News Archives: November, 2018
The Investment Company Institute released its latest weekly "Money Market Fund Assets" report and its latest monthly "Trends in Mutual Fund Investing" reports yesterday. The former shows MMF assets rising again in the latest week, while the latter shows a $21.4 billion increase in money market fund assets in October to $2.885 trillion, which follows a $3.4 billion decrease in Sept., a $31.6 billion increase in August, a $14.9 billion increase in July, and a $30.1 billion drop in June. In the 12 months through Oct. 31, money fund assets have increased by $145.7 billion, or 5.3%. (Month-to-date in November through 11/28, assets have increased by $37.1 billion, $8.5 billion of which is from Prime MMFs, according to our MFI Daily.) ICI also released its latest Portfolio Holdings totals, which show a jump in Repo and Treasuries in October. We review ICI's Assets, Trends and latest Portfolio Composition statistics below.
The new assets series shows MMFs rising in the latest week, their 6th straight week of strong gains. Government, Prime and Tax Exempt MMFs all increased, though Institutional assets declined slightly. Overall assets are now up $106 billion, or 3.7%, YTD, and they've increased by $145 billion, or 5.2%, over 52 weeks. Retail MMFs have increased by $106 billion, or 10.5%, while Inst MMFs are perfectly flat, up 0.0%, YTD. Over 52 weeks, Retail money funds have gained $131 billion, or 13.3%, while Inst money funds are up $14 billion, or 0.8%. We review the latest asset figures below.
ICI writes, "Total money market fund assets increased by $6.16 billion to $2.94 trillion for the eight-day period ended Wednesday, November 28, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $110 million and prime funds increased by $5.11 billion. Tax-exempt money market funds increased by $937 million." Total Government MMF assets, which include Treasury funds too, stand at $2.257 trillion (76.7% of all money funds), while Total Prime MMFs stand at $548.0 billion (18.6%). Tax Exempt MMFs total $138.5 billion, or 4.7%.
They explain, "Assets of retail money market funds increased by $10.86 billion to $1.12 trillion. Among retail funds, government money market fund assets increased by $6.92 billion to $666.07 billion, prime money market fund assets increased by $2.90 billion to $323.62 billion, and tax-exempt fund assets increased by $1.04 billion to $130.11 billion." Retail assets account for over a third of total assets, or 38.0%, and Government Retail assets make up 59.5% of all Retail MMFs.
ICI's release adds, "Assets of institutional money market funds decreased by $4.70 billion to $1.82 trillion. Among institutional funds, government money market fund assets decreased by $6.81 billion to $1.59 trillion, prime money market fund assets increased by $2.21 billion to $224.38 billion, and tax-exempt fund assets decreased by $99 million to $8.37 billion." Institutional assets account for 62.0% of all MMF assets, with Government Inst assets making up 87.2% of all Institutional MMFs.
The monthly "Trends" report states, "The combined assets of the nation's mutual funds decreased by $1.00 trillion, or 5.2 percent, to $18.42 trillion in October, according to the Investment Company Institute’s official survey of the mutual fund industry. In the survey, mutual fund companies report actual assets, sales, and redemptions to ICI."
It explains, "Bond funds had an outflow of $31.59 billion in October, compared with an inflow of $11.27 billion in September.... Money market funds had an inflow of $18.09 billion in October, compared with an outflow of $6.61 billion in September. In October funds offered primarily to institutions had an outflow of $8.96 billion and funds offered primarily to individuals had an inflow of $27.04 billion."
The latest "Trends" shows that Taxable MMFs lost assets and Tax Exempt MMFs gained assets last month. Taxable MMFs increased by $18.4 billion in October to $2.751 trillion, after decreasing $3.8 billion in September, increasing by $32.0 billion in August, increasing by $19.3 billion in July, and decreasing by $27.1 billion in June. Tax-Exempt MMFs increased $2.9 billion in October to $134.2 billion. Over the past year through 10/31/18, Taxable MMF assets increased by $139.6 billion (5.3%) while Tax-Exempt funds rose by $6.1 billion over the past year (4.8%). Bond fund assets decreased by $63.7 billion in October to $4.103 trillion; they've risen by $79.5 billion (2.0%) over the past year.
Money funds represent 15.7% of all mutual fund assets (a full percentage point higher than the previous month), while bond funds account for 22.3%, according to ICI. The total number of money market funds fell 2 to 381 in October, down from 394 a year ago. Taxable money funds decreased 2 to 297 funds, and tax-exempt money funds were unchanged at 84 funds over the last month.
ICI also released its latest "Month-End Portfolio Holdings of Taxable Money Funds," which confirmed a jump in Repo and Treasuries in October. Repurchase Agreements remained in first place among composition segments; they increased by $22.8 billion, or 2.5%, to $942.9 billion, or 34.3% of holdings. Repo holdings have risen by $32.7 billion, or 3.6%, over the past year. (For more, see our November 13 News, "Nov. MF Portfolio Holdings: Treasury, Repo, CDs Up; Fed Repo Near Zero.")
Treasuries rose by $18.6 billion, or 2.4%, to $783.6 billion, or 28.5% of holdings. Treasury securities have increased by $73.4 billion over the past 12 months, or 10.3%. U.S. Government Agency securities were the third largest segment; they rose by $10.2 billion, or 1.7%, to $630.7 billion, or 22.9% of holdings. Agency holdings have fallen by $31.8 billion, or -4.8%, over the past 12 months.
Certificates of Deposit (CDs) stood in fourth place; they increased $9.8 billion, or 5.0%, to $206.7 billion (7.5% of assets). CDs held by money funds have fallen by $8.2 billion, or -3.8%, over 12 months. Commercial Paper remained in fifth place, increasing $1.6 billion, or 0.9%, to $191.6 billion (7.0% of assets). CP has increased by $52.0 billion, or 37.3%, over one year. Notes (including Corporate and Bank) were up by $174 million, or 2.2%, to $7.9 billion (0.3% of assets), and Other holdings decreased to $11.7 billion.
The Number of Accounts Outstanding in ICI's series for taxable money funds increased by 604.7 thousand to 33.141 million, while the Number of Funds fell by 2 to 297. Over the past 12 months, the number of accounts rose by 6.436 million and the number of funds decreased by 14. The Average Maturity of Portfolios was 32 days in October, down 1 day from Sept. Over the past 12 months, WAMs of Taxable money funds have increased by 2 days.
Federal Reserve Chairman Jerome Powell spoke yesterday on "The Federal Reserve's Framework for Monitoring Financial Stability," and he mentioned money market funds more than once for the first time during his tenure. He says, "For seven years during the crisis and its painful aftermath, the Federal Open Market Committee (FOMC) kept our policy interest rate unprecedentedly low--in fact, near zero--to support the economy as it struggled to recover.... [A]bout three years ago the FOMC judged that the interests of households and businesses, of savers and borrowers, were no longer best served by such extraordinarily low rates. We therefore began to raise our policy rate gradually toward levels that are more normal in a healthy economy. Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy that is, neither speeding up nor slowing down growth."
On the "New approach to financial stability," Powell tells us, "Compared with other economies, lending and borrowing in the United States depend less on bank loans and more on funds flowing through a wide array of capital market channels. The crisis revealed that this capital market centric system, despite its many benefits, also provides more places where systemic risks can emerge. In response, Congress and the regulatory agencies have made many stability-enhancing changes outside of the banking system.... Tri-party repurchase agreement (repo) reforms have substantially improved the resilience of that marketplace, in particular by limiting intraday loans. Before the crisis, prime institutional money market funds were permitted to report a constant, $1 share price so long as the value of the underlying assets remained near $1. This reporting convention, combined with the implicit support of the plans' sponsors, led investors to treat those funds like bank deposits, even though they were not likewise insured. These funds are now required to report floating net-asset values, and after this reform investors chose to migrate to government-only funds, which are safer and less susceptible to runs.... These and other measures have reduced the risk that key non-bank parts of the system would freeze up in the face of market stress."
He explains, "The first vulnerability is excessive leverage in the financial sector. If a highly leveraged segment of the financial system is buffeted by adverse events, the affected entities may all need to deleverage at the same time by selling assets, leading to what is called a 'fire sale'.... The second vulnerability is funding risk, which arises when banks or nonbank financial entities rely on funding that can be rapidly withdrawn. If depositors or market participants lose faith in the soundness of an institution or the system as a whole, unstable funding can simply vanish in what is called a "run." During the crisis, we saw widespread runs, including at broker-dealers, some segments of the repo market, and money market mutual funds. These runs did severe damage, contributing to a generalized panic at the time. Had the authorities not stepped in, the damage could have been even more severe."
Powell continues, "Today we view funding-risk vulnerabilities as low. Banks hold low levels of liabilities that are able and likely to run, and they hold high levels of liquid assets to fund any outflows that do occur. Money market mutual fund reforms have greatly reduced the run risk in that sector. More generally, it is short-term, uninsured funding that would be most likely to run in a future stress event, and the volume of such funding is now significantly below pre-crisis peaks."
The Board of Governors of the Federal Reserve System also published its "Financial Stability Report" yesterday, which discussed many of the same themes as Powell's speech. Its Overview says, "In the years leading up to the 2007–09 financial crisis, many parts of the U.S. financial system grew dangerously overextended. By early 2007, house prices were extremely high, and relaxed lending standards resulted in excessive mortgage debt. Financial institutions relied heavily on short-term, uninsured liabilities to fund longer-term, less-liquid investments. Money market mutual funds and other investment vehicles were highly susceptible to investor runs. Over-the-counter derivatives markets were largely opaque. And banks, especially the largest banks, had taken on significant risks without maintaining resources sufficient to absorb potential losses."
The report states, "As a result of these vulnerabilities, a drop in house prices precipitated a financial panic. A broad initial retrenchment in asset prices led to sharp withdrawals of short-term funding from a wide range of institutions. These funding pressures resulted in fire sales, which contributed to additional declines in asset prices and generated further losses and even more withdrawals of funding. Some financial institutions failed, and many more pulled back on lending. As home prices continued to fall, and mortgage credit became scarce, millions of mortgages, many held in complex financial vehicles that increased investor leverage, could not be refinanced. Many mortgages ultimately went into default, creating devastating and widespread losses for homeowners."
It adds, "Reforms undertaken since the financial crisis have made the U.S. financial system far more resilient than it was before the crisis. Working with other agencies, the Federal Reserve has taken steps to ensure that financial institutions and markets can support the needs of households and businesses through good times and bad. Banking institutions have built stronger capital and liquidity buffers that, together with reforms to the rules governing money market funds, strengthen the ability of institutions to withstand adverse shocks and reduce their susceptibility to destabilizing runs."
The report explains, "Borrowing by households has risen roughly in line with household incomes. However, debt owed by businesses relative to gross domestic product (GDP) is historically high, and there are signs of deteriorating credit standards. The nation's largest banks are strongly capitalized, and leverage of broker-dealers is substantially below pre-crisis levels. Insurance companies have also strengthened their financial position since the crisis. Funding risks in the financial system are low relative to the period leading up to the crisis. Banks hold more liquid assets, and money market mutual funds are less vulnerable to destabilizing runs by investors."
In the chapter on "Funding Risk," the Fed writes, "A measure of the total amount of liabilities that are most vulnerable to runs, including those issued by nonbanks, is relatively low.... Banks are holding higher levels of liquid assets and relying less on funding sources that proved susceptible to runs than in the period leading up to the crisis, in part because of liquidity regulations introduced after the financial crisis and banks' greater understanding of their liquidity risks. Money market fund reforms implemented in 2016 have reduced 'run risk' in that industry." A table shows "Total runnable money-like liabilities at $13.153 trillion, which includes: Uninsured deposits ($4.652T), Repurchase agreements ($3.190T), Domestic money market funds ($2.821T), Commercial paper ($1.052T), Securities lending ($684B), and Bond mutual funds ($3.920T).
They add, "During the financial crisis, runs occurred in the markets for asset-backed commercial paper, repos, and money market fund shares, as well as on individual institutions, greatly aggravating the economic harm from the crisis. An aggregate measure of private short-term, wholesale, and uninsured instruments that could be prone to runs -- a measure that includes repos, commercial paper, money funds, uninsured bank deposits, and other forms of short-term debt -- currently stands at $13 trillion, significantly lower than its peak at the start of the financial crisis."
Finally, the report says, "Money market fund (MMF) reforms implemented in 2016 have reduced run risk in the financial system. MMFs proved vulnerable to runs in the past, largely because they almost always maintained stable share prices by rounding net asset values to $1, which created an incentive for investors to redeem their shares quickly in the face of any perceived risk of losses to the assets held by the funds. The reforms required institutional prime MMFs, the most vulnerable segment, to discontinue the use of rounding and instead use 'floating' net asset values that adjust with the market prices of the assets they hold. As the deadline for implementing the reforms approached, assets under management at prime MMFs fell sharply.... Many investors in those funds shifted their holdings to government MMFs, which continue to use rounded $1 share prices but have assets that are safer and less prone to losing value in times of financial stress. A shift in investments toward short-term investment vehicles that provide alternatives to MMFs and could also be vulnerable to runs or run-like dynamics would increase risk, but assets in these alternatives have increased only modestly compared to the drop in prime MMF assets."
Saturday's San Francisco Chronicle featured the article, "Here's something most brokerage firms would rather you ignore," which discusses brokerage sweep yields. They write, "Most brokerage firms have found a subtle way to squeeze money out of their customers. The trick: switching their sweep accounts from higher-yielding money market mutual funds to lower-yielding bank accounts. Sweep accounts are the places within a brokerage account where cash from dividends, interest, stock sales and other transactions accumulates. When investors buy stock or other securities, it comes out of the sweep account automatically." We quote from this piece, as well as a Bloomberg article on European Money Fund Reforms, below.
Chronicle columnist Kathleen Pender explains, "The average yield on the 100 largest money market funds is about 2 percent, while the average yield on bank sweep accounts at brokerage firms is 0.27 percent, said Peter Crane of Crane Data, which tracks money market mutual funds. The sweep switch is a byproduct of the price war that has driven down trading commissions -- even eliminating them in some cases. Brokerage firms have had to find other ways to make money, and sweeps is a big one.... Investors may balk at paying $4.95 to trade stocks but ignore the hidden cost of earning less on their cash, Crane said."
She continues, "Money market fund yields generally follow the federal funds rate. When the Federal Reserve kept the funds rate near zero from 2009 through 2015, money funds and bank deposits all yielded next to nothing, and it didn't really matter where you kept your cash."
The article adds, "Unlike most of their competitors, Vanguard and Fidelity Investments are still letting their brokerage customers use money funds as sweep accounts. They are also the two biggest money-fund managers, according to Crane Data."
It also says, "Here's a look at what some brokerage firms are doing with their sweep accounts. Merrill Lynch: Before September, Merrill Lynch clients had a choice of money market funds or bank deposits as their sweep account, but only 4 percent chose money market funds, according to a company spokeswoman. In September, Merrill made bank accounts the only sweep option for most new accounts."
On Charles Schwab, the Chronicle writes, "In July 2016, it made bank sweep the default option for all new brokerage accounts, but existing accounts still had billions of dollars in money fund sweeps. In the first nine months of this year, Schwab transferred $68 billion from money fund sweeps to sweep accounts at Schwab-affiliated banks. At the end of the third quarter, it had $33 billion remaining in sweep money market funds and $194 billion in bank sweeps."
