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The Investment Company Institute released its latest monthly "Trends in Mutual Fund Investing" report yesterday. Their numbers confirm that assets were flat in April after a sharp drop in March. Year-​to-​date, MMF assets have decreased by $​30.​7 billion, or -​1.​1%, but month-​to-​date in May through 5/​29 assets have increased by $​31.​7 billion (​according to our MFI Daily). ICI'​s latest Portfolio Holdings totals show a sharp drop in Treasury holdings and a jump in Repo in April. We review ICI'​s latest Trends and Portfolio Composition statistics below, and we also review our latest Weekly Money Fund Portfolio Holdings data.

The latest monthly "Trends in Mutual Fund Investing" report from ICI confirm that money fund assets were relatively flat in April, following a big drop in March, a jump in February and a big drop in January. ICI'​s "April 2018 - Trends" shows a $​0.​4 billion decrease in money market fund assets in April to $​2.​793 trillion. This follows a $​50.​1 billion decrease in March, a $​37.​5 billion increase in February, and a $​51.​0 billion decrease in January. In the 12 months through April 30, money fund assets have increased by $​150.​9 billion, or 5.​7%.

ICI'​s monthly report states, "The combined assets of the nation'​s mutual funds increased by $​28.​96 billion, or 0.​2 percent, to $​18.​70 trillion in April, 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 inflow of $​6.​59 billion in April, compared with an inflow of $​11.​62 billion in March.... Money market funds had an outflow of $​2.​30 billion in April, compared with an outflow of $​52.​15 billion in March. In April funds offered primarily to institutions had an outflow of $​5.​22 billion and funds offered primarily to individuals had an inflow of $​2.​92 billion."

The latest "​Trends" shows that Tax Exempt MMFs lost assets while Taxable MMFs gained marginally last month. Taxable MMFs increased by $​0.​8 billion in April to $​2.​661 trillion, after decreasing by $​47.​4 billion in March, increasing in February and decreasing in January. Tax-​Exempt MMFs decreased $​1.​1 billion in April to $​132.​0 billion. Over the past year through 4/​30/​18, Taxable MMF assets increased by $​146.​6 billion (​5.​8%) while Tax-​Exempt funds rose by $​4.​4 billion over the past year (​3.​4%). Bond fund assets decreased by $​10.​8 billion in April to $​4.​084 trillion; they rose by $​267.​6 billion (​7.​0%) over the past year.

Money funds now represent 14.​9% (​down from 15.​0% the previous month) of all mutual fund assets, while bond funds represent 21.​8%, according to ICI. The total number of money market funds remained flat at 382 in April, down from 418 a year ago. (​Taxable money funds remained flat with 298 funds. Tax-​exempt money funds also were flat at 84 funds over the last month.)

ICI also released its latest "Month-​End Portfolio Holdings of Taxable Money Funds," which confirmed a plunge in Treasuries and a jump in Repos in April. Treasuries lost their position as the largest portfolio segment, down $​106.​4 billion, or -​12.​1%, to $​772.​8 billion or 29.​0% of holdings. Treasury Bills & Securities have increased by $​97.​6 billion over the past 12 months, or 14.​5%. (​See our May 10 News, "May Money Fund Portfolio Holdings: Treasury Surge Ends; Repo Rebound.")

Repurchase Agreements regained first place among composition segments; they increased by $​92.​3 billion, or 11.​8%, to $​875.​3 billion, or 32.​9% of holdings. Repo holdings have risen by $​44.​8 billion, or 5.​4%, over the past year. U.​S. Government Agency Securities remained in third place; they rose by $​12.​9 billion, or 2.​0%, to $​656.​6 billion, or 24.​7% of holdings. Agency holdings have risen by $​12.​2 billion, or 1.​9%, over the past 12 months.

Certificates of Deposit (​CDs) stood in fourth place; they increased $​12.​0 billion, or 7.​0%, to $​184.​1 billion (​6.​9% of assets). CDs held by money funds have fallen by $​5.​8 billion, or -​3.​1%, over 12 months. Commercial Paper remained in fifth place, increasing $​4.​1B, or 2.​7%, to $​158.​5 billion (​6.​0% of assets). CP has increased by $​41.​0 billion, or 34.​9%, over one year. Notes (​including Corporate and Bank) were down by $​95 million, or -​1.​5%, to $​6.​1 billion (​0.​2% of assets), and Other holdings increased to $​15.​0 billion.

The Number of Accounts Outstanding in ICI'​s series for taxable money funds increased by 1,​110.​2 thousand to 32.​332 million, while the Number of Funds was unchanged at 298. Over the past 12 months, the number of accounts rose by 6.​387 million and the number of funds decreased by 20. The Average Maturity of Portfolios was 30 days in April, down 3 days from March. Over the past 12 months, WAMs of Taxable money funds have shortened by 5 days.

In other news, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics and summary Tuesday. Our weekly holdings track a shifting subset of our monthly Portfolio Holdings collection, and the latest cut (​with data as of May 25) includes Holdings information from 55 money funds (​down from 69 on May 18), representing $​885 billion (​down from $​1.​208 trillion on May 18) of the $​2.​908 (​30.​4%) in total money fund assets tracked by Crane Data.

Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Repurchase Agreements (​Repo) totaling $​320.​6 billion (​down from $​510.​4 billion on May 18), or 36.​2%, Treasury debt totaling $​236.​9 billion (​down from $​437.​4 billion) or 26.​8%, and Government Agency securities totaling $​206.​9 billion (​down from $​302.​8 billion), or 23.​4%. Commercial Paper (​CP) totaled $​34.​7 billion (​down from $​53.​0 billion), or 3.​9%, and Certificates of Deposit (​CDs) totaled $​28.​8 billion (​up from $​43.​5 billion), or 3.​3%. A total of $​27.​1 billion or 3.​1%, was listed in the Other category (​primarily Time Deposits), and VRDNs accounted for $​29.​6 billion, or 3.​3%.

The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $​236.​9 billion (​26.​8% of total holdings), Federal Home Loan Bank with $​161.​1B (​18.​2%), BNP Paribas with $​39.​9 billion (​4.​5%), Federal Farm Credit Bank with $​35.​5B (​4.​0%), RBC with $​29.​8B (​3.​4%), Wells Fargo with $​22.​1B (​2.​5%), Natixis with $​21.​7B (​2.​4%), Sumitomo Mitsui Banking Co. with $​20.​4B (​2.​3%), Barclays PLC with $​17.​0B (​1.​9%), and JP Morgan with $​15.​9B (​1.​8%).

The Ten Largest Funds tracked in our latest Weekly include: JP Morgan US Govt ($​144.​5B), Wells Fargo Govt MMkt ($​70.​9B), Federated Govt Oblg ($​68.​1B), Dreyfus Govt Cash Mgmt ($​64.​4B), Morgan Stanley Inst Liq Govt ($​54.​3B), State Street Inst US Govt ($​52.​9B), JP Morgan Prime MM ($​39.​0B), JP Morgan 100% US Trs MMkt ($​34.​8B), Dreyfus Treas Sec Cash Mg ($​34.​0B), and Federated Trs Oblg ($​32.​3B). (​Let us know if you'​d like to see our latest domestic U.​S. and/​or "​offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)

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Last week, J.​P. Morgan Asset Management hosted a Webcast entitled, "Targeting lower duration amid today'​s higher rates," which featured JPMorgan'​s Ultra-​Short Income ETF (​JPST)." The description tells us, "​While rates continue to rise, core bond duration remains near record highs. The videocast discusses how JP Morgan Ultra-​Short Income ETF (​JPST) can help clients reduce duration risks without sacrificing yield potential. The experts share their latest market views and investment themes." Portfolio Manager James McNerny comments, "When we think about the platform, we think about ultra-​short here at J.​P. Morgan Asset Management as a part of the global liquidity business, which is anchored by our $​460 billion money market fund complex. While JPST is relatively new, ultra-​short is not new to us. We manage about $​60 billion in ultra-​short strategies that we brand as '​Managed Reserves'."

