CDs in a Sunday article. Reporter Jane Kim writes, "Some popular categories of bond mutual funds, including intermediate-term bond funds, are showing negative returns over the past month.... That has prompted some investors to flee to shorter-term investments that fluctuate less in price. The article, which mentions TIAA-CREF Money Fund and Vanguard Prime Money Fund as top-yielders, also says, "Among the most stable and liquid of these [of short-term investments] are money-market funds, mutual funds which hold instruments like short-term Treasury securities and commercial paper. Total assets in money-market funds are at a record $2.54 trillion, up 19.6% over the past year, and the average yield for the 100 largest money funds is 4.98%, according to Crane Data, which tracks money funds".

Money Market News Archive