For more on brokerage sweeps, see our Oct. 26 News, "TD Ameritrade, Morgan Stanley on Sweeps; Money Fund Assets Rebound," our Oct. 10 News, "Money Fund Yields, Sweep Rates Move Higher; WSJ on Savings, Deposits," our Oct 2 News, "Schwab Liquidating Cash Reserves, Shift to Sweeps; Rates Inch Higher," our Aug. 21 News, "More Insured Brokerage Sweeps Blowback: ignites, BlackRock Comment," our Aug. 6 News, "Journal's Zweig Targets Sweeps (Again); Schneider Video on Front End," and our July 25 News, "MS Liquidating AA Govt, Wells Pushes Sweep Rates Higher; Weekly Holds." (Also, ask if you'd like to see our most recent Brokerage Sweep Intelligence publication, which tracks rates on FDIC-insured brokerage sweep deposits and money market funds.)
In other news, Bloomberg writes on the recent confirmation that the European Union will not allow "share cancelation" or "reverse distribution mechanisms" (RDMs), in the article, "`Money Funds With $91 Billion Call for Time to Meet EU Regulation." They explain, "The world's biggest asset managers are pressing European Union regulators for extra time to adjust to new regulations that could upend about 80 billion euros ($91 billion) of money-market funds. The fund companies and their trade association say more time is needed because it has become clear only in recent days that a common industry practice will no longer comply with the rules as overseen by the Central Bank of Ireland, one of the main regulators for fixed-share price funds."
The piece tells us, "BlackRock Inc. and the asset-management arms of JPMorgan Chase & Co. and Goldman Sachs Group Inc. are among the biggest managers of the funds, and will need to adjust their euro-denominated funds by as early as Jan. 21, when the rule takes effect. BlackRock is calling for a transition period to help the market adjust, and said in a statement that its board overseeing money-market funds in Europe is preparing a contingency plan for regulators. Corporate treasurers around the world rely on money funds to park their cash with the assurance they'll be able to take out every dollar -- or euro -- when they need funds for payroll or investments."
Bloomberg comments, "The European Commission and the European Securities and Markets Authority previously said the mechanism wouldn't comply with the upcoming regulations. The industry sought a last-minute reprieve, but the Irish central bank instead told money managers to explain how they'll make their funds comply with the upcoming regulation. The Irish central bank said it expects to receive the plans in the next few weeks."
For more on this topic, see our Nov. 26 News, "Cash Will Be King in '19 Says GS; BlackRock Update; Europe Rejects RDM," our Nov. 14 News, "Treasury Today Hosts MSIM Podcast on European Reforms; ESMA Consults," our Nov. 1 News, "WSJ: Yu'e Bao Shrinking; Europe Still Unclear on RDM Ban; Weekly Holds, and our Oct. 19 News, "Oct. MFI Profile: Highlights from European MFS: Irish Funds' Rooney." (Ask us too if you'd like to see our latest Money Fund Intelligence International, which tracks European money market funds.)
The Securities and Exchange Commission released its latest "Money Market Fund Statistics" summary last week (it was posted yesterday). It shows that total money fund assets rose by $8.2 billion in October to $3.164 trillion. Prime MMFs dipped $3.1 billion to $743.3 billion, while Govt & Treasury funds increased $8.3 billion to $2.282 trillion. Tax Exempt funds rose $2.9 billion to $138.1 billion. Yields rose for Prime, Government and Tax Exempt MMFs in the latest month. The SEC's Division of Investment Management summarizes monthly Form N-MFP data and includes asset totals and averages for yields, liquidity levels, WAMs, WALs, holdings, and other money market fund trends. We review their latest numbers below.
Overall assets increased $8.2 billion in October, after increasing $12.1 billion in Sept., 29.9 billion in August, and $15.2 billion in July. Total MMFs decreased by $51.8 billion in June, but increased by $45.6 billion in May after increasing $31.0 billion in April. Over the 12 months through 10/31/18, total MMF assets increased $139.0 billion, or 4.6%. (Note that the SEC's series includes a number of private and internal money funds not reported to ICI or others, though Crane Data tracks most of these.)
Of the $3.164 trillion in assets, $743.3 billion was in Prime funds, which decreased by $3.1 billion in October. Prime MMFs increased $13.9 billion in September, $31.2 billion in August and $24.3 billion in July. But they decreased by $8.9 billion in June. Prime funds represented 23.5% of total assets at the end of October. They've increased by $77.8 billion, or 11.7%, over the past 12 months. They've increased by $181.0 billion over the past 2 years. (Over $1.1 trillion shifted from Prime to Government money market funds in the year leading up to October 2016's Money Fund Reforms.)
Government & Treasury funds totaled $2.274 trillion, or 72.1% of assets. They were up $8.3 billion in October, but down $1.9 billion in Sept., $1.8 billion in August, $4.4 billion in July, and $39.4 billion in June. Govt & Treas MMFs are up $55.7 billion over 12 months, or 2.5%. Tax Exempt Funds increased $2.9B to $138.1 billion, or 4.4% of all assets. The number of money funds was 381 in October, down 2 funds from the prior month.
Yields on Taxable MMFs moved higher again in October, their 13th month in a row of increases. The Weighted Average Gross 7-Day Yield for Prime Funds on Oct. 31 was 2.37%, up 11 basis points from the previous month and up 1.08% from October 2017. Gross yields increased to 2.23% for Government/Treasury funds, up 0.11% from the previous month, and up 113 bps from October 2017. Tax Exempt Weighted Average Gross Yields rose to 1.66%; they've increased by 70 bps since 10/31/17.
The Weighted Average Net Prime Yield was 2.19%, up 0.10% from the previous month and up 1.10% since 10/31/17. The Weighted Average Prime Expense Ratio was 0.18% in October (the same as the previous 6 months). Prime expense ratios are down by 2 bps over the past year. (Note: These averages are asset-weighted.)
WALs and WAMs were mixed in October. The average Weighted Average Life, or WAL, was 59.7 days (down 2.5 days from last month) for Prime funds, 89.1 days (up 0.2 days) for Government/Treasury funds, and 30.9 days (up 0.6 days) for Tax Exempt funds. The Weighted Average Maturity, or WAM, was 27.5 days (down 3.0 days from the previous month) for Prime funds, 32.2 days (down 1.2 days) for Govt/Treasury funds, and 28.5 days (up 1.2 days) for Tax-Exempt funds. Total Daily Liquidity for Prime funds was 31.9% in October (up 0.7% from previous month). Total Weekly Liquidity was 49.8% (up 0.2% from previous month) for Prime MMFs.
In the SEC's "Prime MMF Holdings of Bank Related Securities by Country, October 2018" table, Canada topped the list with $98.5 billion, followed by France with $78.2B, the US with $77.0 billion, Japan with $69.0B, and the U.K. with $46.2B. Sweden ($43.0B), Germany ($40.3B), Australia/New Zealand ($33.8B), the Netherlands ($26.9B), and Switzerland ($20.4B) rounded out the top 10 countries.
The gainers among the "Change in Prime MMF Bank-Related Securities, by Country" for the month included: France (up $17.3B), Switzerland (up $9.8B), UK (up $7.9B), US (up $5.9B), Germany (up $4.9B), Belgium (up $4.5B), Australia/New Zealand (up $2.4B), Sweden (up $2.0B) and Spain (up $174M). The biggest drops came from Canada (down $6.5B), the Netherlands (down $2.7B), Japan (down $2.2B), Other (down $1.6B), Norway (down $957M), China (down $645M) and Singapore (down $394M). The SEC's "Trend in Prime MMF Holdings of Bank-Related Securities by Major Region" table shows Europe had $276.9B (up $42.0B from last month), while the Eurozone subset had $158.0B (up $24.3B). The Americas had $176.2 billion (down $780M), while Asia Pacific had $118.5 billion (down $1.3B).
The "Trends in Prime MMF Portfolio Composition" chart shows that of the $746.1 billion in Prime MMF Portfolios as of Oct. 31, $262.8B (35.2%) was in CDs (up from $246.2BB), $172.4B (23.1%) was in Government securities (including direct and repo) (down from $186.7B), $107.4B (14.4%) was held in Non-Financial CP and Other Short Term Securities (down from $108.5B), $156.7B (21.0%) was in Financial Company CP (up from $154.7B), and $46.8B (6.3%) was in ABCP (down from $47.5B).
The Proportion of Non-Government Securities in All Taxable Funds was 18.9% at month-end, up from 18.7%. All MMF Repo with the Federal Reserve fell to $4.8B in October from $44.9B the previous month. Finally, the "Trend in Longer Maturity Securities in Prime MMFs" tables shows 36.2% were in maturities of 60 days and over (up from 35.2%), while 8.0% were in maturities of 180 days and over (up from 8.3%).
Several articles and papers published last week discuss the growing attractiveness of cash vs. other asset classes. These include: MarketWatch, which writes, "Goldman Says Cash Will Be King;" Bloomberg, which posted the opinion piece, "Cash Rules Everything Around the Bond Markets;" and J.P. Morgan Securities, which discusses the topic in its "Short-Term Fixed Income 2019 Outlook." We review these "cash is back" stories below, and we also review the latest on pending European Money Fund Regulations and quote from a BlackRock publication on "Preparing for European Money Market Fund Reform." (Note: European regulators also finally rejected the use of the "reverse distribution mechanism," or RDM, which allowed for share cancellations in funds with negative yields, too. See below or see the FT's article.)
The MarketWatch article tells us, "Cash is king. That is according to Goldman Sachs strategists who predict that 2019 will deliver lackluster, single-digit stock-market returns, making greenbacks the best game in town. 'We forecast S&P 500 will generate a modest single-digit absolute return in 2019.... Cash will represent a competitive asset class to stocks for the first time in many years,' analysts at Goldman, led by David Kostin, wrote in a research reported dated Nov. 19."
It states, "On top of that, adjusting for the risk associated with owning equities, Goldman views cash as a better option. Analysts at the investment bank say that households, mutual funds, foreign investors and pensions funds tend to have an allocation to cash that ranks in the lowest percentile and while equity allocations tend to be in the 89th percentile on a historical basis."
The Bloomberg commentary explains, "What do strategists at two of Wall Street's largest banks, Goldman Sachs Group Inc. and JPMorgan Chase & Co., have in common with the legendary hip-hop group Wu-Tang Clan? For all of them, cash rules everything around. The easiest and safest investment has long been a loser in the post-crisis era. But with just about a month until the end of the year, cash and cash-like assets are pretty much the only area of the U.S. fixed-income markets set to deliver positive returns in a period that could end up being the worst for the broad market since 1994."
It adds, "It's not as if the appeal of cash came out of nowhere. The Federal Reserve has been steadily raising interest rates for almost two years now. In June, I wrote about how U.S. investors were flocking to money-market funds not in a flight to quality but because they were paying more than they have in years.... For some bond investors, the increase in yields across the curve has been a painful experience. But for those buying the shortest-dated maturities, the slow-but-steady climb is ideal because portfolio managers consistently reinvest at ever-higher rates.... Given this performance, Wall Street is starting to take a second look at cash."
J.P. Morgan's "Money changes everything" brief says, "As we look into next year, we think there are five ongoing trends that will shape the short-term markets. First, cash matters more than it has since before the financial crisis. Cash yields have risen enough that money market yields are increasingly attractive and money is moving into the money markets and short duration. This has important implications for short-term fixed income and for bank deposit rates."
It continues, "We expect the FOMC will hike the fed funds target range another 25bp to 2.25-2.50% on December 19, marking the ninth hike since the committee began rate normalization in December 2015. Nearly all of this bump will be reflected in money market rates and money market fund yields by the time the hike actually occurs. These hikes, while large in number, have only just recently pushed inflation-adjusted yields on cash-like investments to about zero. Still, given the negative total returns on most bond portfolios and very low returns and plenty of volatility in stocks, cash is looking good on both a real and risk adjusted basis. It turns out zero ain't nothing."
JPM adds, "Indeed, our economists expect the Fed to continue hiking in 2018 even as they expect headline CPI to average 2.0% over the course of the year. Real yields on cash are headed further into positive territory, and they already are a powerful force that is attracting assets and boosting demand for high quality, low duration investments. The high beta of rate hikes passed through in money markets is also allowing MMFs and ultrashort duration funds to effectively compete with stock and bond investments as well as bank deposits."
In other news, BlackRock's "Framework for the Future: Preparing for European Money Market Fund Reform" tells us, "Regulatory changes to money market funds (MMFs) are looming. The operational details of European Money Market Fund Reform (EMMFR) are still being analysed and debated, yet BlackRock has worked to provide a spectrum of products that fit within the new framework. Our goal: offer a variety of product choices to help clients meet their ongoing cash investing needs."
They write, "As the January 2019 implementation deadline approaches, it is now time to start considering your needs and taking any necessary preparatory action. In order to be well positioned when the transition occurs, we believe you should have a clear picture of the post-reform product offerings such that you can identify any amendments required to your investment policies, ensuring sufficient flexibility for the post-reform fund structures."
BlackRock tells us, "For many investors, little or no action will be required to accommodate these reforms. It is our goal to ensure that no matter what investment solutions you decide are best for you, we make the transition smooth and simple. Preparing sooner rather than later will help ensure your conversion is well-aligned to your needs. We share here some best practices and considerations to support you in this preparation."
They comment, "The negative interest rate in euros makes the CNAV and LVNAV structures dependent on continued regulatory approval of the Reverse Distribution Mechanism (RDM). As regulatory discussions about RDM are ongoing, BlackRock's 'Reform Centre' website is a useful source of up-to-date information on the topic. As part of our ongoing commitment to keeping you informed, we will continue to communicate proactively as decisions are made that impact our intended product offerings."
Finally, note that just early this morning, IMMFA's Jane Lowe issued a statement that "regulators would cease to allow the use of share cancellation (RDM) as an operational mechanism for handling money funds invested in negative yielding currencies," "It has taken an unusually long time for this issue to be concluded and to that extent we are pleased that investors and industry now have certainty. Nonetheless, it is a very disappointing outcome. Investors strongly value the use of constant NAV money market funds and it is unfortunate that an interpretation has been taken of this Regulation that will prevent a widely accepted practice from continuing in these funds. This ban has the perverse effect of blocking investor access to constant NAV money market funds in the core currency of the Union."
She adds, "Such a loss of choice and utility in euro currency funds is most unwelcome for users of the funds and for those, like ourselves, who are strong supporters of the capital market union. Our members are resilient, however, and have prepared and will offer other products to their investor base to make good the loss of the euro LVNAV distribution share class following from the ban on RDM." (See also the FT's "Key European watchdogs signal the end of 'share destruction'".")
Crane Data shows the following conversion dates for various European money fund managers: JPMorgan and Northern - Nov. 30, 2018; Federated and SSGA - January 11, 2019; Morgan Stanley, BlackRock and Western - January 14, 2019; and HSBC - January 16, 2019. Aviva has already converted its funds to LVNAV.
This month, Bond Fund Intelligence interviews Randall Bauer, Senior Vice President & Senior Portfolio Manager with Federated Investors. Bauer is Head of Federated's Structured Finance & Low-Duration Strategies Group and manages the $3.6 billion Ultrashort Bond Fund and the $1.3 billion Short-Term Income Fund. He discusses the ultra-short sector, strategies and supply, and maintaining a "balanced risk profile." Our Q&A follows. (Note: This profile is reprinted from the November issue of our Bond Fund Intelligence publication. Contact us if you'd like to see the full issue, or if you'd like to see our BFI XLS performance spreadsheet, our BFI Indexes and averages, or our most recent Bond Fund Portfolio Holdings data set, which will be published Monday.)
BFI: Tell us about your history. Bauer: I've been with the firm since 1989, and before that I spent almost eight years at PNC as a commercial lender. So I have a credit background. I came to Federated and worked in the high-yield area for a couple of years, and then got into the bond area.... At the end of 1991, we repositioned one of our existing funds and wanted to make it a low-duration product.... It still exists today, and it's called the Federated Short-Term Income Fund.