He asks, "​What does it mean to be a part of global liquidity? We approach the ultra-​short space as the '​next step out' from money market funds. We employ many of the best practices of the money market fund business, which tends to be conservative in nature. We'​re just taking them slightly out the curve. When you think about the size and importance of this business to JP Morgan, it affords us tremendous amounts of resources. We have four main portfolio managers on JPST with an average industry experience of twenty-​one years."

McNerny says "Highlights of the fund" include: "It is a 100% actively managed ultra-​short bond ETF. By definition, the ultra-​short space will have a maximum portfolio duration of typically one year.... The range we run in will be a quarter of a year to one year. Right now, we have the portfolio positioned at a half a year. The SEC yield on it right now is 2.​37%, and everyone loves to ask, '​Where are you getting that yield from?' The portfolio is invested largely in investment-​grade short-​term debt or credit. We are running a spread duration of about 1.​1 year."

He also asks, "​If we are running a half a year duration, but a 1.​1 year spread duration, how do you do that? It is primarily through the employment of floating rate notes. We have about 41% of the portfolio concentrated in floating rate notes ... about 27% is in corporates. The remainder is in structured debt. The portfolio is highly liquid, so we have about 51% of the portfolio maturing inside of one year and 84% maturing inside of two years. All of the fixed-​rate paper, given our view on the curve, is inside of 18 months and we are using weighted average life unstructured debt there."

McNerny states, "​As far as the maturity profile, the fixed paper [​is] 18 months and in on weighted average life, primarily because [​of the] flatness of the yield curve.... Anything longer than 18 months you see in the portfolio and in any of our materials is primarily floating rate notes. All of the portfolio is investment grade. We are looking at that as the most conservative approach. When we look at the ratings of S&​P, Moody'​s, and Fitch ... all are investment-​grade.... When you think about sector rotation, we have about 28% short-​term investments, which are commercial paper, certificates of deposits, and repo; about 58% in short corporate bonds; and about 14% in structured note in which would be consumer, ABS, mortgage-​backed securities, and CLOs."

He also comments, "​With the interest that we have seen so far, the biggest question that we'​ve been getting is, '​How are our clients using it in their portfolio?' There are two approaches to this space from different subsets of clients. First, traditionally we have seen clients moving out of money market funds in search of yields without wanting to add too much duration. I would remind everyone that this fund is not a money market fund. It is absolutely not a cash replacement vehicle. It is a very low duration bond fund, which, in turn, should exhibit low volatility."

McNerny continues, "More recently, we have seen ... money coming down the curve is becoming more and more of a primary opportunity where fixed income investors in general want to shorten up their portfolios, shorten up the duration or the interest rate sensitivity ... without giving up too much yield.... JPST right now is capturing 73% of the yield of the aggregate index but has 8% of duration of that index, so 8% of the interest rate sensitivity. Anecdotally ... we know that some of the largest purchases thus far have actually swapped out ... down the curve into JPST."

He tells the Webcast, "​The proof is in the pudding.... In February, we returned 7 bps, which relatively kept pace with cash at about 9 bps. We used a 3-​month T bill as a proxy versus a short duration index. The next step out from us was a 1- to 3- corporate index, [​which] was down 23 bps. The '​Agg' was down almost a percent, and stocks were down 3.​7%. YTD, JPST returned 56 bps while cash is about 49 bps. The short duration, corporate-​only index [​is] about 29 bps down, and the Barcleys Agg is down 2.​2%.... We have not had a negative month of performance since we launched. We launched in May of last year and had our one-​year anniversary on Friday."

McNerny explains, "Our process starts with the marriage of our top-​down macroeconomics thesis which we set formally on a monthly basis ... and we marry that with our bottoms-​up securities selection sector rotation. It is probably no different than what you'​re going to hear from most shops on the street. What I would add though, and what is a little more unique about us is that it is all encapsulated in a rigorous risk management framework that is a little bit more unique to money market funds."

He adds, "​We have the standalone, '​silo-​ed', corporate risk functions that are checking compliance and making sure that the risk is within the tolerance that we have laid out for the product. But we also have a separate layer within global liquidity and that function is called our '​credit and risk administration team' and their task is to make sure that we are staying within the risk-​parameters that we have laid out for ourselves."

Finally, McNerny says, "​We work off of an approved list which is typically an attributor or processes within the money market business. The way that it works is that I cannot buy credit as a portfolio manager or name the portfolio unless that name is on the approved list, meaning it has been scrubbed by our analyst team. We have over 20 credit analysts with average industry experience of over 20 years between them. They cover their sectors and we will suggest a name and they will look at it given whatever sector it is in will be assigned to that analyst. They will then either deem a name appropriate to go on the approved list or not.... Again, that is all maintained and the monitoring of those concentrations is all done by that credit and risk administration team."

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Charles Schwab liquidated its Schwab Money Market Fund late last week as the brokerage continues to shift large amounts of money market fund "​sweep" assets into bank deposits. Schwab MMF (​SWMXX) saw its assets decline to zero on Friday, from $​15.​4 billion two years ago and $​7.​3 billion on April 30, 2018. Schwab is the 8th largest manager of money market mutual funds with $​138.​8 billion in assets as of April 30, 2018. The brokerages' money fund assets declined by $​4.​1 billion in April, by $​16.​9 billion over 3 months, and by $​17.​5 billion, or 11.​2%, over the past 12 months. Year-​to-​date, Schwab has shifted at least $​32 billion in money fund sweep assets into bank deposits.

A Prospectus Supplement filing for Schwab Money Market Fund says "​This supplement provides new and additional information beyond that contained in the Summary Prospectus, Prospectus and SAI and should be read in conjunction with the Summary Prospectus, Prospectus and SAI. At a meeting held on December 12, 2017, the Board of Trustees of The Charles Schwab Family of Funds approved the liquidation of, and the related Plan of Liquidation for, Schwab Money Market Fund (​the Fund)."

It explains, "In accordance with the Plan of Liquidation, the Fund will redeem all of its outstanding shares on or about May 25, 2018 (​the Liquidation Date), and distribute the proceeds to the Fund'​s shareholders in an amount equal to the shareholder'​s proportionate interest in the net assets of the Fund after the Fund has paid or provided for all of its charges, taxes, expenses and liabilities. Additionally, the Fund anticipates making a distribution of any taxable dividends and capital gains of the Fund prior to or on the Liquidation Date."

The filing explains, "As the Fund approaches the Liquidation Date, the Fund will wind up its business and affairs, and will cease investing its assets in accordance with its stated investment policies. On or before the Liquidation Date, all portfolio holdings of the Fund will be converted to cash, cash equivalents or other liquid assets. As a result, the Fund will not be able to achieve its investment objective and will deviate from its investment policies during the period as it approaches the Liquidation Date."

It continues, "The Fund'​s investment adviser will bear all expenses associated with the liquidation other than transaction costs associated with winding down the Fund'​s portfolio and effective April 2, 2018 through the Liquidation Date, the Fund'​s investment adviser will waive the Fund'​s management fees."

Schwab'​s filing adds, "​The liquidation is not expected to be a taxable event for the Fund. As is the case with other redemptions of Fund shares, each shareholder'​s redemption, including a mandatory redemption on the Liquidation Date, may constitute a taxable disposition of shares for shareholders who do not hold their shares through tax-​advantaged plans (​i.​e., may constitute a sale that may result in gain or loss for federal income tax purposes). Shareholders should contact their tax advisors to discuss the potential tax consequences of the liquidation."

A letter to shareholders from Charles Schwab & Co. Senior Vice President, Strategy and Product Jonathan de St. Paer on the "Schwab Money Market Fund (​SWMXX) Liquidation," comments, "​Thank you for investing in the Schwab Money Market Fund (​the "​Fund"). I am writing to let you know that the Fund'​s Board of Trustees has approved the liquidation of the Fund on or about May 25, 2018."

It tells us, "Charles Schwab & Co., Inc. (​Schwab) has advised the Fund that, with respect to your account at Schwab: At this time, you do not need to take any action. For most shareholders of the Fund, Schwab will automatically move you to a sweep option for which you are eligible within your account. In the coming weeks, additional communications regarding any changes to your account will come from Schwab."