We realized there was an arbitrage opportunity in the term asset-backed securities market.... We combined the concept of low-duration and the liberal use of asset backed securities with the addition of a multi-sector approach.... The main drivers of our low-duration strategy over the years has been that combination of corporates and securitized assets.
In 1998, we shortened the product line by introducing the Ultrashort Bond Fund into what we term the "Active Cash" sector, products having an effective duration of less than one year [and] and termed "low duration".... So from money funds out to three years is really the area of expertise for the low-duration group, which I now head up. [We're] under the aegis of our fixed-income group, headed by Bob Ostrowski, and of course, Deb Cunningham is still heading up the liquidity, or money market group.
BFI: Is Ultrashort your shortest? Bauer: In the active cash space, we actually think about the world in terms of a conservative, moderate, and broad approach to the investors. [In] the conservative approach, we don't use credit risk, so the [equivalent] area that on the money fund side would be a government fund. That's where we have our Government Ultra-Short Bond Fund in the active cash.... [In] the moderate strategy, we employ credit risk. But, it's always investment-grade credit risk. Then in the broad stretch, we also incorporate a small amount of non-investment grade, and we do that in our Ultrashort Bond Fund. We think of that as our "active cash broad" offering. There we do allow up to a 10% non-investment grade allocation.
On the low-duration side, we have similar offerings on the conservative side. We have our 1-to-3-year government fund. On our broad side, we have the Short-Term Income Fund.... In the moderate space, we don't have any funds per se, but we offer a variety of separate account strategies to our client base and we manage a lot of separately managed account portfolios there. We've really morphed it into "six boxes" on that active cash and low-duration space.... So we have in the ultra-short family of funds ... the Government Ultrashort, Municipal Ultrashort, and the Federated Ultrashort Bond Fund.
We brought Ultrashort Bond Fund out in '98, so it wasn't launched in a zero-interest rate environment. But it was a product where people were looking for limited volatility with greater total return potential than they would have in just a money fund. They were looking to deploy assets where they didn't necessarily need them to meet payrolls. What we've always tried to do with our active cash products is to accept a variety of risks in order to try to attain that additional total return. We always try to keep the risk profile of the portfolio consistent with that of the investor taking that first step out the yield curve. I almost think of that as a mantra for the Ultrashort Bond Fund.
BFI: Are flows and supply challenges? Bauer: In the old 2a-7 construct, pre-2016, we could take stuff that was 13-14 months, and it wasn't 2a-7 eligible yet. You could pick something up. Post-modified 2a-7 in October '16, we realized that maybe the corporate treasurers hadn't fully prepared.... With the shrinkage of the Prime money fund universe, there was more supply than demand. We were the beneficiaries of that trend for a while. But I think at some point ... corporate treasurers and bank funding desks realized they didn't need to issue quite as much in the space.... Now you're starting to see the reverse occur.... For investors looking for something over and above the Prime fund, they're still coming to us.
But the other areas that we are beneficiaries of, in terms of cash flow, are the people in the universe who want to lower their effective durations but don't necessarily want to go into a very limited volatility fund or a stable NAV fund. They come into the active cash base, maybe into the low-duration space. So we've been beneficiaries of that, too. Every time you get equity volatility going on, people get a little spooked. We're a favorite place for people to park money at least for a while.
To the extent that the Prime funds can't buy very much A-2 (and no A-3), that gives the entity that's doing its credit work opportunities.... We're following a lot of credits that are not AAA-rated or AA-rated on the long-end.... We're looking at a lot of BBB issuers that might have an A-3, P-3 program and we can use that in an active cash context as it adds value to the portfolio.
BFI: What can't you buy? Bauer: Because we think about maintaining a balanced risk profile on the product, we do pretty much anything. But we don't do a lot of it.... We have a [tiny short] position in Treasury futures [and] we have a 10% limitation on non-investment grade when we do use our non-investment grade buckets.... We're not averse to owning bank loans. But again it's a matter of magnitude and a matter of maintaining that relatively balanced risk profile.... We have not used CLO exposures.
BFI: What about your investor base? Bauer: Because of the evolution of the industry, a lot of our discussions occur with gatekeepers.... We find that people are asking more sophisticated questions, [and] we've always been ... a little more available at the PM level than perhaps some shops.... As to who's investing in our products, it could be an endowment, a university, and then obviously you've got a lot of retail in there through the intermediaries. Then [you have] the consultancy universe, and they could be the gatekeeper for any number of end user investors.
BFI: What do you expect from the Fed? Bauer: We think [the slow and steady hikes] are beneficial. It gives you a chance for additional income ... and it ties into our strategy of being heavily invested in floating rate paper where we are literally taking advantage of each Federal Reserve move.... We continue to expect them to move in December and then again in 2019. How often in 2019? The jury is still out.... As long as you're keeping your duration profile short, you don't have to worry about that capital value diminution occurring at too fast a pace. What spooks people in a portfolio like this is having ... your net asset values dropping, even if the income catches up over time.... We like the way things are going at the Fed now.
BFI: What about the future? Bauer: As long as the economy continues to go reasonably well ... and you're getting up to the top of where the Fed is going to be taking rates, you're going to have an attractive yield [and] you're going to have the opportunity for a little bit of capital appreciation. At that point, you think about your duration strategy. Do you start to extend it towards your maximum, which in our case is a year? Then what do you do with the overall credit quality in the portfolio? [We’ll be thinking about] all those things.
We've been in business in the ultra-short space for 20 years now, and we've had several ebbs and flows over that time. In general, you get higher lows and higher highs. The overall industry, the overall investable universe grows in size and it's important to have quality products in each space.... Hopefully, over the last 20 years, we’ve been able to generate that performance track record that will keep people with us.... In the last couple of years, we've been the beneficiary of inflows in the active cash, ultra-short space.... You'll lose some, but then you’ll get them back and then some. It's an organism; it lives and breathes.
The SEC released it latest quarterly "Private Funds Statistics" report recently, which summarizes Form PF reporting and includes some data on "Liquidity Funds." The publication shows that overall Liquidity fund assets inched lower in the latest quarter to $567 billion. A previous press release, entitled, "SEC Staff Supplements Quarterly Private Funds Statistics" tells us, "The U.S. Securities and Exchange Commission staff ... published a suite of new data and analyses of private fund statistics and trends. The Private Funds Statistics ... offers investors and other market participants valuable insights by aggregating data reported by private fund advisers on Form ADV and Form PF. New analyses include ... characteristics of private liquidity funds." We review the latest SEC report below, and we also give an update on our latest Weekly Money Fund Portfolio Holdings data collection.
The SEC's "Introduction" explains, "This report provides a summary of recent private fund industry statistics and trends, reflecting data collected through Form PF and Form ADV filings. Form PF information provided in this report is aggregated, rounded, and/or masked to avoid potential disclosure of proprietary information of individual Form PF filers. This report reflects data from Second Calendar Quarter 2016 through First Calendar Quarter 2018 as reported by Form PF filers." (Note: Crane Data believes the liquidity funds are primarily securities lending reinvestment pools and other short-term investment funds; these are not the new breed of "3c-7" private liquidity funds being marketed by Federated, JPMorgan and a few others.)
The tables in the SEC's "Private Funds Statistics: First Calendar Quarter 2018," the most recent data available, now show 113 Liquidity Funds (including "Section 3 Liquidity Funds," which are Liquidity Funds from advisors with over $1 billion total in cash), down 3 funds from the prior quarter and down 2 from a year ago. (There are 68 Liquidity Funds and 45 Section 3 Liquidity Funds.) The SEC receives Form PF reports from 39 Liquidity Fund advisers and 23 Section 3 Liquidity Fund advisers, or 62 advisers in total, down 2 from last quarter (down 1 from a year ago).
The SEC's table on "Aggregate Private Fund Net Asset Value" shows total Liquidity Fund assets at $567 billion, down $3 billion from Q4'17 and up $21 billion from a year ago (Q1'17). Of this total, $285 billion is in normal Liquidity Funds while $282 billion is in Section 3 (large manager) Liquidity Funds. The SEC's table on "Aggregate Private Fund Gross Asset Value" shows total Liquidity Fund assets at $571 billion, down $1 billion from Q4'18 and up $22 billion from a year ago (Q1'17). Of this total, $287 billion is in normal Liquidity Funds while $284 billion is in Section 3 (large manager) Liquidity Funds.
A table on "Beneficial Ownership for Section 3 Liquidity Funds" shows $94 billion is held by Private Funds (33.1%), $56 billion is held by Other (20.0%), $23 billion is held by SEC-Registered Investment Companies (8.1%), $13 billion is held by Banking/Thrift Inst. (4.8%), $9 billion is held by Insurance Companies (3.3%), $5 billion is held by Pension Plans (1.8%), and $4 billion is held by Non-U.S. Individuals (1.4%). State/Muni Govt Pension Plans held $1 billion (0.3%), and Non-Profits held $1 billion (0.5%).
The tables also show that 78.6% of Section 3 Liquidity Funds have a liquidation period of one day, $265 billion of these funds may suspend redemptions, and $228 billion of these funds may have gates (out of a total of $282 billion). The Portfolio Characteristics show that these funds are very close to money market funds. WAMs average a short 32 days (42 days when weighted by assets), WALs are a short 65 days (70 days when asset-weighted), and 7-Day Gross Yields average about 1.60% (1.65% asset-weighted).
Daily Liquid Assets average about 44% (46% asset-weighted) while Weekly Liquid Assets average about 60% (59% asset-weighted). Overall, these portfolios appear shorter with a much heavier Treasury exposure than money market funds in general; almost half of them (44.4%) are fully compliant with Rule 2a-7. (See also our March 15, 2017 News, "CAG's Pan on Pros and Cons of Private Liquidity Funds, SEC Paper, Stats.")
In other news, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics and summary Tuesday, which tracks a shifting subset of our monthly Portfolio Holdings collection. The latest cut, with data as of Nov. 16, includes Holdings information from 68 money funds (up from 64 on Nov. 2), representing $1.185 trillion (up from $1.098 trillion) of the $2.984T (39.7%) in total money fund assets tracked by Crane Data. (For our latest monthly Money Fund Portfolio Holdings numbers, see our Nov. 13 News, "Nov. MF Portfolio Holdings: Treasury, Repo, CDs Up; Fed Repo Near Zero.")
Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $454.9 billion (up from $418.6 billion on Nov. 2), or 38.4% of holdings, Treasury debt totaling $383.4 billion (up from $354.2 billion) or 32.4%, and Government Agency securities totaling $222.4 billion (up from $206.6 billion), or 18.8%. Commercial Paper (CP) totaled $49.7 billion (down from $44.4 billion), or 4.2%, and Certificates of Deposit (CDs) totaled $40.0 billion (down from $32.3 billion), or 3.4%. A total of $17.8 billion or 1.5% was listed in the Other category (primarily Time Deposits), and VRDNs accounted for $16.4 billion, or 1.4%.
The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $383.4 billion (32.4% of total holdings), Federal Home Loan Bank with $166.9B (14.1%), BNP Paribas with $54.1 billion (4.6%), RBC with $49.0B (4.1%), Federal Farm Credit Bank with $39.2B (3.3%), Credit Agricole with $32.4B (2.7%), Wells Fargo with $25.5 B (2.1%), Barclays PLC with $23.5B (2.0%), HSBC with $23.5B (2.0%), and Societe Generale with $23.0B (1.9%).
The Ten Largest Funds tracked in our latest Weekly Holdings update include: Fidelity Inv MM: Govt Port ($119.9B), Goldman Sachs FS Govt ($102.3B), BlackRock Lq FedFund ($85.9B), BlackRock Lq T-Fund ($72.7B), Wells Fargo Govt MMkt ($68.5B), Goldman Sachs FS Trs Instruments ($58.6B), Dreyfus Govt Cash Mgmt ($54.3B), Morgan Stanley Inst Liq Govt ($50.1B), State Street Inst US Govt ($43.8B) and Fidelity Inv MM: MMkt Port ($42.6B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)
Today, we reprint Part II of our recent Money Fund Intelligence profile, "Vanguard's Nafis Smith: Money Markets Compelling," which interviews Nafis Smith, Vanguard's new Head of Taxable Money Markets. (See yesterday's News for Part I, and contact us at info@cranedata.com to request the full issue.) MFI: What are customers asking about? Smith: I think investors are happy with money markets these days. However, something that has come up recently in this rising rate environment is why rates on bank products aren't rising at the same pace. In a zero-rate environment, they were able to fly below the radar on low-yielding bank products. But we've had several rounds of tightening by the Fed with a notable rise in short rates.
I think clients are starting to take a hard look at what they are getting paid on their cash. Then when you factor in a yield curve that's flattening and a little volatility in equity markets, money market funds are just starting to make a lot of sense for a lot of people. We're seeing it reflected in our cash flows.
MFI: Is there downward fee pressure? Smith: We've long led the way on the fee front. During the zero-rate era, we temporarily lowered the expense ratios on some funds to maintain some yield. But as rates picked up, yields in the fund increased, and we were one of the first firms to normalize expense ratios.
MFI: Any comments on 2016 MMF Reforms? Smith: I think that broadly as an industry, money markets are much healthier and more resilient now than leading up to the crisis and in the post-crisis periods. The institutional and retail segregation is healthy for the industry. Two years after the fact, the transition is done at this point. Regarding, stress testing here at Vanguard, we have a very robust process in place. On a daily basis, our risk management group goes through and tests the funds to basically confirm their ability to retain weekly liquidity, price stability, and to the extent that a portfolio has a variable NAV, to make sure that the principal volatility is low. They'll "shock" several different factors on a daily basis: shareholder redemptions, a rapid increase in short rates, and a widening of credit spreads. It's done to ensure investors in our funds are protected.
MFI: You didn’t see as big a shift away from Prime, right? Smith: Our Federal Money Market Fund became our brokerage sweep vehicle, so there was a shift, but not nearly as dramatic as in other parts of the industry. At its largest, Prime was around $150 billion. We got down to around $90 billion or so, but now it's back up to more than $110 billion.
MFI: Do you run internal MMFs or cash outside the MMFs? Smith: We do run the Market Liquidity Fund but it's not available to the public. It's an internal cash pool where we sweep any cash that sits in a Vanguard mutual fund. We run that fund in a very similar manner to Prime but in a slightly more conservative fashion.... In terms of ultra-short products, we launched Ultra Short Term Bond Fund in 2015. That's currently $5 billion in assets and is run by our credit bond group.
MFI: What about the investor base? Smith: Our investor base is heavily retail-focused. There are some institutional clients, such as 401k participants in some portfolios, but the flagship Prime fund is retail-only.
MFI: Any more thoughts on the Fed? Smith: If you look out over the next six months, we expect two more rate increases: one in December and one in March. The macroeconomic backdrop supports doing that. You look at conditions, like the labor market and inflation, it's very close to the Fed's target. Conditions seem to warrant raising rates at a measured pace. I think the Fed's been clear about their desire to go at a measured pace. In terms of how we position, for us it comes down to 'What's the view? What's priced in?' If securities are pricing in the number of tightenings that we expect and then some, then we're happy to be long. If pricing is not consistent with the view, then we might be a little shorter.
MFI: What about your outlook for cash? Smith: Through the end of October, year-to-date inflows to our Prime fund, our Government fund, and our Treasury fund are approximately $43 billion. In terms of 'What's to come?', rates are going higher, which just makes money market funds a compelling option for investors. If you think about what the curve is doing, if you think about some of the geopolitical risks, and if you look at what rates folks are getting some bank products, I think it's a fantastic time to be an investor in the space."
This month, Money Fund Intelligence interviews Nafis Smith, Vanguard's new Head of Taxable Money Markets. We discuss the retail behemoth's history, strategies, and outlook for money funds, and Smith addresses a number of major issues in the money markets today. Vanguard is the second largest manager of money market mutual funds with $335.6 billion in assets (as of 10/31/18). Our Q&A follows. (Note: The following is the first half of our latest fund "profile", reprinted from the November issue of Money Fund Intelligence. Watch for the second half later this week, and contact us at info@cranedata.com to request the full issue.)
MFI: Tell us about your history. Smith: We've been running money market funds pretty much since Vanguard was founded. Our flagship taxable retail money market fund, now Prime Money Market, was launched over 40 years ago, back in 1975. In the early '80s, we launched our first government offering, Federal Money Market. In the early '90s, we filled out the taxable lineup and added Treasury Money Market Fund. We also run a number of municipal funds including Vanguard Municipal Money Market, which was launched in 1980.
I joined Vanguard in 2003 after I graduated from Cornell University. I've been a part of Vanguard's Fixed Income Group since 2005. Throughout the course of my career in fixed-income, most my career was in bond indexing. I spent time in our Australian office from 2014 to 2016. Then in 2016, I moved back to the U.S. to become a money fund Portfolio Manager working for David Glocke, helping to look after Prime Money Market and Treasury Money Market.
When I joined the money market team, my job was to work as closely as possible with David to learn about the cash business and prepare to lead the team.... David [who retired on June 30] was with Vanguard for 20-plus years and had almost 30 years of experience in the industry. He expertly stewarded our products through a number of big changes in the marketplace. Ultimately, he decided that it was time to retire, but my experience working for him was invaluable.
MFI: What is your biggest priority? Smith: There are two things that come to mind. One is SOFR and the transition away from LIBOR -- thinking through what a world without LIBOR looks like. When you think about LIBOR versus SOFR, it's apples-to-oranges. You have a risk-free, secured overnight lending rate -- basically a risk-free rate -- versus a term, unsecured credit rate. The two benchmarks are going to behave very, very differently. We're doing some analysis around when LIBOR goes away at some point and we're in a SOFR-based floater world. We're making sure that we're comfortable with any of the potential risks.
Another development on the FOMC front that we're thinking about involves the developments around IOER and the potential for further technical adjustments. The FOMC came out earlier this year and divorced IOER from monetary policy. The Fed-effective versus IOER hit zero bps recently after being close to 8 bps earlier this year. So, we're just thinking through if there's another adjustment come December when they raise rates, what the impact is to rates in the short-end.
MFI: What are your big challenges? Smith: Once upon a time, trying to navigate month-ends, quarter-ends, and year-ends, when banks and other institutions would do some balance sheet window dressing, you had to be strategic and forward-thinking. I think today, it is somewhat easier, just given the availability of bill supply, which ramped up significantly earlier this year. The Fed is there in terms of their overnight repo facility. So with investing nowadays, it's somewhat easier to secure product.
We've had three rate hikes already this year. We'll have a fourth, and then potentially three or four rate hikes next year. Then at some point, we need to start thinking about, 'When does the Fed pause?' You start to think through all of that, and it's certainly a challenge.
That's the beauty of the model here at Vanguard. When you have a low expense ratio that does the heavy lifting, it allows the decision making to be pretty easy. The investor base is definitely more retail-focused, and that's been the case since inception. We were able to weather some of the challenges of the crisis and beyond the crisis because of the very sticky nature of the investor base.
MFI: What are you buying now? Smith: Our ownership structure and the funds' low expense ratios allow us to construct a very high-quality and competitive portfolio. We don't necessarily run it like an index fund, but there is a focus on very high-quality liquid instruments. Our weekly liquid assets have been primarily comprised of bills or government securities for a long time. Given the uptick in supply this year, and where spreads are on bills, we continue to be heavily invested in bills and discount notes to some extent. We continue to buy floating rate notes and very high-quality U.S. banks. We like northern European banks, Australian, and Canadian banks, as well. We like the floaters for obvious reasons -- the protection that they offer in a rising rate environment.
We have a tri-party treasury repo position in our Federal Money Market portfolio. Relative to the size of the portfolio, it's not massive. The total repo book is about $15 billion in a $100 billion portfolio. In our Prime funds, we will opportunistically trade tri-party Treasury repo. Over the past few years, you've seen more foreign bank presence in repo markets. Specifically, French and Japanese banks provide a lot of repo. In our government fund, we have a core position that we maintain, and we'll consider it in our prime funds from time to time.
Crane Data's latest MFI International shows total assets in "offshore" money market mutual funds, U.S.-style funds domiciled in Ireland or Luxemburg and denominated in USD, Euro and GBP (sterling), up year-to-date in 2018. Through 11/14/18, MFII assets are up $16 billion to $847 billion. Offshore USD money funds are up $22 billion YTD, continuing to defy predictions of repatriation-related outflows. Euro funds are still feeling the pain of negative rates and pending European MMF reforms; they're down E5 billion YTD. GBP funds are up L2B. U.S. Dollar (USD) money funds (159) account for over half ($447 billion, or 52.8%) of this "European" money fund total, while Euro (EUR) money funds (98) total E98 billion (11.0%) and Pound Sterling (GBP) funds (103) total L221 billion (26.0%). We summarize our "offshore" money fund assets, as well as our latest Money Fund Intelligence International Portfolio Holdings totals, below.
USD MMFs yield 2.09% (7-Day) on average (as of 11/14/18), up from 1.19% at the end of 2017 and 0.56% at the end of 2016. EUR MMFs yield -0.48 on average, up from -0.55% on 12/29/17 and -0.49% on 12/30/16, while GBP MMFs yield 0.62%, up from 0.24% at the end of 2017 and 0.19% at the end of 2016. (See our latest MFI International for more on the "offshore" money fund marketplace.)
Crane's latest MFI International Money Fund Portfolio Holdings, with data (as of 10/31/18), show that European-domiciled US Dollar MMFs, on average, consist of 28% in Commercial Paper (CP), 22% in Certificates of Deposit (CDs), 14% in Treasury securities, 20% in Repurchase Agreements (Repo), 14% in Other securities (primarily Time Deposits), and 2% in Government Agency securities. USD funds have on average 33.6% of their portfolios maturing Overnight, 11.2% maturing in 2-7 Days, 17.9% maturing in 8-30 Days, 11.1% maturing in 31-60 Days, 12.5% maturing in 61-90 Days, 10.8% maturing in 91-180 Days, and 2.9% maturing beyond 181 Days. USD holdings are affiliated with the following countries: US (24.5%), France (18.0%), Japan (10.2%), Canada (9.8%), United Kingdom (6.5%), Germany (5.0%), The Netherlands (4.8%), Sweden (4.6%), Australia (3.5%), China (2.8%), Singapore (2.5%), and Switzerland (2.2%).
The 10 Largest Issuers to "offshore" USD money funds include: the US Treasury with $68.4 billion (14.0% of total assets), BNP Paribas with $30.5B (6.3%), Credit Agricole with $18.2B (3.7%), Mitsubishi UFJ Financial Group Inc with $15.0B (3.1%), Wells Fargo with $14.3B (2.9%), Barclays PLC with $12.9B (2.6%), Toronto-Dominion Bank with $12.B (2.5%), Mizuho Corporate Bank Ltd with $11.1B (2.3%), Societe Generale with $10.7B (2.2%), and HSBC with $9.2B (1.9%).
Euro MMFs tracked by Crane Data contain, on average 46% in CP, 26% in CDs, 20% in Other (primarily Time Deposits), 6% in Repo, 1% in Agency securities, and 1% in Treasuries. EUR funds have on average 20.0% of their portfolios maturing Overnight, 11.7% maturing in 2-7 Days, 16.7% maturing in 8-30 Days, 13.1% maturing in 31-60 Days, 20.6% maturing in 61-90 Days, 14.6% maturing in 91-180 Days and 3.3% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (31.6%), Japan (15.2%), the US (9.4%), Sweden (6.7%), Netherlands (6.3%), Germany (6.1%), U.K. (5.0%), Belgium (4.0%), Switzerland (3.8%) and China (3.0%).
The 10 Largest Issuers to "offshore" EUR money funds include: Credit Agricole with E5.7B (6.4%), BNP Paribas with E4.2B (4.7%), Mizuho Corporate Bank Ltd with E3.5B (3.9%), ING Bank with E3.0B (3.4%), Sumitomo Mitsui Trust Bank with E2.9B (3.3%), Svenska Handelsbanken with E2.8B (3.1%), BPCE with E2.7B (3.0%), Societe Generale with E2.7B (3.0%), Credit Mutuel with E2.6B (2.9%), and Procter & Gamble Co with E2.6B (2.8%).
The GBP funds tracked by MFI International contain, on average (as of 10/31/18): 37% in CDs, 27% in Other (Time Deposits), 23% in CP, 9% in Repo, 4% in Treasury, and 0% in Agency. Sterling funds have on average 15.6% of their portfolios maturing Overnight, 14.5% maturing in 2-7 Days, 16.8% maturing in 8-30 Days, 10.0% maturing in 31-60 Days, 17.6% maturing in 61-90 Days, 20.7% maturing in 91-180 Days, and 4.% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: France (18.1%), Japan (15.4%), United Kingdom (15.4%), Netherlands (9.0%), Canada (8.1%), Germany (6.3%), Australia (5.4%), Sweden (5.1%), United States (4.6%), and Singapore (2.6%).
The 10 Largest Issuers to "offshore" GBP money funds include: UK Treasury with L13.4B (8.2%), Sumitomo Mitsui Banking Co with L5.9B (3.7%), Mizuho Corporate Bank Ltd with E5.6B (3.4%), Rabobank with E5.6B (3.4%), BNP Paribas with L5.5B (3.4%), BPCE SA with L5.5B (3.4%), Sumitomo Mitsui Trust Bank with L5.4B (3.3%), Toronto-Dominion Bank with L5.4B (3.3%), Nordea Bank with L5.1B (3.1%) and Credit Agricole L4.6B (2.8%),
In other news, ICI's weekly "Money Market Fund Assets" report shows MMF assets rising in the latest week, their 4th week in a row of strong gains. Government, Prime and Tax Exempt MMFs all increased. Overall assets are now up $70 billion, or 2.5%, YTD, and they've increased by $167 billion, or 6.1%, over 52 weeks. Retail MMFs, which broke above the $1.1 trillion level, have increased by $87 billion, or 8.6% YTD, while Inst MMFs, which broke above the $1.8 trillion level, have decreased $18 billion, or -1.0%. Over 52 weeks, Retail money funds have gained $118 billion, or 12.0%, while Inst money funds are up $49 billion, or 2.8%. We review the latest asset figures, and also give a preview of our pending Money Fund Portfolio Holdings data, below.
ICI writes, "Total money market fund assets increased by $12.31 billion to $2.92 trillion for the week ended Wednesday, November 14, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $10.79 billion and prime funds increased by $1.05 billion. Tax-exempt money market funds increased by $470 million." Total Government MMF assets, which include Treasury funds too, stand at $2.245 trillion (76.9% of all money funds), while Total Prime MMFs stand at $539.5 billion (18.5%). Tax Exempt MMFs total $135.9 billion, or 4.7%.
They explain, "Assets of retail money market funds decreased by $912 million to $1.10 trillion. Among retail funds, government money market fund assets decreased by $3.34 billion to $653.62 billion, prime money market fund assets increased by $1.76 billion to $318.18 billion, and tax-exempt fund assets increased by $672 million to $128.20 billion." Retail assets account for over a third of total assets, or 37.7%, and Government Retail assets make up 59.4% of all Retail MMFs.
ICI's release adds, "Assets of institutional money market funds increased by $13.23 billion to $1.82 trillion. Among institutional funds, government money market fund assets increased by $14.14 billion to $1.59 trillion, prime money market fund assets decreased by $709 million to $221.29 billion, and tax-exempt fund assets decreased by $202 million to $7.73 billion." Institutional assets account for 62.3% of all MMF assets, with Government Inst assets making up 87.4% of all Institutional MMFs.
The November issue of our Bond Fund Intelligence, which was sent out to subscribers Thursday morning, features the lead story, "Man Bites Dog: Big Outflows from Bond Funds in October," which reviews bond funds' first asset decline in years, and the profile, "Federated Ultrashort Bond Fund's Bauer Balances Risks," which interviews Federated Investors' Senior PM Randy Bauer. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund yields jumped in October and returns plunged. We excerpt from the latest issue below. (Contact us if you'd like to see our latest Bond Fund Intelligence and BFI XLS spreadsheet, and mark your calendars our 3rd annual Bond Fund Symposium, which will take place March 25-26, 2019 in Philadelphia.)
The lead BFI story says, "Bond fund assets declined by $56.3 billion in October, their biggest decrease in the history of BFI. (We started publishing in December 2015.) Funds and ETFs saw outflows for 5 weeks in a row, but had a small inflow in the most recent week. The October declines follow 21 straight months of increases. Our new BFI Daily shows flows stabilizing in recent days, but these big declines could well mean that the inflow party is over for bonds."
It continues, "ICI's most recent weekly 'Combined Estimated Long-Term Fund Flows and ETF Net Issuance' report, with data as of Nov. 7, 2018, tells us, 'Bond funds had estimated inflows of $777 million for the week, compared to estimated outflows of $18.60 billion during the previous week. Taxable bond funds saw estimated inflows of $1.69 billion, and municipal bond funds had estimated outflows of $909 million.' Over the past 5 weeks through 11/7/18, bond funds and bond ETFs have seen outflows of $37.6 billion."
The piece adds, "ICI's latest monthly '`Trends in Mutual Fund Investing - Sept. 2018' shows bond fund assets increasing a mere $0.3 billion to $4.166 trillion. Over the past 12 months through 9/30/18, bond fund assets have increased by $175.9 billion, or 4.4%. ICI's release tells us, 'Bond funds had an inflow of $11.26 billion in September, compared with an inflow of $13.05 billion in August.' The number of bond funds increased by 4 in Sept. to 2,136. This was down 19 from a year ago."
Our Federated "profile" says, "This month, Bond Fund Intelligence interviews Randall Bauer, Senior Vice President & Senior Portfolio Manager with Federated Investors. Bauer is Head of Federated's Structured Finance & Low-Duration Strategies Group and manages the $3.6 billion Ultrashort Bond Fund and the $1.3 billion Short-Term Income Fund. We discuss the ultra-short sector, strategies and supply, and maintaining a 'balanced risk profile.' Our Q&A follows."
BFI says, "Tell us about your history. Bauer responds, "I've been with the firm since 1989, and before that I spent almost eight years at PNC as a commercial lender, so I have a credit background. I came to Federated and I worked in the high-yield area for a couple of years and got into the bond area.... At the end of 1991, we repositioned one of our existing funds and wanted to make it a low-duration product.... It still exists today, and it's called the Federated Short-Term Income Fund."
He continues, "We realized there was an arbitrage opportunity in the term asset-backed securities market.... We combined the concept of low-duration and the liberal use of asset backed securities with the addition of a multi-sector approach.... The main drivers of our low-duration strategy over the years has been that combination of corporates and securitized assets." (Watch for more excerpts from this article later this month, or see the latest issue of BFI.)