He adds, "​If you have questions about how the liquidation of the Fund impacts your account, please contact your Schwab Financial Consultant or call Schwab at 1-​800-​435-​4000. If you are a client of an independent investment advisor, please call them directly or call Schwab Alliance at 1-​800-​515-​2157. If you are a Personal Choice Retirement Account (​PCRA) participant, please call 1-​877-​553-​1971. We value your business and the continued opportunity to assist you in reaching your investment goals."

See our April 17, 2018 News, "Schwab Moves 25 Billion from MMFs to Deposits in Q1," where we wrote: CEO Walt Bettinger says, "[​W]​e initiated a '​Sweep Tower' for uninvested cash, offering eligible clients extended FDIC insurance of up to $​500,​000. (​A footnote here says, "​Bank Sweep deposits are held at one or more FDIC-​insured banks that are affiliated with Charles Schwab & Co., Inc. Funds deposited at Affiliated Banks are insured, in aggregate, up to $​250,​000 per Affiliated Bank, per depositor, for each account ownership category, by the Federal Deposit Insurance Corporation.) This enhancement broadens Schwab'​s range of cash solutions for our clients, which provide smart features, competitive yields, and transparency that helps investors make informed decisions."

CFO Peter Crawford commented, "​During the first quarter, we actively utilized available capital to further our client cash strategy. As part of this process, we transferred approximately $​25 billion from sweep money market funds to bank sweep and paid off $​15 billion in Federal Home Loan Bank advances. The net effect of these moves and client activity lifted our consolidated balance sheet assets to $​248 billion at quarter-​end. We still anticipate crossing the $​250 billion threshold in the first half of 2018." (​See also our Feb. 16 News, "Schwab Changes Brokerage Cash Sweep, Adds Bank, Cuts Money Funds," and also our Jan. 4 News, "Schwab Liquidating MMF, Shifting to FDIC; Brokerage Sweep Rates Jump.")

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An update from the European publication Euromoney, entitled, "Treasurers adapt ahead of European money market reforms," quotes from two experts in the European money fund space, Invesco'​s Natalie Cross and SSGA'​s Will Goldthwait. They write, "With six months to go before money market reforms are imposed on all funds in Europe, treasurers hoping to earn a return on their cash are scoping out the best options available. By January 21, existing and new European money market funds (​MMF) will have to fall in line with reforms that will see constant net asset value (​CNAV) restricted to government portfolios only." We review this latest update on pending European money fund reforms, and also cover the latest money market fund asset statistics below. (Note: The new European General Data Protection Regulations go into effect today, so Crane Data has updated its privacy policies. See below or ask us for details.)

The Euromoney piece explains, "Investors seeking higher returns from funds investing in short-​term liabilities of non-​government issuers will have to cope with variable net asset value (​VNAV) funds instead, but will also have access to new low volatility net asset value (​LVNAV) structures. Regulators hope these distinctions will bring greater stability to the market."

It tells us, "With the reality of these regulations now looming, Natalie Cross, senior client portfolio manager at Invesco, says the reaction of investors so far has been positive." She comments, "​Clients have responded well to the incoming changes.... The product types are acceptable to clients and their needs."

They also quote State Street Global Advisors' (​SSGA'​s) Will Goldthwait, "Clients are understanding the rule changes and how they will be impacted by them.... They understand that the rules are, overall, positive and will make money market funds safer and more liquid.... Overall, we have learned that clients like MMFs and want to continue to use them.... The MMF rule changes are very different from those rule changes that affected US money market funds.... Thus we think clients will react differently and the change in strategies will not be as severe as it was in the US."

Euromoney continues, "To be in time for the changes, a large number of treasurers are looking at which options to choose.... Ensuring their systems are up to the job is also a necessary task over the coming months.... `​For treasurers to get a full understanding of what the changes will mean, Cross says it is up to the fund providers to proactively reassure them."

The article adds, "Over time, as treasurers become more comfortable with what the different structures will involve, they are likely to begin exploring the options open to them. For those looking for a CNAV, the LVNAV is likely to be the first choice.... The short-​term VNAV is an option for those looking for additional yield and who are wary of the gates and fees applied to LVNAVs. There is also the standard VNAV, which is likely to be used to earn additional yield on cash not needed for immediate operations."

Finally, they tell us, "​The reform does require some additional legwork.... [​But] the market is confident there will be a range of funds available for businesses." Cross says, "We feel that the new regulations will continue to offer investors a suitable range of MMFs, which continue to prioritize capital preservation and liquidity, without significant impact to the operational mechanisms of the funds that they are already familiar with."

In other news, ICI released its latest "Money Market Fund Assets" report yesterday, which showed money fund assets relatively flat on the week after rising for 3 weeks in a row. Year-​to-​date, MMF assets have decreased by $​13 billion, or -​0.​4%, but they'​ve increased by $​177 billion, or 6.​7%, over 52 weeks.

ICI writes, "Total money market fund assets increased by $​814 million to $​2.​83 trillion for the week ended Wednesday, May 23, the Investment Company Institute reported today. Among taxable money market funds, government funds decreased by $​1.​56 billion and prime funds increased by $​484 million. Tax-​exempt money market funds increased by $​1.​89 billion." Total Government MMF assets, which include Treasury funds too, stand at $​2.​223 trillion (​78.​7% of all money funds), while Total Prime MMFs stand at $​462.​5 billion (​16.​4%). Tax Exempt MMFs total $​140.​0 billion, or 5.​0%.

They explain, "Assets of retail money market funds decreased by $​671 million to $​1.​03 trillion. Among retail funds, government money market fund assets decreased by $​1.​68 billion to $​630.​93 billion, prime money market fund assets decreased by $​642 million to $​262.​58 billion, and tax-​exempt fund assets increased by $​1.​65 billion to $​131.​94 billion." Retail assets account for over a third of total assets, or 36.​3%, and Government Retail assets make up 61.​5% of all Retail MMFs.

ICI'​s release adds, "Assets of institutional money market funds increased by $​1.​49 billion to $​1.​80 trillion. Among institutional funds, government money market fund assets increased by $​118 million to $​1.​59 trillion, prime money market fund assets increased by $​1.​13 billion to $​199.​90 billion, and tax-​exempt fund assets increased by $​241 million to $​8.​10 billion." Institutional assets account for 63.​7% of all MMF assets, with Government Inst assets making up 88.​4% of all Institutional MMFs.

Crane Data'​s Privacy Policy: We do not share your information with anyone (​the only exception being conference attendees -- contact information is shared with sponsors). Registered users of www.​cranedata.​com will get a welcome e-​mail and then will not be bothered again unless they request information. But registering for access to our free site gives us the right to your information. Client information will only be used for internal and fulfilment purposes. Please let us know if you'​d like to be added or deleted from any of our subscription lists of if you have any questions or feedback. (​You'​ll always get a human to respond!)

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Deutsche Asset Management, which recently announced a name change to DWS Investment Management, filed to change the monikers of its Deutsche money market funds back to DWS, which they were named prior to 2014. The Prospectus Supplement says, "The following changes will take effect on or about July 2, 2018: Deutsche Investment Management Americas Inc., the investment advisor for the below-​listed funds, will be renamed to DWS Investment Management Americas, Inc. In addition, the "Deutsche funds" will become known as the "DWS funds" and the below-​listed Deutsche funds and share classes, as applicable, will be renamed as follows." (​For the previous name change, see Crane Data'​s Aug. 15, 2014 News, "DWS Funds Change to Deutsche.")

The filing lists these changes: Deutsche Government & Agency Securities Portfolio: Deutsche Government & Agency Money Fund, DWS Government & Agency Money Fund Deutsche Government Cash Institutional Shares, and DWS Government Cash Institutional Shares will be renamed DWS Government & Agency Securities Portfolio; Deutsche Tax-​Exempt Portfolio will be renamed DWS Tax-​Exempt Portfolio; Deutsche Government Cash Management Fund will be renamed DWS Government Cash Management Fund; Deutsche Treasury Portfolio will be renamed DWS Treasury Portfolio; and Deutsche Variable NAV Money Fund will be renamed DWS Variable NAV Money Fund.