Our Bond Fund News includes the brief, "Yields Jump, Returns Slide in October." It explains, "Bond fund yields rose sharply and returns fell last month all fund categories but Ultra-Shorts. The BFI Total Index returned -0.63% for 1-month and -0.45% over 12 months. The BFI 100 returned -0.64% in October and -0.56% over 1 year. The BFI Conservative Ultra-Short Index returned 0.10% over 1 month and 1.75% over 1-year; the BFI Ultra-Short Index averaged 0.09% in Oct. and 1.36% over 12 mos. Our BFI Short-Term Index returned -0.07% and 0.36%, and our BFI Intm-Term Index returned -0.75% and -1.68% for the 1-mo and year. BFI's Long-Term Index returned -1.19% in Oct. and -2.45% for 1yr; BFI's High Yield Index returned -1.23% in Oct. and 0.91% over 1-yr."
Another brief, entitled, "New J.P. Morgan Muni ETF," explains, "A press release entitled, 'J.P. Morgan Asset Management Launches Ultra-Short Municipal ETF: JMST' tells us that JPMAM, 'announced the launch of the JPMorgan Ultra-Short Municipal ETF (JMST), an actively managed fixed-income ETF that focuses on tax-exempt yield and invests in municipal securities with less interest rate sensitivity. The strategy invests primarily in investment grade, ultra-short municipal bonds that are exempt from federal income tax. The fund ... seeks to maintain a target duration range of two years or less.... The team is led by co-portfolio managers, Rick Taormina and James Ahn."
A third News brief, "Barron's Writes 'Going Long on Short'. They tell us, "Investing in shorter-term bonds, a wasteland for many years thanks to ultralow interest rates, is a lot more appealing these days -- though it's hardly risk-free. The two-year U.S. Treasury note is now yielding around 2.87%, up from 1.55% a year ago. The recent spike in yields has also made shorter-term securities much more competitive against longer-term holdings and dividend-paying stocks."
Finally, a sidebar entitled, "JPM on STBF Holdings," says, "A recent J.P. Morgan 'Short-Term Fixed Income' weekly included a 'Short-term bond fund holdings update.' It tells us, 'In general, the rise in interest rates during the course of this year has not been friendly to bond returns. Our GABI aggregate index has returned -2.3% year to date (through 10/24/18). However, the very front end of the bond market universe has fared somewhat better. Data show that many ultrashort bond fund shave managed to generate positive returns that in many cases still exceed average yields earned by MMFs. However, short-term bond funds have generally not been able to match the ultrashorts.'"
Treasury Today recently hosted a Q&A featuring Morgan Stanley Investment Management's Global Liquidity team on the topic of "EMEA MMF Reform." The description of the session says, "A shakeup of the European money fund industry is underway as regulatory reforms push fund providers to adjust their offerings. Whether you are an existing or potential money market fund investor you need to understand the new environment and types of funds being offered. In this podcast, Kim Hochfeld, EMEA Head of Liquidity Distribution, Douglas McPhail, Senior Portfolio Manager, and Scott Wachs, Global Liquidity Product Head for Morgan Stanley, look at the regulatory hurdles ahead and what investors can do to prepare for the change." We quote from the podcast below, and we also report on a new Consultation Paper from ESMA which requests comments on proposed European MMF Reform reporting guidelines.
Host Richard Parkinson comments, "Change is coming in the money fund industry -- long awaited legislation is now upon us in Europe. Money market fund reforms here have taken a slightly different course than in the United States, and fund managers have been working with regulators, vendors and clients over the past two years to adjust their product offerings to meet the new regulatory criteria. As a result, some fund providers are converting their money fund range to the new structures this quarter and many others will follow in the beginning of January. By 21st January 2019, all existing European funds must be adapted to the new structures introduced by the legislation. Whether you are an existing money market fund investor – or might become one, you should acquaint yourself with what is changing and the types of funds being offered."
Wachs tells us, "There are going to be three types of money market funds, all very appropriate for short term cash investing. The two that are for the most similar construct to how short term money market funds operate today are the public debt CNAV and the LVNAV options.... Something new in this new regulatory regime is trigger-based fees and gates. The LVNAV fund ... has limited use of amortized cost accounting. The fund transacts at a constant unit value again to two decimal places.... But it can only continue to price at this level as long as a portfolio NAV does not deviate by more than 20 basis points from a one unit per share. If it breaks this collar, the fund must transact at a market based NAV per share, and in that case the price would be rounded out to four decimal places [and become a VNAV fund]."
Hochfeld comments, "We believe that investors should definitely welcome the new regulations as they were created as a way to make the funds more transparent and robust for them, and they were designed specifically with the interests of investors in mind. The new regs mandate more transparency, and that includes daily publication of the fund's liquidity levels, the daily publication of the mark to market NAV on the two stable [types of] portfolios, and also more frequent dissemination of the credit profile and the maturity profile of the fund. Investors definitely need to understand the differences as to how these funds are going to operate. But broadly speaking, the new regs should definitely be welcomed."
McPhail says, "We do not intend to change our investment philosophy or strategy. We will continue to run the portfolios to comply, for example, with our rating agency methodologies. These methodologies ensure that we will maintain our AAA money market fund ratings, and the rating agency methodology actually limits our investment flexibility far more than the regulations. So capital preservation and liquidity are still paramount. Our credit process hasn't changed, and arguably could be viewed as more robust under these new regulations. We will increase daily and weekly liquidity in our portfolios due to the new requirements, especially as in the portfolios that are subject to trigger-based fees and gates. As we know, investors will be focused on these figures; we will be too. Our goal is to avoid having any fees and gates imposed at any time. Liquidity in short term VNAV funds will also be managed at levels higher than prescribed by the regulations. The regulations only prescribe 7.5% daily liquidity and 15% weekly liquidity for short-term VNAV funds. But in order to meet our investor liquidity and rating agency requirements we will continue to run the funds against our current liquidity levels."
When asked about fees and gates, Wachs responds, "I don't think investors should be particularly concerned. Importantly, fees and gates are not new to these funds, and I don't think all investors actually realize that. Under the UCITS rules, funds could choose to implement fees and gates, and those rules have been in place for a long, long time. However these UCITS rules were designed to be utilized only in extraordinary circumstances and fully based on board discretion. Our fund's board, for our Morgan Stanley Liquidity funds, has never felt the need in the history of the funds to use this type of liquidity tool. But what's new about the fees and gates under the new European money market fund reform is that they are trigger-based, and that's the new wrinkle that's been introduced."
He explains, "The first prong is that weekly assets must drop below 30%, and the second, which has to happen on the same day at the same time, is that daily net redemptions are greater than 10%. Fees and gates are discretionary, again at board discretion, at this point. But if the weekly liquidity drops below 10 percent it is mandatory to implement a liquidity measure.... We believe the funds will be managed in such a manner that the possibility of the implementation of these liquidity measures is very remote.... But we recommend that it would be prudent for investors to closely monitor a fund's weekly liquidity levels. We anticipate that fund managers will make this very easy to do by publishing this information on their websites. And it's also important to note that short term money market fund portfolios have historically been managed with weekly liquidity levels in excess of 30%, as per UCITS, IMMFA and ratings agency guidelines."
Treasury Today also asks about negative rates and share cancellation. McPhail responds, "So there's still no formal guidance from the European Commission at this point, and it's getting very late in the process. At Morgan Stanley, we are planning for both LVNAV and a VNAV option. We are certain that an accumulating VNAV structure is workable in negative interest rates. We are less clear, however, as to whether an LVNAV incorporating the reverse distribution mechanism or RDM which incorporates the share cancellation will be allowed. There may be differences in how VNAV share classes are structured, but there needs to be a number of decimal places in order to accurately reflect the interest accrual. Morgan Stanley funds have historically priced to 8 significant figures and intend to keep the structure going forward. Positive rates for Euros could be possible in 2020 or perhaps even 2021. Even if LVNAV is not workable right now, clients could still move back into an LVNAV fund with net yields returned to positive territory."
Finally, when asked about accounting treatment, Hochfeld adds, "If it walks like a duck, talks like a duck, and quacks like a duck, it has to be a duck. And we've used this metaphor to show that money funds post reform will still operate in a very similar fashion to how they do today. The argument is if structurally they still the same ... and today they are accounted for as cash or a cash equivalent, then there's absolutely no reason why there shouldn't be a cash and cash equivalent tomorrow.... The liquidity profile of the portfolio, if anything, has actually got more liquid rather than any less liquid than they are today. The fund still has the same features as cash equivalents and the fund NAV is subject to insignificant changes in value.... So why wouldn't it be classified as a cash and cash equivalent?"
In related news, the website MondoVisione posted the brief, "ESMA Consults on Future Guidelines for Money Market Funds' Disclosure," which tells us about a Consultation Paper released by ESMA, the European Securities and Markets Authority, entitled, "Draft guidelines on the reporting to competent authorities under article 37 of the MMF Regulation." MondoVisione explains, "Starting from the end of the first quarter of 2020, European money market funds will have to disclose certain information under the Money Market Fund Regulation (MMFR) to their National Competent Authorities (NCAs)."
They write, "To facilitate funds' regulatory disclosure, the European Securities and Markets Authority (ESMA) has opened today a public consultation on draft guidelines providing further specifications on how to fill-in the MMFR reporting template. ESMA's consultation paper represents the first step in the development of such specifications by setting out detailed proposals on which ESMA is seeking the views of its stakeholders."
The piece adds, "ESMA's Guidance will complement the information included in the Implementing Technical Standard (ITS), which ESMA delivered in November 2017 and which were endorsed by the European Commission in April 2018. Together with the ESMA Guidance, managers of MMFs have all the necessary information to fill in the reporting template they will have to send to NCAs of their MMF, as specified in article 37 of the MMF Regulation. MMF managers will need to send their first quarterly reports mentioned in Article 37 to NCAs in Q1 2020."
Crane Data released its November Money Fund Portfolio Holdings Friday, and our most recent collection of taxable money market securities, with data as of Oct. 31, 2018, shows big increases in Treasuries, Repo and CDs. Money market securities held by Taxable U.S. money funds (tracked by Crane Data) increased by $61.0 billion to $2.984 trillion last month, after decreasing by $13.3 billion in Sept. and $24.1 billion in August, but increasing by $90.0 billion in July. Repo continued to be the largest portfolio segment, followed by Treasury securities, then Agencies. CP remained fourth ahead of CDs, Other/Time Deposits and VRDNs. Below, we review our latest Money Fund Portfolio Holdings statistics. (Visit our Content center to download the latest files, or contact us to see our latest Portfolio Holdings reports.)
Among taxable money funds, Repurchase Agreements (repo) rose $17.3 billion (1.8%) to $982.9 billion, or 32.9% of holdings, after rising $16.0 billion in Sept., falling $11.3 billion in August and rising $8.0 billion in July. Treasury securities rose $21.7 billion (2.7%) to $829.6 billion, or 27.8% of holdings, after falling $29.6 billion in Sept., rising $22.1 billion in August and rising $42.4 billion in July. Government Agency Debt rose by $4.4 billion (0.7%) to $643.2 billion, or 21.6% of all holdings, after falling $11.5 billion in Sept., falling $24.9 billion in August and rising by $0.9 billion in July. Repo, Treasuries and Agencies total $2.456 trillion, representing a massive 82.3% of all taxable holdings.
Money funds' holdings of CDs jumped, and CP and Other (mainly Time Deposits) holding inched higher in October. Commercial Paper (CP) was up $0.6 billion (0.3%) to $240.0 billion, or 8.0% of holdings, after rising $6.1 billion in Sept., falling $3.2 billion in August and rising $22.5 billion in July. Certificates of Deposits (CDs) rose by $15.1 billion (8.5%) to $192.5 billion, or 6.5% of taxable assets (after rising $3.6 billion in Sept., falling $7.6 billion in August and rising $12.0 billion in July). Other holdings, primarily Time Deposits, rose by $2.5 billion (2.9%) to $88.4 billion, or 3.0% of holdings. VRDNs fell by $0.7B (-8.1%) to $7.8 billion, or 0.3% of assets. (Note: This total is VRDNs for taxable funds only. We will publish Tax Exempt MMF holdings separately later Tuesday.)
Prime money fund assets tracked by Crane Data rose to $726 billion (up from $722 billion last month), or 24.7% (up from 24.3%) of taxable money fund total taxable holdings of $2.984 trillion. Among Prime money funds, CDs represent almost a quarter of holdings at 26.5% (up from 24.6% a month ago), while Commercial Paper accounted for 33.0% (down from 33.1%). The CP totals are comprised of: Financial Company CP, which makes up 20.7% of total holdings, Asset-Backed CP, which accounts for 6.5%, and Non-Financial Company CP, which makes up 5.8%. Prime funds also hold 5.1% in US Govt Agency/ Debt, 6.4% in US Treasury Debt, 5.6% in US Treasury Repo, 1.6% in Other Instruments, 8.8% in Non-Negotiable Time Deposits, 6.4% in Other Repo, 5.1% in US Government Agency Repo, and 0.8% in VRDNs.
Government money fund portfolios totaled $1.542 trillion (51.7% of all MMF assets), down from $1.520 trillion in Sept., while Treasury money fund assets totaled another $717 billion (24.0%), up from $682 billion the prior month. Government money fund portfolios were made up of 39.3% US Govt Agency Debt, 20.8% US Government Agency Repo, 19.1% US Treasury debt, and 20.6% in US Treasury Repo. Treasury money funds were comprised of 68.2% US Treasury debt, 30.1% in US Treasury Repo, and 1.7% in Government agency repo, Other Instrument, and Investment Company shares. Government and Treasury funds combined now total $2.259 trillion, or 75.7% of all taxable money fund assets.
European-affiliated holdings jumped $104.8 billion in Oct. to $678.4 billion among all taxable funds (and including repos); their share of holdings rose to 22.7% from 19.6% the previous month. Eurozone-affiliated holdings rose $72.4 billion to $439.5 billion in October; they account for 14.7% of overall taxable money fund holdings. Asia & Pacific related holdings decreased by $0.7 billion to $262.1 billion (8.8% of the total). Americas related holdings fell $42.9 billion to $2.042 trillion and now represent 68.4% of holdings.
The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (up $11.7 billion, or 2.0%, to $586.2 billion, or 19.6% of assets); US Government Agency Repurchase Agreements (up $6.4 billion, or 1.8%, to $359.4 billion, or 12.0% of total holdings), and Other Repurchase Agreements (down $0.8 billion from last month to $37.2 billion, or 1.2% of holdings). (Note that our "Other Repo" totals had been inflated due to a misreporting issue, but we've since revised and corrected these totals.) The Commercial Paper totals were comprised of Financial Company Commercial Paper (up $0.0 billion to $150.3 billion, or 5.0% of assets), Asset Backed Commercial Paper (down $0.2 billion to $47.5 billion, or 1.6%), and Non-Financial Company Commercial Paper (down $0.9 billion to $42.3 billion, or 1.4%).
The 20 largest Issuers to taxable money market funds as of Oct. 31, 2018, include: the US Treasury ($829.6 billion, or 27.8%), Federal Home Loan Bank ($514.1B, 17.2%), BNP Paribas ($139.9B, 4.7%), RBC ($102.3B, 3.4%), Federal Farm Credit Bank ($75.0B, 2.5%), Fixed Income Clearing Co ($74.1B, 2.5%), Credit Agricole ($68.8B, 2.3%), Wells Fargo ($62.2B, 2.1%), Barclays ($60.6B, 2.0%), JP Morgan ($53.6B, 1.8%), Mitsubishi UFJ Financial Group Inc ($52.8B, 1.8%), HSBC ($47.7B, 1.6%), Sumitomo Mitsui Banking Co ($44.3B, 1.5%), Natixis ($42.7B, 1.4%), Societe Generale ($40.2B, 1.3%), Bank of America ($37.6B, 1.3%), ING Bank ($37.1B, 1.2%), Mizuho Corporate Bank Ltd ($35.4B, 1.2%), Nomura ($33.6B, 1.1%), and Citi ($30.9B, 1.0%).
In the repo space, the 10 largest Repo counterparties (dealers) with the amount of repo outstanding and market share (among the money funds we track) include: BNP Paribas ($130.1B, 13.2%), RBC ($82.3B, 8.4%), Fixed Income Clearing Co ($74.1B, 7.5%), Credit Agricole ($51.5B, 5.2%), Wells Fargo ($50.5B, 5.1%), Barclays PLC ($48.6B, 4.9%), JP Morgan ($42.3B, 4.3%), HSBC ($40.2B, 4.1%), Mitsubishi UFJ Financial Group Inc ($38.0B, 3.9%) and Nomura ($33.6B, 3.4%). Fed Repo positions among MMFs on 10/31/18 include: Northern Trust Trs MMkt ($1.2B), Northern Inst Govt Select ($1.1B), Franklin IFT US Govt MM ($1.0B), Dreyfus Govt Cash Mngt ($0.5B), Dreyfus Inst Pref Govt ($0.5B) and Dreyfus Tr&Ag Cash Mgmt ($0.5B).
The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: Toronto-Dominion Bank ($21.1B, 4.7%), RBC ($20.0B, 4.5%), Credit Agricole ($17.3B, 3.9%), Sumitomo Mitsui Banking Co ($16.5B, 3.7%), Mizuho Corporate Bank Ltd ($15.4B, 3.4%), Mitsubishi UFJ Financial Group Inc. ($14.8B, 3.3%), Bank of Montreal ($13.8B, 3.1%), Australia & New Zealand Banking Group Ltd ($13.6B, 3.0%), Canadian Imperial Bank of Commerce ($13.4B, 3.0%) and Barclays PLC ($12.0B, 2.7%).
The 10 largest CD issuers include: Bank of Montreal ($13.5B, 7.0%), Sumitomo Mitsui Banking Co ($12.3B, 6.4%), Wells Fargo ($11.6B, 6.0%), Mitsubishi UFJ Financial Group Inc ($11.2B, 5.8%), RBC ($10.9B, 5.7%), Mizuho Corporate Bank Ltd ($10.6B, 5.5%), Svenska Handelsbanken ($9.5B, 4.9%), Toronto-Dominion Bank ($8.5B, 4.4%), Sumitomo Mitsui Trust Bank ($7.8B, 4.1%) and Swedbank AB ($7.7B, 4.0%).
The 10 largest CP issuers (we include affiliated ABCP programs) include: Toronto-Dominion Bank ($12.6B, 6.1%), JPMorgan ($11.2B, 5.5%), RBC ($8.5B, 4.1%), UBS AG ($8.0B, 3.9%), Bank of Nova Scotia ($7.8B, 3.8%), Canadian Imperial Bank of Commerce ($6.8B, 3.3%), BayernLB ($6.7B, 3.3%), Credit Agricole ($6.4B, 3.1%), Credit Suisse ($6.3B, 3.1%), and Toyota ($6.0B, 2.9%).
The largest increases among Issuers include: Credit Agricole (up $41.1B to $68.8B), US Treasury (up $21.7B to $829.6B), Societe Generale (up $12.9B to $40.2B), Natixis (up $12.3B to $42.7B), Barclays PLC (up $11.9B to $60.6B), Mizuho Corporate Bank Ltd (up $10.9B to $35.4B), Deutsche Bank AG (up $6.7B to $22.4B), Federal Home Loan Bank (up $5.2B to $514.1B), ING Bank (up $5.1B to $37.1B), and RBC (up $3.2B to $102.3B).
The largest decreases among Issuers of money market securities (including Repo) in Oct. were shown by: Bank of Montreal (down $15.1B to $25.2B), Nomura (down $11.6B to $33.6B), BNP Paribas (down $10.3B to $139.9B), Fixed Income Clearing Co (down $6.8B to $74.1B), Canadian Imperial Bank of Commerce (down $6.4B to $24.5B), Goldman Sachs (down $5.8B to $12.6B), Toronto-Dominion Bank (down $4.7B to $30.6B), Federal Home Loan Mortgage Co (down $4.2B to $29.6B), Sumitomo Mitsui Banking Co (down $2.1B to $44.3B), and Bank of America (down $1.6B to $37.6B).
The United States remained the largest segment of country-affiliations; it represents 60.8% of holdings, or $1.814 trillion. France (10.2%, $304.4B) reclaimed the No. 2 spot and Canada (7.6%, $226.6B) fell to No. 3. Japan (7.1%, $210.4B) stayed in fourth place, while the United Kingdom (4.8%, $143.6B) remained in fifth place. Germany (2.2%, $64.8B) moved ahead of the Netherlands (1.9%, $57.9B), while Sweden (1.4%, $42.8B) remained in 8th place. Finally, Switzerland (1.3%, $39.4B) moved ahead of Australia (1.2%, $36.7B) to rank 9th and 10th. (Note: Crane Data attributes Treasury and Government repo to the dealer's parent country of origin, though money funds themselves "look-through" and consider these U.S. government securities. All money market securities must be U.S. dollar-denominated.)
As of Oct. 30, 2018, Taxable money funds held 34.5% (up from 32.8%) of their assets in securities maturing Overnight, and another 13.8% maturing in 2-7 days (down from 16.6% last month). Thus, 48.3% in total matures in 1-7 days. Another 22.0% matures in 8-30 days, while 10.4% matures in 31-60 days. Note that over three-quarters, or 80.7% of securities, mature in 60 days or less (down slightly from last month), the dividing line for use of amortized cost accounting under SEC regulations. The next bucket, 61-90 days, holds 8.2% of taxable securities, while 9.7% matures in 91-180 days, and just 1.5% matures beyond 181 days.
ICI's weekly "Money Market Fund Assets" report shows MMF assets jumping again in the latest week, their 3rd week in a row of strong gains. Government, Prime and Tax Exempt MMFs all increased. Overall assets are now up $70 billion, or 2.5%, YTD, and they've increased by $167 billion, or 6.1%, over 52 weeks. Retail MMFs, which broke above the $1.1 trillion level, have increased by $87 billion, or 8.6% YTD, while Inst MMFs, which broke above the $1.8 trillion level, have decreased $18 billion, or -1.0%. Over 52 weeks, Retail money funds have gained $118 billion, or 12.0%, while Inst money funds are up $49 billion, or 2.8%. We review the latest asset figures, and also give a preview of our pending Money Fund Portfolio Holdings data, below.
ICI writes, "Total money market fund assets increased by $23.20 billion to $2.91 trillion for the week ended Wednesday, November 7, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $14.59 billion and prime funds increased by $7.31 billion. Tax-exempt money market funds increased by $1.30 billion." Total Government MMF assets, which include Treasury funds too, stand at $2.234 trillion (76.8% of all money funds), while Total Prime MMFs stand at $538.4 billion (18.5%). Tax Exempt MMFs total $135.5 billion, or 4.7%.
They explain, "Assets of retail money market funds increased by $9.97 billion to $1.10 trillion. Among retail funds, government money market fund assets increased by $5.72 billion to $656.95 billion, prime money market fund assets increased by $2.97 billion to $316.42 billion, and tax-exempt fund assets increased by $1.28 billion to $127.53 billion." Retail assets account for over a third of total assets, or 37.9%, and Government Retail assets make up 59.7% of all Retail MMFs.
ICI's release adds, "Assets of institutional money market funds increased by $13.23 billion to $1.81 trillion. Among institutional funds, government money market fund assets increased by $8.87 billion to $1.58 trillion, prime money market fund assets increased by $4.34 billion to $222.00 billion, and tax-exempt fund assets increased by $18 million to $7.93 billion." Institutional assets account for 62.1% of all MMF assets, with Government Inst assets making up 87.3% of all Institutional MMFs. (See also Reuters' brief, "U.S. Money Market Fund Assets Post Biggest Rise in Five Months: IMoneyNet.")
Crane Data's latest monthly Money Fund Portfolio Holdings statistics will be published later today (Friday), and we'll be writing our normal monthly update on the October 31 data in Monday's News. But we've also been generating a separate and broader Portfolio Holdings data set based on the SEC's Form N-MFP filings. (We continue to merge the two series, and the N-MFP version is now available via Holdings file listings to Money Fund Wisdom subscribers.) Our summary, with data as of October 31, includes holdings information from 1,224 money funds (down from 1,227 on Sept. 30), representing $3.191 trillion (up from $3.132 trillion). We review the latest data below.
Our latest Form N-MFP Summary for All Funds (taxable and tax-exempt) shows that Repurchase Agreement (Repo) holdings in money market funds broker over $1 trillion, totaling $1,001.5 billion (up from $986.6 billion on Sept. 30), or 31.4% of all assets. Treasury holdings total $846.0 billion (up from $827.3 billion) or 26.5%, and Government Agency securities total $665.3 billion (down from $660.2 billion), or 20.8%. Commercial Paper (CP) totals $250.0 billion (down from $250.9 billion), or 7.8%, and Certificates of Deposit (CDs) total $195.9 billion (down from $180.3 billion), or 6.1%. The Other category (primarily Time Deposits) totals $129.3 billion or 4.1%, and VRDNs account for $103.0 billion, or 3.2%.
Broken out into the SEC's more detailed categories, the CP totals were comprised of: $156.7 billion, or 4.9%, in Financial Company Commercial Paper; $46.3 billion or 1.5%, in Asset Backed Commercial Paper; and, $47.0 billion, or 1.5%, in Non-Financial Company Commercial Paper. The Repo totals were made up of: U.S. Treasury Repo ($596.0B, or 18.7%), U.S. Govt Agency Repo ($367.7B, or 11.5%), and Other Repo ($37.7B, or 1.2%).
The N-MFP Holdings summary for the the 221 Prime Money Market Funds shows: CP holdings of $245.4 billion (up from $246.5 billion Sept. 30), or 32.9%; CD holdings of $195.9B (up from $180.3B) or 26.3%; Repo holdings of $121.4B (down from $121.8B), or 16.3%; Other (primarily Time Deposits) holdings of $88.0B (up from $85.0B), or 11.8%; Treasury holdings of $50.9B (down from $62.8B), or 6.8%; Government Agency holdings of $37.8B or 5.1%; and VRDN holdings of $6.7B, or 0.9%.
The SEC's more detailed categories show CP in Prime MMFs made up of: $156.7 billion, or 21.0%, in Financial Company Commercial Paper; $46.3 billion, or 6.2%, in Asset Backed Commercial Paper; and, $42.4 billion, or 5.7%, in Non-Financial Company Commercial Paper. The Repo totals include: U.S. Treasury Repo ($42.8B, or 5.7%), U.S. Govt Agency Repo ($40.9B, or 5.5%), and Other Repo ($37.7B, or 5.1%).
Finally, the Federal Reserve left rates unchanged yesterday, but is expected to increase rates again in December. The latest FOMC statement says, "Information received since the Federal Open Market Committee met in September indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has declined. Household spending has continued to grow strongly, while growth of business fixed investment has moderated from its rapid pace earlier in the year. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Indicators of longer-term inflation expectations are little changed, on balance."
The Fed continues, "Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced. In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 2 to 2-1/4 percent."
They add, "In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments."
Crane Data's latest Money Fund Market Share rankings show assets were higher for most U.S. money fund complexes in October. Money fund assets rose by $24.9 billion, or 0.8%, last month to $3.106 trillion, and assets have risen by $64.0 billion, or 2.1%, over the past 3 months. They have increased by $173.9 billion, or 5.9%, over the past 12 months through Oct. 31, 2018. The biggest increases among the 25 largest managers last month were seen by Fidelity, Vanguard, Federated, Goldman and Schwab, who increased assets by $17.9 billion, $8.3B, $6.5B, $3.2B, and $2.7B, respectively. We review the latest market share totals below, and we also look at money fund yields in October.
Declines in assets among the largest complexes in October were seen by Morgan Stanley, whose MMFs fell by $5.5 billion, or -5.4%, Northern, whose MMFs fell by $3.5 billion, or -3.2%, BlackRock, whose MMFs fell by $2.9 billion, or -1.0%, DWS, whose MMFs fell by $2.4 billion, or -9.8%, and SSGA, whose MMFs fell by $2.0 billion, or -2.4%. Our domestic U.S. "Family" rankings are available in our MFI XLS product, our global rankings are available in our MFI International product. The combined "Family & Global Rankings" are available to Money Fund Wisdom subscribers.
Over the past year through Oct. 31, 2018, Fidelity (up $68.7B, or 12.3%), Vanguard (up $50.0B, or 17.5%), Goldman Sachs (up $32.7B, or 19.3%), JP Morgan (up $29.8B, or 11.8%), Federated (up $19.9B, or 10.5%), BlackRock (up $13.8B, or 5.1%), and UBS (up $12.7B, or 29.3%) were the largest gainers. These complexes were followed by First American (up $6.9B, or 14.0%), Principal (up $3.9B, fund was added), Northern (up $3.0B, or 2.9%), and PGIM (up $1.6B, or 11.0%).
Fidelity, Vanguard, Goldman Sachs, Federated and JP Morgan had the largest money fund asset increases over the past 3 months, rising by $33.1B, $26.6B, $15.6B, $15.1B, and $10.7B, respectively. The biggest decliners over 3 months include: Morgan Stanley (down $14.3B, or -12.9%), BlackRock (down $10.5B, or -3.6%), Dreyfus (down $4.7B, or -2.8%), SSGA (down $4.6B, or -5.4%), and Northern (down $4.3B, or -3.9%).
Our latest domestic U.S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $626.6 billion, or 20.2% of all assets. It was up $17.9 billion in October, up $33.1 billion over 3 mos., and up $68.7B over 12 months. Vanguard ranked second with $335.6 billion, or 10.8% market share (up $8.3B, up $26.6B, and up $50.0B for the past 1-month, 3-mos. and 12-mos., respectively). BlackRock was third with $285.2 billion, or 9.2% market share (down $2.9B, down $10.5B, and up $13.8B). JP Morgan ranked fourth with $281.7 billion, or 9.1% of assets (up $2.1B, up $10.7B, and up $29.8B for the past 1-month, 3-mos. and 12-mos., while Federated remained in fifth with $210.7 billion, or 6.8% of assets (up $6.5B, up $15.1B, and up $19.9B).
Goldman Sachs remained in sixth place with $202.2 billion, or 6.5% of assets (down $3.2B, up $15.6B, and up $32.7B), while Dreyfus held seventh place with $164.6 billion, or 5.3% (down $1.4B, down $4.7B, and down $12.5B). Schwab ($129.3B, or 4.2%) was in eighth place (up $2.7, up $1.4B and down $27.6B), followed by Wells Fargo, who moved up to ninth place ($106.4B, or 3.4%, down $117M, down $1.9B, and down $1.0B). Northern fell to tenth place ($105.9B, or 3.4%, down $3.5B, down $4.3B, and up $3.0B).
The eleventh through twentieth largest U.S. money fund managers (in order) include: Morgan Stanley ($96.9B, or 3.1%), SSgA ($80.4B, or 2.6%), Invesco ($59.7B, or 1.9%), UBS ($56.0B, or 1.8%), First American ($55.8B, or 1.8%), T Rowe Price ($34.6B, or 1.1%), DFA ($23.2B, or 0.7%), Franklin ($22.9B, or 0.7%), Western ($22.3B, or 0.7%), and DFA ($22.2, or 0.7%). Crane Data currently tracks 71 U.S. MMF managers, 3 more than last month. (We added listings for AXA Equitable, AST and Pacific Capital.)