The update adds, "In addition, Deutsche AM Trust Company will be renamed to DWS Trust Company. Under a separate agreement, Deutsche Asset Management Investment GmbH has granted a license to DWS Group GmbH & Co. KGaA which permits the funds to utilize the '​DWS' trademark." (​See also the Reuters article, "Deutsche asset management to rebrand as DWS, plans KGaA structure.) Deutsche, or soon to be DWS, is the 17th largest manager of money market funds with $​29.​1 billion. Years ago the manager merged with and had funds with the names Scudder, Zurich, and Kemper.

In other news, the latest "Minutes of the Federal Open Market Committee, May 1-​2, 2018" discussed upwards pressure in the Federal funds and short-​term markets and the possibility of tweaking the IOER. The update says, "The Federal Reserve Board and the Federal Open Market Committee on Wednesday released the attached minutes of the Committee meeting held on May 1-​2, 2018. The minutes for each regularly scheduled meeting of the Committee ordinarily are made available three weeks after the day of the policy decision and subsequently are published in the Board'​s Annual Report. The descriptions of economic and financial conditions contained in these minutes are based solely on the information that was available to the Committee at the time of the meeting."

The update explains, "The deputy manager followed with a briefing focused on recent developments in the federal funds market, noting that the effective federal funds rate had increased in recent weeks and had moved toward the top of the target range for the federal funds rate. In large part, this development seemed to reflect a firming in rates on repurchase agreements (​repos) that, in turn, had resulted from an increase in Treasury bill issuance and the associated higher demands for repo financing by dealers and others. Higher rates had reportedly made repos a more attractive alternative investment for major lenders in the federal funds market, thus reducing the availability of funding in that market and putting some upward pressure on the federal funds rate. While some of the recent pressure on the federal funds rate could be expected to fade over coming weeks as the market adjusts to higher levels of Treasury bills, the gradual normalization of the Federal Reserve'​s balance sheet and the accompanying decline in reserves was anticipated to continue putting some upward pressure on the federal funds rate relative to the interest on excess reserves (​IOER) rate."

It continues, "The deputy manager then discussed the possibility of a small technical realignment of the IOER rate relative to the top of the target range for the federal funds rate. Since the target range was established in December 2008, the IOER rate has been set at the top of the target range to help keep the effective federal funds rate within the range. Lately the spread of the IOER rate over the effective federal funds rate had narrowed to only 5 basis points. A technical adjustment of the IOER rate to a level 5 basis points below the top of the target range could keep the effective federal funds rate well within the target range. This could be accomplished by implementing a 20 basis point increase in the IOER rate at a time when the Committee raised the target range for the federal funds rate by 25 basis points. Alternatively, the IOER rate could be lowered 5 basis points at a meeting in which the Committee left the target range for the federal funds rate unchanged."

The Fed Minutes tell us, "In their discussion of this issue, participants generally agreed that it could become appropriate to make a small technical adjustment in the Federal Reserve'​s approach to implementing monetary policy by setting the IOER rate modestly below the top of the target range for the federal funds rate. Such an adjustment would be consistent with the Committee'​s statement in the Policy Normalization Principles and Plans that it would be prepared to adjust the details of the approach to policy implementation during the period of normalization in light of economic and financial developments. Many participants judged that it would be useful to make such a technical adjustment sooner rather than later."

They explain, "FOMC communications over the intermeeting period were generally viewed by market participants as reflecting an upbeat outlook for economic growth and as consistent with a continued gradual removal of monetary policy accommodation. The FOMC'​s decision to raise the target range for the federal funds rate 25 basis points at the March meeting was widely anticipated. Market reaction to the release of the March FOMC minutes later in the intermeeting period was minimal. The probability of an increase in the target range for the federal funds rate occurring at the May FOMC meeting, as implied by quotes on federal funds futures contracts, remained close to zero; the probability of an increase at the June FOMC meeting rose to about 90 percent by the end of the intermeeting period. Expected levels of the federal funds rate at the end of 2019 and 2020 implied by OIS rates rose modestly."

The Fed states, "​Conditions in short-​term funding markets remained generally stable over the intermeeting period. Spreads on term money market instruments relative to comparable maturity OIS rates were still larger than usual in some segments of the money market. Reflecting the FOMC'​s policy action in March, yields on a broad set of money market instruments moved about 25 basis points higher. Bill yields also stayed high relative to OIS rates as cumulative Treasury bill supply remained elevated. Money market dynamics over quarter-​end were muted relative to previous quarter-​ends."

They write, "All participants expressed the view that it would be appropriate for the Committee to leave the target range for the federal funds rate unchanged at the May meeting. Participants concurred that information received during the intermeeting period had not materially altered their assessment of the outlook for the economy.... Most participants judged that if incoming information broadly confirmed their current economic outlook, it would likely soon be appropriate for the Committee to take another step in removing policy accommodation. Overall, participants agreed that the current stance of monetary policy remained accommodative, supporting strong labor market conditions and a return to 2 percent inflation on a sustained basis."

The Minutes also say, "​Meeting participants also discussed the recent flatter profile of the term structure of interest rates. Participants pointed to a number of factors contributing to the flattening of the yield curve, including the expected gradual rise of the federal funds rate, the downward pressure on term premiums from the Federal Reserve'​s still-​large balance sheet as well as asset purchase programs by other central banks, and a reduction in investors' estimates of the longer-​run neutral real interest rate. A few participants noted that such factors could make the slope of the yield curve a less reliable signal of future economic activity. However, several participants thought that it would be important to continue to monitor the slope of the yield curve, emphasizing the historical regularity that an inverted yield curve has indicated an increased risk of recession."

Finally, they add, "​Participants commented on how the Committee'​s communications in its post-​meeting statement might need to be revised in coming meetings if the economy evolved broadly as expected. A few participants noted that if increases in the target range for the federal funds rate continued, the federal funds rate could be at or above their estimates of its longer-​run normal level before too long. In addition, a few observed that the neutral level of the federal funds rate might currently be lower than their estimates of its longer-​run level. In light of this, some participants noted it might soon be appropriate to revise the forward-​guidance language in the statement indicating that the '​federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run' or to modify the language stating that '​the stance of monetary policy remains accommodative.' Participants expressed a range of views on the amount of further policy firming that would likely be required over the medium term to achieve the Committee'​s goals."

​

This month, Money Fund Intelligence interviews James Morris, a Vice President at Investortools, an Illinois-​based company that produces portfolio management and compliance software. We talk about their history and software products, recent regulatory changes, and cash separate accounts. Our interview follows. (Note: This interview is reprinted from the May issue of our flagship Money Fund Intelligence newsletter; contact us at inquiry@​cranedata.​com to request the full issue.)

MFI: Tell us about your beginnings. Morris: Investortools goes all the way back to 1983 ... back to the early days. We started out focusing on tax exempt mutual funds, and have grown our product suite from our initial product, which is called 'Perform.' We now offer of a handful of products that all can be integrated into one common software suite, or used on a standalone basis. Our presence in the money fund space started around the middle 1990s.

I have been with the company for over 17 years now, and our presence in the money fund space predates that. Our money fund product is called '​Smart,' which stands for Short Maturity Analytic Reporting Tool. We have seen some pretty substantive growth in this space, as the fixed income market has evolved over the past couple of decades. About half of our business relates to separate accounts or SMAs. I use the term broadly -- I'​m talking about institutional SMA, private clients, high net worth, family office, and retail separate accounts.

MFI: Tell us more about the products. Morris: If you are in the short maturity space, Smart is the focal point of our products. So that means it incorporates all of our 2a-​7 compliance and stress testing with reports and graphs oriented to short maturity. It also is designed to integrate into that suite I mentioned, so you can have Perform for your long portfolios, and Smart for the short and ultrashort portfolios, all integrated with CreditScope, which provides the credit team instant answers to how much credit exposure they have.