When European and "offshore" money fund assets -- those domiciled in places like Ireland, Luxembourg, and the Cayman Islands -- are included, the top 10 managers match the U.S. list, except JPMorgan moved ahead of BlackRock and Vanguard, Goldman moves ahead of Federated, and Morgan Stanley and Northern move ahead of Schwab. Our Global Money Fund Manager Rankings include the combined market share assets of our MFI XLS (domestic U.S.) and our MFI International ("offshore") products.
The largest Global money market fund families include: Fidelity ($635.1 billion), J.P. Morgan ($445.8B), BlackRock ($424.0B), Vanguard ($335.6B), and Goldman Sachs ($303.6B). Federated ($219.2B) was sixth and Dreyfus/BNY Mellon ($180.8B) was in seventh, followed by Morgan Stanley ($132.5B), Northern ($131.0B), and Schwab ($129.3B), which round out the top 10. These totals include "offshore" US Dollar money funds, as well as Euro and Pound Sterling (GBP) funds converted into US dollar totals.
The November issue of our Money Fund Intelligence and MFI XLS, with data as of 10/31/18, shows that yields were up again in October across all of our taxable Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 777), was up 11 bps to 1.80% for the 7-Day Yield (annualized, net) Average, and the 30-Day Yield was up 14 bps to 1.77%. The MFA's Gross 7-Day Yield increased 12 bps to 2.25%, while the Gross 30-Day Yield rose 15 bps to 2.22%.
Our Crane 100 Money Fund Index shows an average 7-Day (Net) Yield of 2.01% (up 12 bps) and an average 30-Day Yield of 1.98% (up 15 bps). The Crane 100 shows a Gross 7-Day Yield of 2.28% (up 12 bps), and a Gross 30-Day Yield of 2.25% (up 15 bps). For the 12 month return through 10/31/18, our Crane MF Average returned 1.28% and our Crane 100 returned 1.47%. The total number of funds, including taxable and tax-exempt, was down 5 funds to 974. There are currently 777 taxable and 197 tax-exempt money funds.
Our Prime Institutional MF Index (7-day) yielded 2.00% (up 11 bps) as of Oct. 31, while the Crane Govt Inst Index was 1.88% (up 11 bps) and the Treasury Inst Index was 1.89% (up 12 bps). Thus, the spread between Prime funds and Treasury funds is 11 basis points, down 1 bps from last month, while the spread between Prime funds and Govt funds is also 12 basis points, the same as last month. The Crane Prime Retail Index yielded 1.84% (up 10 bps), while the Govt Retail Index yielded 1.54% (up 11 bps) and the Treasury Retail Index was 1.63% (up 12 bps). The Crane Tax Exempt MF Index yield rose in October to 1.14% (up 8 bps).
Gross 7-Day Yields for these indexes in October were: Prime Inst 2.39% (up 11 bps), Govt Inst 2.18% (up 11 bps), Treasury Inst 2.21% (up 12 bps), Prime Retail 2.37% (up 10 bps), Govt Retail 2.19% (up 14 bps), and Treasury Retail 2.22% (up 12 bps). The Crane Tax Exempt Index increased 8 basis points to 1.65%. The Crane 100 MF Index returned on average 0.16% over 1-month, 0.46% over 3-months, 1.29% YTD, 1.47% over the past 1-year, 0.76% over 3-years (annualized), 0.47% over 5-years, and 0.30% over 10-years. (Contact us if you'd like to see our latest MFI XLS, Crane Indexes or Market Share report.)
The November issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Wednesday, features the articles: "Money Fund Consolidation & Liquidations, Slight Return," which looks at a short list of recent changes in the sector; "Vanguard's Nafis Smith: Money Markets Compelling," our profile of the new head of Taxable Money Markets at the second largest fund company; and, "Money Fund Yields Break 2.0%; Still Going," which reviews the latest increase in MMF returns. We've also updated our Money Fund Wisdom database with Oct. 31 statistics, and sent out our MFI XLS spreadsheet Wednesday a.m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our November Money Fund Portfolio Holdings are scheduled to ship on Friday, November 10, and our Nov. Bond Fund Intelligence is scheduled to go out Thursday, November 15.
MFI's "Consolidation" article says, "While there has been surprisingly little consolidation in the money fund space over the past two years since the adoption of Money Fund Reforms in October 2016, there has been some. Most of the changes involve minor fund liquidations, particularly Tax Exempt MMFs last year and "sweep" money funds this year."
It continues, "But there have been some notable moves, including the recent filing that TDAM will liquidate its funds and the recent announcement that Invesco will buy OppenheimerFunds. We review some of these changes, and look back at the changes over the past decade, below."
Our "Vanguard's Smith" profile reads, "This month, Money Fund Intelligence interviews Nafis Smith, Vanguard's new Head of Taxable Money Markets. We discuss the history, strategies, and outlook for the funds, and he addresses a number of major issues in the money markets today. Vanguard is the second largest manager of money market mutual funds with $327.3 billion in assets (as of 9/30/18). Our Q&A follows."
MFI says, "Tell us about your history." Smith tells us, "We've been running money market funds pretty much since Vanguard was founded. Our flagship taxable retail money market fund, now Prime Money Market, was launched over 40 years ago, back in 1975. In the early '80s, we launched our first government offering, Federal Money Market. In the early '90s, we filled out the taxable lineup and added Treasury Money Market Fund. We also run a number of municipal funds including Vanguard Municipal Money Market, which was launched in 1980."
He continues, "I joined Vanguard in 2003 after I graduated from Cornell University. I've been a part of Vanguard's Fixed Income Group since 2005. Throughout the course of my career in fixed-income, most my career was in bond indexing. I spent time in our Australian office from 2014 to 2016. Then in 2016, I moved back to the U.S. to become a money fund Portfolio Manager working for David Glocke, helping to look after Prime Money Market and Treasury Money Market." (Watch for more excerpts from our interview in coming weeks, or see the latest issue of MFI for the full article.)
MFI's "2% Yields" piece says, "Money fund yields moved higher in October following the Fed's 8th quarter-point rate hike at the end of September, bringing our Crane 100 Money Fund Index up to the 2.0% level for the first time in 10 years. (Our Crane 100 MF Index measures the average yield of the 100 largest taxable money market funds.) Yields have moved up from 1.88% at the start of October and up from 1.12% at the start of 2018 and 0.43% at the start of 2017. We briefly discuss recent yields."
Also, MFI includes a sidebar, "European Reforms & RDM," which says "In other money fund news outside the U.S., we learned from ignites Europe that Valdis Dombrovskis, Vice President of the European Commission, wrote a letter to Steven Maijoor, the Chairman of ESMA, entitled, 'Subject: Implementation of the Money Market Funds Regulation.' While the letter appears to uphold a ban on reverse distribution mechanisms, European money fund providers still believe the matter is undecided, and are awaiting confirmation from the EU entities and regulators to continue with RDM."
Our November MFI XLS, with Oct. 31, 2018, data, shows total assets rising $34.5 billion in October to $3.072 trillion, after increasing $1.6 billion in Sept., $29.2 billion in August, and $36.3 billion in July. Our broad Crane Money Fund Average 7-Day Yield rose 11 bps to 1.80% during the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) was up 12 bps to 2.01% (its highest level since Oct. 2008).
On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA rose 12 bps to 2.25% and the Crane 100 rose to 2.28%. Charged Expenses averaged 0.45% (up one bps) and 0.27% (down one bps), respectively for the Crane MFA and Crane 100. The average WAM (weighted average maturity) for the Crane MFA and Crane 100 was 29 and 30 days, respectively (down 1 day). (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
Money market mutual fund distributors and corporate cash managers are in Chicago this week for AFP 2018, the Association for Financial Professionals' huge annual gathering of corporate treasurers and cash managers. AFP'18, the largest gathering of corporate treasurers in the country, is being held at Chicago's McCormick Place, Nov. 4-6. Below, we excerpt from two of the sessions involving money funds and cash investing: "Keep Calm and Carry On: How Corporations are Preparing for European Money Market Fund Reform," with Timothy Kolenda from AbbVie Inc, Edward Moselle from BioMarin Pharmaceutical, and Sara Flour and Reyer Kooy from DWS; and, "Disruption: Distraction or Opportunity? A Look at Today's Liquidity Environment," featuring Matthew Skurbe of Blackstone and Dave Fishman of Goldman Sachs.
DWS's Kooy explained, "Money fund investors like safety blankets," citing layers of European regulation and oversight, including UCITS III/IV, ESMA, the IMMFA Code and AAA ratings. He asked, "Are we going to see a similar change [in assets like the U.S. reforms]? I believe the answer is 'No.'" He added, "I believe the great safety of money market funds comes from the way they diversify."
Kooy commented on transparency that European reforms "catches up to the common practice of what funds are already doing," mentioning the new disclosure mandates of maturity breakdown, credit breakdown, WAM, WAL, 10 largest holdings, assets and yields. Funds will be converting in November and December 2018 prior to the Jan. 21, 2019 deadline, and "investors will not even notice" the changes.
On the RDM, he told the audience, "With the current negative yield environment in place in Europe, money market funds have used a 'reverse distribution mechanism'.... We've been doing this for more than 5 years.... We're hoping Luxembourg and Ireland will permit the use of this [and] we hope to get [this] confirmed in the not too distant future."
Note: Crane Data originally misreported the significance of a recent letter on this topic. See our Nov. 1 News, "WSJ: Yu'e Bao Shrinking; Europe Still Unclear on RDM Ban; Weekly Holds," which says, "In other money fund news outside the U.S., we learned from ignites Europe that Valdis Dombrovskis, Vice President of the European Commission, wrote a letter to Steven Maijoor, the Chairman of ESMA, entitled, "Subject: Implementation of the Money Market Funds Regulation."
While the letter appeared at first to uphold a ban on reverse distribution mechanisms, European money fund providers tell us that this is nothing new and that they still believe the matter is undecided, and are awaiting confirmation from the EU entities and regulators to continue with RDM. (For more, see our Oct. 19 News, "Oct. MFI Profile: Highlights from European MFS: Irish Funds' Rooney," and our Sept. 5 News, "JPMorgan on European MMF Reforms; Aviva First to Convert to LVNAV."
Kooy concluded, "The details of the regulations differ between jurisdictions [U.S. and Europe], and there are unlikely to be large switches between fund types.... Fees and gates are not new in Europe."
AbbVie's Kolenda said the factors causing the company to shift out of Prime money funds during the U.S. 2016 regulatory changes included cutoff times [shifting forward] and questions over the cash equivalent status, and that the company uses time deposits, interest bearing bank accounts and now is using private prime funds, though they're limited in size.
He added, "The thing that I've liked about money market funds all along [is] the only way you can get a big movement is a fire sale.... Our plan is to monitor our funds.... We have about a dozen funds, and we use an investment portal." Kolenda also mentioned transparency and said they monitor credit default swaps and stock prices.
During the "Capitalizing on Disruption" cash session, Blackstone's Skurbe of told us, "It's one of the more interesting times to be managing money." The company sold its Prime funds, but "There's a trade to be made at a certain level.... To us, [the spread differential between Prime and Govt MMFs] becomes more interesting in the 50-75 basis point range."
Finally, the AFP's Tuesday agenda will feature: "The Commercial Paper Market from the Buyer and Issuer Point of View," with Randy Webb of Applied Materials, Benjamin Campbell of Capital Advisors Group, Matthew Frye of Carnegie Mellon University, and Nicholas Ro of Toyota Financial Services; and "Repositioning for Rising Rates," featuring Ruiz-Zaiko, Jack Yue of KLA-Tencor Corporation, and Jim Palmer of U.S. Bancorp Asset Management. We enjoyed seeing many of you in Chicago!
We learned from The Economic Times, in an article entitled, "Tata money market fund's NAV dips 5.94% on IL&FS write-off," that the fast-growing Indian money market fund industry could be in for a nasty shock. The piece says, "Tata Money Market Fund saw its net asset value dip as much as 5.94 per cent on October 29 after the fund wrote off the balance 50 per cent of its investment in the commercial paper of IL&FS which was to mature on October 29." India is the 9th largest money fund marketplace in the world, according to the ICI's latest figures, with $66.9 billion in assets (up 25% in the year through Q2'18).
Tata Mutual Fund's head of fixed income Murthy Nagarajan tells the Indian paper, "Since we did not receive maturity proceeds on October 29, we have made 100 per cent provision against the IL&FS exposure." (For more, see our News or Link of the Day pieces: "Speed Bump for Indian Money Funds (9/10/18)," "New Sundaram Indian Money Fund (5/9/18)," "Paytm may launch Indian money fund (1/1/18)," and "Worldwide Money Fund Chinese MFs Plunge US India Up in Q2 (10/1/18).")
The Economic Times adds, "As on October 29, the fund had an exposure of Rs 24.83 crore to IL&FS, which constituted 6 per cent of the assets under management of Rs 430 crore. Earlier on September 17, when the rating of IL&FS was first downgraded to D, the scheme had marked down 50 per cent of the instrument."
In other news, a recent "Money Markets" update from Fidelity Investments tells us, "U.S. taxable money market funds (MMFs) have generally benefited this year from rising interest rates and the repatriation of U.S. corporate cash via a tax cut on repatriated foreign profits in President Trump's tax plan. Taxable MMFs had net inflows of $23 billion by the end of the third quarter, compared with average outflows of $7.5 billion by this point in recent years."
Authors Kerry Pope and Chris Lewis explain, "Most of those gains were in prime funds, where assets grew by $75 billion year to date, including $38 billion for institutional prime funds. Government and agency MMFs saw assets shrink by $52 billion, while assets in Treasury MMFs fell by $1 billion during the same time. Institutional MMFs have seen significant asset growth in 2018 over a year ago, with almost all of it coming from prime funds."
The update continues, "Prime funds experienced outflows following new rules that took effect in 2016 from the U.S. Securities and Exchange Commission requiring a floating NAV, potential liquidity fees, and redemption gates in periods of market stress. Now, rising interest rates are prompting corporate clients to further focus on their liquidity, with the net yield spread between prime and government/ agency funds at 21 basis points at the end of the third quarter.... As market rates have trended higher, institutional and corporate investors are seeing value in segmenting their liquidity portfolios between government funds for immediate operating needs and prime funds for short-term strategic needs."
It adds, "Fidelity's MMFs continue to be well positioned with short weighted average maturities to take advantage of heightened supply conditions and further Fed rate increases, including an expected hike in December. Fidelity's prime institutional money market fund maintains higher levels of overnight and weekly liquidity to provide a buffer over the SEC's liquidity thresholds that, if breached, could result in a liquidity gate or fee."
Finally, Federated Investors recently files its quarterly "10-Q", which contains some risk disclosures of interest to the money market mutual fund community. The report says of the "Current Regulatory Environment," "Deregulation also is a focus of certain legislative efforts. The House Financial Services Committee advanced a bill seeking to reverse certain aspects of money market fund reform and a hearing on that bill was held in the Senate in June 2018. For example, the proposed law would permit the use of amortized cost valuation by, and override the floating NAV and certain other requirements for, institutional and municipal (or tax-exempt) money market funds. These requirements were imposed under the SEC's structural, operational and other money market fund reforms adopted through amendments to Rule 2a-7, and certain other regulations, on July 23, 2014 (2014 Money Fund Rules) and related guidance (collectively, the 2014 Money Fund Rules and Guidance)."