Users can also quickly see when an obligor was last reviewed and the latest analyst opinion. On the portfolio management side of the business, Smart is designed to make it easy to manage your diversification, run your 2a-​7 risk limiting conditions testing, your stress testing, etc. Additionally, [​we'​re] delivering a layer of compliance relating to any idiosyncratic constraints that apply.

We all know 2a-​7 is very well-​defined. A lot of firms, in addition to 2a-​7, have different constraints that they put upon their portfolios, and part of that is an attempt to stand out and find their niche. Then, other firms have specific things that they never will invest in or have other constraints or limits to put on the portfolio. What we at Investortools call 'portfolio rules' and 'management styles' allow you to put those user-​specified limits on portfolios and test them pre-​trade, then ad hoc, and demonstrate that you are in compliance at all times.

When we see 2a-​7 compliance regulations change, that'​s an opportunity for us. Clients look to us and ask, "​What can you do to help?" [​In recent years] with fee-​waivers in place, there'​s been little appetite for firms to go out and spend money. For us, this is definitely an opportunity to help people solve problems. Leveraging software takes care of the complexities of the business, so that portfolio managers, traders, and credit analysts can focus on core things. That is where we add value, by helping people scale their business.

MFI: What are your big priorities now? Morris: Smart and Perform are products that focus on the portfolio management aspects of the business, but Creditscope is designed to pair with those to serve credit analysts. Credit analysts use our municipal edition of Creditscope to receive fundamental data -- agency ratings, financials, pension data, all kinds of stuff that that is collected and spread by Merritt Research Services. A note about that: CreditScope on the muni side is a joint venture for us. Merritt Research collects and provides the data. We publish it, design all the software, and then it gets delivered.... Analysts use that tool to ultimately determine and publish their opinions. We have a nice streamlined credit opinion and surveillance workflow built in the system.

The portfolio managers can click through and see what the latest write-​up on this credit is and when it was last reviewed. We bring those two groups together in one common software suite. There'​s been a lot of interest in building out more streamlined '​approved' process..... There is a lot to keep track of there. Certain shops on the on the taxable side would approve maybe an obligor and/​or a program, and maybe certain enhancers. On the tax-​exempt side of the business, they spend a lot more time looking down to the individual security structure.... There is a lot for folks to keep a handle on.

MFI: What are the challenges for PMs? Morris: Back in the early 2a-​7 days, the focus was knowing your diversification constraints and operating within those constraints. But there was a real sense of wanting to maximize yields -- yield seemed to be a bigger part of the conversation.... Today, we don'​t talk about it as much, partly because yields have been so low. Even with rates starting to tick up, there is not the same sense of priority behind being the top yielding fund in the category.

There is more of a focus on having to deal with the new aspects of compliance. It seems like there is almost an open dialogue between the portfolio manager, their board, and to some extent regulators.... In today'​s money fund space, there is a lot of effort spent getting to know your client. PMs now also have stress testing discussions that they must have with the board once a month. The depth of knowledge and awareness is a lot more expansive now than it used to be.... It'​s a lot more stressful to be a portfolio manager now than 20 years ago.

MFI: Were the 2016 reforms a big deal? Morris: Yes, the changes were a big deal for us and for our clients..... It was the last straw when it came to triggering some industry consolidation.... We have some of the larger players [​as clients], but our presence was stronger with the smaller to mid-​sized players. The largest firms tend to have their own '​in-​house' systems in place.... Anyway, we saw consolidation and that hurt us to some extent.

But the 2016 reforms also presented us opportunities, because we were able to rework our compliance system to make it very robust. We can test limits as proposed trades are entered, demonstrate how the portfolios are affected and combine that with all the other trades that you have in your blotter. We don'​t require a long-​term contract, and offer the flexibility of month to month. As a result, we keep close to our clients in order to make sure that we are adding value.... We have a lot of dialogue with our clients and they often recommend enhancements. Often, these enhancements are broad and benefit all of our clients, but for requests that are truly client specific we will customize the system.

As technology advances, there is definitely a larger percentage of trades that happen every year that are either electronic or being facilitated in a major way by an electronic platform. We are making strides towards streamlining electronic trading and I believe that the market is getting to the point where the decision to '​go electronic' is less about requiring new technology and more closely related to management being open to the idea.

​

The impact of "​repatriation," or bringing previously trapped "​offshore" cash and assets back into the U.​S., continues to be one of the biggest guessing games in the money markets. BlackRock is one of the latest to address the topic, in a recent paper entitled, "When corporate cash goes free: Repatriation and the impacts of tax reform on the short-​term markets." They explain, "​The seatbelt sign has been turned off, and we believe corporations are starting to assess how to address new rules for overseas cash in the just-​released U.​S. tax code reform. We offer some of our early thinking on what the repatriation rules of the tax overhaul may mean for short-​term investors, markets and the economy." (​See also J.​P. Morgan Securities' new comprehensive update, "Repatriation manifestation.")

BlackRock writes, "​New tax legislation has been enacted and became effective January 1, 2018. Now what? The U.​S. government has stated that the tax overhaul is meant to, in part, make the U.​S. more competitive from a corporate standpoint and in line with other countries, support economic growth and reduce complexity. The recently approved tax package included some significant changes for corporations. They include: A reduction in the corporate tax rate from 35% to 21%. A one-​time deemed repatriation rate on tax-​deferred foreign earnings: 15.​5% for liquid assets, and 8% for illiquid assets. An exemption from U.​S. taxation for dividends from foreign subsidiaries paid to U.​S. parent companies."

They tell us, "​What are corporations expected to do with the remainder of their accumulated earnings after taxes are paid? Once U.​S. taxes are paid, corporations will have more flexibility in regard to this previously '​trapped' cash if repatriated .... The redeployment of this money could have implications for the cash and short-​term markets. Just how big are these accumulated untaxed earnings? What are they presently invested in? General market consensus is that the amount of accumulated untaxed earnings sitting offshore for U.​S. corporations is in excess of $​2 trillion. Much of it is held by corporations in the technology and pharmaceutical industries, primarily denominated in U.​S. dollars."

The paper continues, "Looking at the top 10 largest corporations by offshore earnings, most of the liquid earnings are estimated to be held in corporate bonds and short-​term U.​S. Treasury bonds. The balance is mostly in cash instruments.... It is difficult to predict when we might see significant cash movement as companies have eight years to pay taxes on untaxed earnings with Internal Revenue Service guidance on minimum annual payment requirements still forthcoming.... Our view is that corporations are tackling this issue at their own pace. We do not expect to see a mass wave of repatriated cash at a single time, rather, we expect this scenario to play out in a measured way throughout 2018 and beyond."

It states, "In our view, repatriation should herald moderately higher short-​term funding costs for non-​U.​S. banks, particularly those that rely on short-​term wholesale funding like time deposits, certificates of deposit (​CDs) and repurchase agreements (​repo) to engage in arbitrage activity. Some of these non-​U.​S. banks could feel pressured as corporations may directly or indirectly (​via money market funds, for instance) liquidate assets invested in various bank obligations like CDs to pay repatriation taxes and bring formerly '​trapped cash' back on shore."

BlackRock explains, "​These banks may thus have fewer reserves (​or less cash) at their disposal. The result is banks will need to pay up for reserves, or shrink their balance sheets. U.​S. banks, on the other hand, are mostly funded by retail deposits and should be less affected, in our view. All told, we see a possibility of modestly higher funding costs for some non-​domestic banks over the next 24 months. Credit spreads (​such as the LIBOR/​Overnight Index Swap (​OIS) spread) could also widen as corporations seek to reduce cash, money market fund, and other short-​term marketable securities holdings leading to supply/​demand imbalances."

Their piece continues, "In our view, fears that there will be widespread and sustained selling of short-​duration corporate bonds as a result of tax reform are vastly overstated. With respect to the taxes owed, the majority of corporations do not need to physically sell securities to meet their tax bill.... Given the short-​term nature of their holdings, companies can simply let their bonds mature and pay their tax bill over eight years rather than become forced sellers. That being said, while selling activity may be modest, the removal of a large core holder of front-​end credit means that further purchases by these corporations going forward is likely to be substantially lower as well.... As a counterbalance to the demand picture, `​the supply outlook for investment grade corporates is also likely to be heavily impacted by tax reform. In our view, barring M&​A-​related fundings, front-​end supply will likely drop in 2018 as cash on hand is deployed to term out upcoming maturities."