Later, Federated writes, "Management believes that the floating NAV, and fees and gates, required by the 2014 Money Fund Rules, as well as other Regulatory Developments, have been and will continue to be detrimental to Federated's fund business. In addition to the impact on Federated's AUM, revenues, operating income and other aspects of Federated's business described above, on a cumulative basis, Federated's regulatory, product development and restructuring, and other efforts in response to the Regulatory of Financial Condition and Results of Operations (unaudited)."
They also comment, "On April 5, 2017, European Parliament passed EU money market fund reforms (Money Market Fund Regulation or MMFR), which went into force on July 21, 2017. The MMFR provides for the following types of money market funds in the EU: (1) Government constant NAV (CNAV) funds; (2) Low volatility NAV (LVNAV) funds; (3) Short-term variable NAV (VNAV) funds; and (4) standard VNAV funds. The reforms became effective (i.e., must be complied with) in regards to new funds on July 21, 2018 and will be effective in regards to existing funds on January 21, 2019. Federated continues product-type analysis (e.g., whether certain CNAV funds should convert to LVNAV funds), compliance and other efforts utilizing both internal and external resources to prepare for MMFR. Federated also continues to engage with trade associations and appropriate regulators in connection with the MMFR as the European Securities Market Authority and the European Commission continue work on implementing the MMFR."
The disclosure adds, "While the MMFR will need to be complied with in 2018 or early 2019, government CNAV and LVNAV fund reforms will be subject to a future review by the European Commission in 2022. This review will consider the adequacy of the reforms from a prudential and economic perspective, taking into account, among other factors, the impact of the reforms on investors, money market funds, money fund managers and short-term financing markets, the role that money market funds play in purchasing debt issued or guaranteed by EU Member States, and international regulatory developments. As noted above, it is uncertain whether Brexit could delay implementation of the EU money market fund reforms. For Federated money market fund products subject to the MMFR, Federated has begun to take steps to structure such products consistent with the MMFR."
Crane Data, which publishes the Money Fund Intelligence newsletter and produces Money Fund Symposium, the largest annual gathering of money fund and money market professionals, is making plans and taking registrations for our third annual Bond Fund Symposium conference. Crane's Bond Fund Symposium will be held March 25-26, 2019 at the Loews Philadelphia Hotel. Our second event last year in Los Angeles attracted 120 bond fund managers, marketers, fixed-income issuers, investors and service providers, and we expect our Philadelphia show to be even bigger. We review the preliminary agenda (which is still a work in progress) and details below, and we also give an update on our 2019 conference calendar, including Money Fund University in Stamford, Conn. (1/17-18/19) and our big show, Money Fund Symposium in Boston (6/24-26/19). We also review the sessions involving money markets at next week's AFP Annual Conference, which starts Sunday in Chicago. (We hope to see you there!)
Crane Data, which will celebrate the fourth anniversary of its Bond Fund Intelligence publication and BFI XLS bond fund information service and benchmarks next month, continues to expand its fixed income fund product offerings. We are preparing to launch Bond Fund Intelligence Daily with Daily Assets, NAVs, and Yields for selected bond funds on the universe of bond funds tracked by Crane Data. Last year, we launched Bond Fund Wisdom, a product suite which includes our new Bond Fund Portfolio Holdings data.
Our Bond Fund Symposium offers a concentrated and affordable educational experience, as well as an excellent and informal networking venue. Registration for Bond Fund Symposium is $750; exhibit space is $2,000 (includes 2 tickets); and sponsorship opportunities are $3K, $4K, $5K, and $6K. Our mission is to deliver the best possible conference content at a reasonable price to bond fund professionals and investors.
The morning of BFS's Day One agenda includes: State of the Bond Fund Marketplace, with Bob Ostrowski, of Federated Investors and George Bory of Wells Fargo Securities; Keynote Discussion: Ultra-Shorts vs. SMAs: Round II with Dave Martucci of J.P. Morgan Asset Management and Jerome Schneider of PIMCO; Bond Market Strategists: Rates, Risks, Spreads, with Mark Cabana of Bank of America Merrill Lynch and Michael Cloherty of RBC Capital Markets; and, Bond Fund Ratings & LGIP Market Update, with Greg Fayvilevich of Fitch Ratings and Peter Rizzo of Standard & Poor's Ratings.
Day One's afternoon agenda includes Senior Portfolio Manager Perspectives, with Julian Potenza of Fidelity Investments (invited), Joseph D'Angelo of PGIM, and a speaker from Payden & Rygel. Also on the agenda: Major Issues in Fixed-Income Investing with Alex Roever from J.P. Morgan Securities as moderator, Morten Olsen of Northern Trust Asset Mgmt., Jeff Weaver of Wells Fargo Funds and Tony Wong of Invesco; and, Fixed‐Income & Near‐Cash ETF Trends featuring James McNerny of J.P. Morgan A.M. and William Goldthwait of State Street Global Advisors. The day concludes with Index Funds in the Bond Space, with a speaker from Vanguard.
Day Two's agenda includes: Regulatory Update: Liquidity & Other Issues with Stephen Cohen of Dechert LLP and John Hunt of Sullivan & Worcester LLP; Government Bond Fund Discussion with Sue Hill of Federated and Peter Crane of Crane Data. The second day also features: Municipal & Taxable Bond Fund Issues with Krisan Lind of Neuberger Berman; and Money Fund Update; Bond Fund Tools & Data with Peter Crane and James Morris of Investortools (Note: The agenda is still in flux and some speakers have yet to confirm their participation. Let us know if you'd be interested in speaking.)
Portfolio managers, analysts, investors, issuers, service providers, and anyone interested in expanding their knowledge of bond funds and fixed-income investing will benefit from our comprehensive program. A block of rooms has been reserved at the Loews Philadelphia. We'd like to thank our 2018 sponsors -- Dechert LLP, Fitch Ratings, Wells Fargo Securities, Fidelity Investments, Investortools, J.P. Morgan Asset Management, Wells Fargo Asset Management, S&P Global Ratings, Payden & Rygel, PIMCO, DTCC, INTL FCStone, Goldman Sachs, Invesco, and Barclays -- for their support, and we're still accepting sponsors for our 2019 show. E-mail us for more details.
Crane Data is also making preparations and still accepting registrations for our "basic training" Money Fund University. Our ninth annual MFU will be held at the The Stamford Marriott Hotel in Stamford, Conn., Jan. 17-18, 2019. Crane's Money Fund University is designed for those new to the money market fund industry or those in need of a concentrated refresher on the basics. The event also focuses on hot topics like money market regulations, money fund alternatives, offshore markets, and other recent industry trends. For those attending, please make hotel reservations soon; our discounted room rates expire December 21 or until our room block is filled.
Note: We're continuing our "free Fridays" policy for our Money Fund University (and other conferences) and would like to invite anyone in the Stamford area to attend the final day sessions without a ticket. So feel free to visit the The Stamford Marriott on Friday, Jan. 18, and to "crash" any or all of our sessions, which include Money Fund Regulations: 2a-7 Basics & History, European MMF Reforms & Offshore Funds, Ultra-Short Bond Funds & SMAs, and Money Fund Data & Wisdom Demo/Training.
Also, mark your calendars for our "big show," Money Fund Symposium, which will be held June 24-26, 2019, at the Renaissance Boston in Boston, Mass. Watch for the preliminary agenda in coming weeks at www.moneyfundsymposium.com and let us know if you'd like more details on sponsoring this event. We have also set the dates and location for our next European Money Fund Symposium, which is scheduled for Sept. 23-24, 2019, in Dublin, Ireland. Watch for more details in early 2019.... We hope to see you at one of our events in 2019!
Finally, money market mutual fund distributors and corporate cash managers are heading to Chicago this weekend for AFP 2018, the Association for Financial Professionals' huge annual gathering of corporate treasurers and cash managers. AFP'18 is being held at Chicago's McCormick Place, Nov. 4-6. AFP is the largest gathering of corporate treasurers in the country, attracting over 5,000 treasury management professionals, as well as a number of large banks and institutional money fund managers.
This year, sessions involving money funds and cash investing include: "Mind the (Yield) Gap: Corporate Cash Strategies for Rising Rate Environments," featuring Anthony Hancox of Garmin International, Jerry Klein and Richard Saperstein of Treasury Partners; "Keep Calm and Carry On: How Corporations are Preparing for European Money Market Fund Reform," with Timothy Kolenda from AbbVie Inc, Guillermo Gualino of Agilent Technologies, and Sara Flour and Reyer Kooy from DWS; and, "The Search for Yield, High Quality and Downside Protection for Corporate Cash Portfolios," with Brandon Hillstead from Autodesk, Linda Ruiz-Zaiko from Bridgebay Financial, and Peter Kaplan from Merganser Capital Management.
AFP also includes the "cash" segments: "Disruption: Distraction or Opportunity? A Look at Today's Liquidity Environment," featuring Matthew Skurbe of Blackstone and Dave Fishman of Goldman Sachs; "The Commercial Paper Market from the Buyer and Issuer Point of View," with Randy Webb of Applied Materials, Benjamin Campbell of Capital Advisors Group, Matthew Frye of Carnegie Mellon University, and Nicholas Ro of Toyota Financial Services; and "Repositioning for Rising Rates," featuring Ruiz-Zaiko, Jack Yue of KLA-Tencor Corporation, and Jim Palmer of U.S. Bancorp Asset Management. We hope to see you in Chicago Sunday or Monday!
The Wall Street Journal writes again on Chinese money market funds in "Rivals Reap Rewards as China's Monster Money-Market Fund Shrinks." The article says, "Beijing is forcing the world's largest money-market fund to shrink, creating a bonanza for others. At one point this year, assets under management at the Tianhong Yu'e Bao fund -- run by China's largest financial-technology company, Ant Financial Services Group, an affiliate of e-commerce behemoth Alibaba Group Holding Ltd. (BABA) -- were twice those of their biggest U.S. peer."
It tells us, "But Chinese regulators grew uneasy about the systemic risk of so large a fund. To aid its downsizing, Ant in May started adding money-market funds overseen by other domestic asset managers to its Yu'e Bao investment platform, helping send tens of billions of dollars their way. Between March and the end of September, assets under management at Tianhong Yu'e Bao fell by a fifth, to $190 billion from $244 billion, while assets in a dozen other money-market funds connected to Ant's platform surged by about $80 billion, according to Wind Information Co."
The Journal piece continues, "One fund overseen by a Chinese joint venture of U.S. firm Invesco Asset Management grew over that period to 55.3 billion yuan ($7.9 billion) from just 548 million yuan. The fund, created in 2013, began taking money from Alipay's customers in mid-June. China's money-market mutual fund industry has boomed since Ant created the Tianhong Yu'e Bao fund in 2013, with assets hitting 8.9 trillion yuan ($1.3 trillion) at the end of August, according to the Asset Management Association of China."
It explains, "Tianhong Yu'e Bao (yu'e bao means 'leftover treasure') was a financial innovation that changed the way everyday people in China invest in money-market funds, which traditionally had been sold by banks and asset managers. Ant's fund platform provided a place for individuals to park their pocket change, idle cash and online savings, and earn investment returns before using the money for online shopping or to purchase things like air tickets and train rides. Better yields than those offered on bank deposits were another draw."
The Journal tells us, "Last year, however, after assets in the flagship money-market fund rose rapidly, Chinese financial regulators began pressuring Ant to shrink it. Another concern: The fund was stretching for returns by investing heavily in assets that couldn't be easily sold, like high-yielding bank certificates of deposits, according to its reports to investors."
Finally, they write, "Tianhong Yu'e Bao fund's investment yield is now lower than those of most of the money-market funds available on Alipay. Its seven-day annualized yield was 2.59% recently, down from over 4% earlier this year, as Beijing has injected more liquidity into the financial system and Ant has shifted more of the fund's assets into lower-yielding instruments." (For more, see our Oct. 1 News, "Worldwide Money Fund Assets: Chinese MFs Plunge; US, India Up in Q2.")
In other money fund news outside the U.S., we learned from ignites Europe that Valdis Dombrovskis, Vice President of the European Commission, wrote a letter to Steven Maijoor, the Chairman of ESMA, entitled, "Subject: Implementation of the Money Market Funds Regulation." While the letter appears to uphold a ban on reverse distribution mechanisms, European money fund providers still believe the matter is undecided, and are awaiting confirmation from the EU entities and regulators to continue with RDM.
It says, "I am writing to you in reply to your letter dated 20 July 2018 on the implementation of the Money Market Funds (MMF) Regulation. I would like to thank you for all the work that your team has done on this file, especially with respect to the draft implementing technical standards and the draft delegated act."
The letter continues, "I welcome that the reverse distribution mechanism, often referred to as 'share cancellation', was discussed recently at the Board of Supervisors and that all relevant competent authorities are therefore aware of the opinion of the Legal Service of the Commission that the reverse distribution mechanism is incompatible with the legal framework established by the MMF Regulation. This opinion has already been sent to many market participants who requested to have access to it. I confirm that the Commission stands ready to share the opinion with any citizen and any natural or legal person upon request."
It adds, "As the MMF Regulation has been applicable to new funds (i.e. funds authorised after 20 July 2017) as from 21 July 2018, it is very important to ensure the consistent application of the MMF Regulation and to prevent divergent supervisory practices." (For more, see our Oct. 19 News, "Oct. MFI Profile: Highlights from European MFS: Irish Funds' Rooney," and our Sept. 5 News, "JPMorgan on European MMF Reforms; Aviva First to Convert to LVNAV." Watch for more News too from next week's AFP Conference in Chicago, which on Monday features a session on European MMF Reforms.)
Finally, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics and summary Wednesday, which tracks a shifting subset of our monthly Portfolio Holdings collection. The latest cut, with data as of Oct. 26, includes Holdings information from 83 money funds (up from 64 on Oct. 19), representing $1.351 trillion (up from $1.085 trillion) of the $2.924 T (46.2%) in total money fund assets tracked by Crane Data. (For our latest monthly Money Fund Portfolio Holdings numbers, see our Oct. 11 News, "October MF Portfolio Holdings: Treasury, Agency Down; FICC Repo Up.")
Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $505.5 billion (up from $413.1 billion on Oct. 19), or 37.4% of holdings, Treasury debt totaling $422.1 billion (up from $344.4 billion) or 31.2%, and Government Agency securities totaling $259.3 billion (up from $209.3 billion), or 19.2%. Commercial Paper (CP) totaled $63.1 billion (up from $46.3 billion), or 4.7%, and Certificates of Deposit (CDs) totaled $44.4 billion (up from $34.4 billion), or 3.3%. A total of $33.5 billion or 2.5% was listed in the Other category (primarily Time Deposits), and VRDNs accounted for $23.2 billion, or 1.7%.
The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $422.1 billion (31.2% of total holdings), Federal Home Loan Bank with $197.3B (14.6%), BNP Paribas with $69.2 billion (5.1%), RBC with $46.2B (3.4%), Federal Farm Credit Bank with $44.6B (3.3%), Credit Agricole with $33.8B (2.5%), ING Bank with $27.2 B (2.0%), Wells Fargo with $26.9B (2.0%), HSBC with $25.2B (1.9%), and JP Morgan with $25.1B (1.9%).
The Ten Largest Funds tracked in our latest Weekly Holdings update include: Fidelity Inv MM: Govt Port ($115.7B), Goldman Sachs FS Govt ($109.3B), BlackRock Lq FedFund ($82.5B), BlackRock Lq T-Fund ($70.9B), Wells Fargo Govt MMkt ($70.1B), Federated Govt Oblg ($67.2B), Dreyfus Govt Cash Mgmt ($57.5B), Goldman Sachs FS Trs Instruments ($54.8B), Morgan Stanley Inst Liq Govt ($48.0B), and State Street Inst US Govt ($44.3B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)