It also says, "As noted, repatriation could result in modest pressure on bank funding levels which is expected to translate into marginally higher yields for investors in bank obligations such as time deposits and CDs. Repatriation is just one component of tax reform that could influence the short-​term markets in the months ahead. For example, the anticipated boost to the economy provided by the fiscal stimulus described earlier should further support the gradual removal of monetary accommodation in the form of at least three rate hikes in 2018, assuming financial conditions remain accommodative."

BlackRock continues, "​At the same time, the normalization of the Federal Reserve'​s balance sheet, combined with an anticipated increase in the U.​S. Treasury'​s cash balance, are anticipated to lead to a significant increase in the net issuance of Treasury bills (​T-​bills) in the months ahead.... In turn, this additional supply could exacerbate the impacts of tax repatriation at the front end of the market."

They add, "Given tighter funding conditions from an anticipated reduction in reserves driven by this repatriation and Federal Reserve balance sheet normalization, along with the expected increase in the supply of T-​bills, we could also see a widening of spreads between T-​bills and OIS. This could also result in incremental upward pressure on overnight government repo rates. While U.​S. government money market funds could see inflows in the event that formerly '​trapped' cash is temporarily housed in them, we believe supply should be sufficient to accommodate any such flows.... Additionally, we believe short-​duration strategies will remain a key investment strategy for corporate treasurers beyond the repatriation period as they continue to seek attractive sources of income across their tiered cash holdings if those offshore assets are brought onshore."

Finally, BlackRock comments, "[​W]​e expect the FOMC to continue on its path of interest rate and balance sheet normalization. As such, we expect yields to rise gradually, benefiting cash investors who seek liquidity and capital preservation in their shorter-​term fixed income strategies. With the flatter yield curve since the fourth quarter of 2017, these strategies now offer an increasingly attractive risk adjusted income profile for investors. In short, cash investors have benefited from rising rates in recent months, and tax reform could provide additional opportunities for more attractive yields in cash and short-​duration vehicles."

​

The Securities and Exchange Commission released its latest "Money Market Fund Statistics" summary late last week. It shows that total money fund assets rose by $​31.​0 billion in April to $​3.​105 trillion, with most of the increase coming from Prime Funds. Prime MMF assets rose by $​22.​1 billion to $​685.​3 billion (​after falling by $​3.​4 billion in March and $​2.​8 billion in February, but rising by $​3.​2 billion in January). Government money funds increased by $​10.​1 billion, while Tax Exempt MMFs fell by $​1.​1 billion. Gross yields rose again for all types of money funds 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 by $​31.​0 billion in April, after decreasing $​48.​2 billion in March and increasing $​40.​7 billion in February. Total MMFs decreased by $​44.​3 billion in January, but increased by $​45.​2 billion in December and $​55.​4 billion in November. Over the 12 months through 4/​30/​18, total MMF assets increased $​187.​7 billion, or 6.​4%. (​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 many of these.)

Of the $​3.​105 trillion in assets, $​685.​3 billion was in Prime funds, which increased by $​22.​1 billion in April. Prime MMFs decreased by $​3.​4 billion in March and $​2.​8 billion in February, but increased by $​3.​2 billion in January. Prime funds represented 22.​1% of total assets at the end of April. They'​ve increased by $​76.​4 billion, or 12.​5%, over the past 12 months. But they'​ve decreased by $​784.​9 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.​283 billion, or 73.​5% of assets,. They were down $​41.​7 billion in March, but up $​44.​9 billion in February. Govt MMFs were down $​54.​7 billion in January, but up by $​57.​3 billion in December. Govt & Treas MMFs are up $​108.​3 billion over 12 months (​5.​0%). Tax Exempt Funds decreased $​1.​1B to $​136.​0 billion, or 4.​4% of all assets. The number of money funds was 381 in April, two more than last month.

Yields moved higher again in April, after jumping in March and increasing in February, January, December, November and October. The Weighted Average Gross 7-​Day Yield for Prime Funds on April 30 was 1.​96%, up 10 basis points from the previous month and up 0.​88% from April 2017. Gross yields increased to 1.​74% for Government/​Treasury funds, up 0.​05% from the previous month, and up from 0.​94% from April 2017. Tax Exempt Weighted Average Gross Yields rose 25 bps in April to 1.​71%; they'​ve increased by 77 bps since 4/​30/​17.

The Weighted Average Net Prime Yield was 1.​79%, up 0.​12% from the previous month and up 0.​93% since 4/​30/​17. The Weighted Average Prime Expense Ratio was 0.​18% in April (​down one bp from the previous month). Prime expense ratios are down by 4 bps over the past year. (​Note: These averages are asset-​weighted.)

WALs and WAMs were down across all categories in April. The average Weighted Average Life, or WAL, was 56.​7 days (​down 5.​3 days from last month) for Prime funds, 87.​6 days (​down 3.​5 days) for Government/​Treasury funds, and 22.​9 days (​down 2.​7 days) for Tax Exempt funds. The Weighted Average Maturity, or WAM, was 26.​9 days (​down 2.​9 days from the previous month) for Prime funds, 30.​4 days (​down 3.​3 days) for Govt/​Treasury funds, and 20.​1 days (​down 3.​5 days) for Tax-​Exempt funds. Total Daily Liquidity for Prime funds was 32.​3% in April (​up 0.​8% from previous month). Total Weekly Liquidity was 50.​2% (​up 1.​1%) for Prime MMFs.

In the SEC'​s "Prime MMF Holdings of Bank Related Securities by Country" table, Canada topped the list with $​84.​9 billion, followed by the US with $​66.​0 billion, France with $​61.​3B, Japan with $​57.​7B, and Sweden with $​43.​8B. The UK ($​38.​8B), Australia/​New Zealand ($​36.​7B), Germany ($​31.​3B), Switzerland ($​30.​5B) and the Netherlands ($​28.​1B) rounded out the top 10 countries.

The gainers among Prime MMF bank related securities for the month included: Switzerland (​up $​12.​4B), France (​up $​11.​0B), Sweden (​up $​11.​0B), Japan (​up $​4.​6B), Belgium (​up $​4.​3M), Norway (​up $​2.​5B), and Germany (​up $​1.​1B). The biggest drops came from Canada (​down $​5.​4B), Australia/​New Zealand (​down $​3.​2B), the United States (​down $​1.​9B), Singapore (​down $​1.​2B), the Netherlands (​down $​872M), China (​down $​217M), and Spain (​down $​27M). For Prime MMF Holdings of Bank-​Related Securities by Major Region, Europe had $​254.​9B (​up $​41.​4B from last month), while the Eurozone subset had $​130.​6B billion (​up $​15.​3B). The Americas had $​151.​4 billion (​down $​7.​3B), while Asia Pacific had $​108.​5 billion (​up $​1.​7B).

Of the $​684.​2 billion in Prime MMF Portfolios as of April 30, $​242.​6B (​35.​4%) was in CDs (​up from $​222.​9B), $​163.​5B (​23.​9%) was in Government securities (​including direct and repo), up from $​161.​9B, $​97.​6B (​14.​3%) was held in Non-​Financial CP and Other Short Term Securities (​down from $​99.​0B), $​142.​4B (​20.​8%) was in Financial Company CP (​up from $​132.​0B), and $​38.​0B (​5.​6%) was in ABCP (​down from $​39.​9B).

The Proportion of Non-​Government Securities in All Taxable Funds was 17.​7% at month-​end, up from 17.​0% the previous month. All MMF Repo with the Federal Reserve dropped to $​13.​7B in April (​the lowest level ever) from $​22.​6B the previous month. Finally, the "Trend in Longer Maturity Securities in Prime MMFs" tables shows 35.​1% were in maturities of 60 days and over (​down from 40.​7%), while 7.​0% were in maturities of 180 days and over (​down from 7.​6%).

​

Fitch Ratings published a report, "Money Market Funds in Saudi Arabia," which sheds some light upon the embryonic money market fund industry in the Middle Eastern Kingdom. Their press release, entitled, "Fitch: Institutional Money Fund Foundations Laid in Saudi Arabia," says, "Fitch Ratings says in a new report that the foundations of an institutional money fund industry have been laid in Saudi Arabia. Retail investors represent the largest share of money fund investors in Saudi Arabia; however, Fitch has identified an increasing number of funds offering high minimum initial investment share classes, which are typically accessible only to large or sophisticated, ie non-​retail, investors. The growth of this nascent institutional segment is supported by the growth of the money fund sector in Saudi Arabia and the solid regulatory framework already in-​place for these funds."

The release explains, "Overall, Fitch estimates that the Saudi Arabian money fund sector grew by around 10% over the three years to end-​December 2017 in US dollar terms, with asset expansion particularly high in 2017. This compares with a global money fund growth of 5% over the same period."

It continues, "Saudi money funds are primarily denominated in Saudi riyals, although a limited number are denominated in US dollars. Saudi Arabia is approximately by total asset the 20th-​largest money fund domicile (​approximately 19 billion in US dollar terms) globally. While Saudi Arabia is a middle-​ranking money fund domicile, it is by far the largest in the Middle East region.... Fitch expects continued growth in the Saudi Asset management industry, which is already the largest Islamic asset management industry globally."

Fitch tells us, "Saudi money funds benefit from a solid regulatory framework: they are regulated under the Investment Funds Regulations of the Capital Market Authority of Saudi Arabia as amended 23 May 2016. This provides for limits on concentration, market and liquidity risk. For example, applicable regulation in Saudi Arabia caps funds' weighted average life (​WAL), a measure of sensitivity to spread risk, at 120 days.... On the other hand, applicable regulation requires only 10% weekly liquidity, which is substantially lower than the 30% required by US and European regulation. Furthermore, Saudi Arabian money funds can run more concentrated portfolios than would be permitted under US or European regulation, although the funds reviewed by Fitch demonstrate prudent diversification, with issuer exposures typically capped at 10%." The release adds, "Saudi money funds primarily invest in murabaha contracts and sukuk issued by Fitch-​rated domestic and regional sovereigns, banks or corporates. Saudi Arabia itself is rated '​A+'/'​Stable'/'​F1+', with a Country Ceiling of '​AA'. Fitch rates most domestic and regional banks investment-​grade."

The full report comments, "Saudi Arabia stands out as the largest MMF domicile in the Middle East and North Africa (​MENA) region. Fitch estimates that its closest competitor, Morocco, has only around one third (​around USD7 billion) of the MMF assets of Saudi Arabia as of end-​December 2017. Compared with its closer neighbours in the GCC states Saudi Arabia is the clear leader – Fitch has only identified a handful of MMFs in Kuwait and the UAE and the AUM in these funds is negligible."

It tells us, "Malaysia, like Saudi Arabia, is a major Islamic Finance centre. Fitch estimates that Saudi Arabia'​s MMF AUM is broadly comparable to that of Malaysia. However, Saudi Arabia'​s asset management industry is larger overall. Broadly, the Islamic Finance industry – and within it, Islamic asset management – has seen growth and increased institutionalisation. Both of these trends will likely support the continued growth of the MMF segment in Saudi Arabia."

Fitch writes that the "Five Largest Money Funds Domiciled in Saudi Arabia include: AlAhli Saudi Riyal Trade, Samba-​International Trade Finance Fund, Al Rajhi Capital SAR Commodity, AlAhli Diversified Saudi Riyal Trade, and RiyadC-​Commodity Trading Fund.

In other news, ICI released its latest "Money Market Fund Assets" report yesterday, which showed a drop in Prime MMFs following their biggest increase of 2018 the prior week. ICI'​s numbers show money fund assets rising for the third week in a row following three straight weeks of tax-​driven declines. Year-​to-​date, MMF assets have decreased by $​20 billion, or -​0.​7%, but they'​ve increased by $​173 billion, or 6.​6%, over 52 weeks.

ICI writes, "Total money market fund assets increased by $​11.​48 billion to $​2.​82 trillion for the week ended Wednesday, May 16, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $​11.​97 billion and prime funds decreased by $​2.​94 billion. Tax-​exempt money market funds increased by $​2.​44 billion." Total Government MMF assets, which include Treasury funds too, stand at $​2.​218 trillion (​78.​7% of all money funds), while Total Prime MMFs stand at $​462.​0 billion (​16.​4%). Tax Exempt MMFs total $​138.​2 billion, or 4.​9%.

They explain, "Assets of retail money market funds increased by $​3.​66 billion to $​1.​02 trillion. Among retail funds, government money market fund assets decreased by $​431 million to $​626.​34 billion, prime money market fund assets increased by $​1.​93 billion to $​263.​22 billion, and tax-​exempt fund assets increased by $​2.​16 billion to $​130.​29 billion." Retail assets account for over a third of total assets, or 36.​2%, and Government Retail assets make up 61.​4% of all Retail MMFs.

ICI'​s release adds, "Assets of institutional money market funds increased by $​7.​82 billion to $​1.​80 trillion. Among institutional funds, government money market fund assets increased by $​12.​40 billion to $​1.​59 trillion, prime money market fund assets decreased by $​4.​87 billion to $​198.​77 billion, and tax-​exempt fund assets increased by $​283 million to $​7.​86 billion." Institutional assets account for 63.​8% of all MMF assets, with Government Inst assets making up 88.​5% of all Institutional MMFs.

​

As we mentioned last week, the Investment Company Institute recently published its "2018 Investment Company Fact Book," an annual compilation of statistics and commentary on the mutual fund industry. (​See our May 11 News, "ICI 2018 Fact Book Reviews MMF Demand, Reforms, Composition in '​17.") We reviewed the update on worldwide and U.​S. domestic money funds in our last piece, but today we focus on the numerous "Data Tables" involving "Money Market Mutual Funds, which start on page 242. ICI lists annual statistics on shareholder accounts, the number of funds, net assets, net new cash flows, paid and reinvested dividends, composition of prime and government funds, and net assets of institutional investors by type of institution.

ICI'​s annual statistics show that there'​s been a steady decline in the number of money market mutual funds over the last 15 years. (​See Table 35 on page 242.) In 2017, according to the Fact Book, there were a total of 382 money funds, down from 421 in 2016, 805 in 2007, and down from 1,​015 in 2001. The number of share classes stood at 1,​180 in 2017, down from 1,​275 in 2016 and 2,​015 in 2007.

Table 36 on page 243, "Money Market Funds: Total Net Assets by Type of Fund," shows us that total net assets in taxable U.​S. money market funds increased $​119.​2 billion to $​2.​847 trillion in 2017. At year-​end 2017, $​1.​840 trillion (​64.​6%) was in institutional money market funds, while $​1.​007 trillion (​35.​4%) was in retail money market funds. Breaking the numbers down by fund type, $​455.​4 billion (​16.​0%) was in prime funds, $​2.​261 trillion (​79.​4%) was in government money market funds, and $​131.​1 billion (​4.​6%) was in tax-​exempt accounts.

Also, Table 37 on page 244, "Money Market Funds: Net New Cash Flow by Type of Fund," show that there was $​106.​9 billion in net new cash flow into money market funds last year. A closer look at the data shows $​101.​5 billion in net new cash flow into institutional funds and a $​5.​4 billion cash inflow into retail funds. There were also $​30.​1 billion in net inflows into Government funds, versus $​76.​3 billion in net outflows from Prime funds.

Table 39 (​page 246), "Money Market Funds: Paid and Reinvested Dividends by Type of Fund," shows dividends paid by money funds reached their highest level since 2009 with $​18.​5 billion, $​10.​7 billion of which was reinvested (​57.​8%). Dividends have been as high as $​127.​9 billion in 2007 (​when rates were over 5%), and as low as $​5.​2 billion in 2011 (​when rates were 0.​05%). Reinvestment rates were 64.​4% in 2007 and 62.​3% in 2011, so they'​ve remained relatively stable over the past decade.

ICI'​s Tables 40 and 41 on pages 247 and 248, "Taxable Government Money Market Funds: Asset Composition as a Percentage of Total Net Assets" and "Taxable Prime Money Market Funds: Asset Composition," show that of the $​2.​261 trillion in taxable government money market funds, 30.​0% were in U.​S. government agency issues, 39.​0% were in Repurchase agreements, 19.​4% were in U.​S. Treasury bills, 10.​5% were in Other Treasury securities, and 1.​0% was in "​Other" assets. The average maturity was 33 days, down 13 days from the end of 2016.

The second table shows that of the $​455.​4 billion in Prime funds at year-​end 2017, 39.​2% was in Certificates of deposit, 32.​5% was in Commercial paper, 16.​5% was in Repurchase agreements, 0.​7% was in US government agency issues, 0.​6% was in Other Treasury securities, 0.​8% was in Corporate notes, 0.​8% percent was in Bank notes, 5.​2% was in US Treasury bills, 0.​8% was in Eurodollar CDs, and 2.​9% was in Other assets (​which includes Banker'​s acceptances, municipal securities and cash reserves).

Table 60 on page 267, "Total Net Assets of Mutual Funds Held in Individual and Institutional Accounts," shows that there was $​1.​09 trillion of assets with institutional investors and $​1.​76 in assets in Individual accounts in 2017.

Finally, Table 62, "Total Net Assets of Institutional Investors in Taxable Money Market Funds by Type of Institution and Type of Fund," shows of the total of $​1.​088 trillion in Total Institutional assets ($​1.​024 trillion in Institutional funds and another $​63.​8 billion in Retail funds), $​475.​2 billion were held by business corporations (​43.​7%), $​430.​1 billion were held by financial institutions (​39.​5%), $​84.​8 billion were held by nonprofit organizations (​8.​0%), and $​97.​8 billion were held by Other (​9.​0%). All MMFs rose in 2017 by $​5.​6 billion in total.

In other news, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics and summary Tuesday. Our weekly holdings track a shifting subset of our monthly Portfolio Holdings collection, and the latest cut (​with data as of May 11) includes Holdings information from 76 money funds (​the same as on 4/​20), representing $​1.​411 trillion (​down from $​1.​414 trillion on April 20) of the $​2.​908 (​48.​5%) in total money fund assets tracked by Crane Data. (​For our monthly Holdings recap, see our May 10 News, "May Money Fund Portfolio Holdings: Treasury Surge Ends; Repo Rebound Down.")

Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Repurchase Agreements (​Repo) totaling $​510.​4 billion (​up from $​505.​4 billion 3 weeks ago), or 36.​2%, Treasury debt totaling $​437.​4 billion (​down from $​460.​9 billion) or 31.​0%, and Government Agency securities totaling $​302.​8 billion (​up from $​293.​0 billion), or 21.​5%. Commercial Paper (​CP) totaled $​53.​0 billion (​up from $​51.​6 billion), or 3.​8%, and Certificates of Deposit (​CDs) totaled $​43.​5 billion (​up from $​40.​5 billion), or 3.​1%. A total of $​31.​1 billion or 2.​2%, was listed in the Other category (​primarily Time Deposits), and VRDNs accounted for $​33.​0 billion, or 2.​3%.

The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $​437.​3 billion (​31.​0% of total holdings), Federal Home Loan Bank with $​244.​5B (​17.​3%), BNP Paribas with $​81.​2 billion (​5.​8%), Federal Farm Credit Bank with $​40.​7B (​2.​9%), RBC with $​36.​4B (​2.​6%), Wells Fargo with $​32.​4B (​2.​3%), Credit Agricole with $​32.​3B (​2.​3%), HSBC with $​29.​2B (​2.​1%), Societe Generale with $​27.​6B (​2.​0%), and Natixis with $​25.​8B (​1.​8%).

The Ten Largest Funds tracked in our latest Weekly include: JP Morgan US Govt ($​139.​0B), Fidelity Inv MM: Govt Port ($​105.​6B), BlackRock Lq FedFund ($​96.​0B), Goldman Sachs FS Govt ($​89.​9B), BlackRock Lq T-​Fund ($​76.​5B), Wells Fargo Govt MMkt ($​70.​6B), Dreyfus Govt Cash Mgmt ($​63.​0B), Morgan Stanley Inst Liq Govt ($​57.​1B), State Street Inst US Govt ($​51.​1B), and Goldman Sachs FS Trs Instruments ($​50.​8B). (​Let us know if you'​d like to see our latest domestic U.​S. and/​or "​offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)

​

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 a jump in overall Liquidity fund assets in the latest quarter to $​558 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, as well a money fund article by ignites, below.

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 First Calendar Quarter 2015 through Third Calendar Quarter 2017 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: Third Calendar Quarter 2017," the most recent data available, now show 115 Liquidity Funds (​including "​Section 3 Liquidity Funds," which are Liquidity Funds from advisors with over $​1 billion total in cash), down 1 fund from the prior quarter and up 12 from a year ago. (​There are 69 Liquidity Funds and 46 Section 3 Liquidity Funds.) The SEC receives Form PF reports from 38 Liquidity Fund advisers and 23 Section 3 Liquidity Fund advisers, or 61 advisers in total, one fewer than last quarter (​and five more than a year ago).

The SEC'​s table on "​Aggregate Private Fund Net Asset Value" shows total Liquidity Fund assets at $​558 billion, up $​11 billion from Q2'​17 and up $​41 billion from a year ago (​Q3'​16). Of this total, $​280 billion is in normal Liquidity Funds while $​278 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 $​561 billion, up $​12 billion from Q2'​17 and up $​20 billion from a year ago (​Q3'​16). Of this total, $​282 billion is in normal Liquidity Funds while $​279 billion is in Section 3 (​large manager) Liquidity Funds.

A table on "Beneficial Ownership for Section 3 Liquidity Funds" shows $​83 billion is held by Private Funds, $​55 billion is held by Unknown Non-​U.​S. Investors, $​51 billion is held by Other, $​24 billion is held by SEC-​Registered Investment Companies, $​10 billion is held by Insurance Companies, $​5 billion is held by Pension Plans, and $​4 billion is held by Non-​U.​S. Individuals. State/​Muni Govt Pension Plans held $​1 billion, while Non-​Profits held $​2 billion.

The tables also show that 79.​1% of Section 3 Liquidity Funds have a liquidation period of one day, $​261 billion of these funds may suspend redemptions, and $​227 billion of these funds may have gates (​out of a total of $​279 billion). The Portfolio Characteristics show that these funds are very close to money market funds. WAMs average a short 31 days (​38 days when weighted by assets), WALs are a short 62 days (​71 days when asset-​weighted), and 7-​Day Gross Yields average about 1.​02% (​1.​12% asset-​weighted). Daily Liquid Assets average about 44% while Weekly Liquid Assets average about 60%. Overall, these portfolios appear shorter with a much heavier Treasury exposure than money market funds in general; almost half of them (​45.​7%) are fully compliant with Rule 2a-​7.

In other news, ignites wrote earlier this week, "With Highest Yields in Years, Money Funds Poised for Big Asset Bump." The mutual fund news source tells us, "Money market fund yields have reached their highest levels in nearly a decade, with those of some institutional prime funds recently cracking 2%. And with the Federal Reserve expected to raise short-​term interest rates two or three more times in 2018, money fund yields could climb as high as 3% by year-​end."

They explain, "Higher rates are '​the topic du jour' in the money fund industry, says Tim Huyck, CIO of money markets at Fidelity. The Fed has raised rates six times since late 2015, he says, and yields have begun to rise steadily after years of being stuck at as little as 1 basis point."

The ignites piece continues, "Yet money funds have bled about $​40 billion in assets year-​to-​date and stood at $​2.​81 trillion as of May 9, according to Investment Company Institute data. But market participants and observers attribute the outflows to seasonal factors such as tax payments. Net redemptions will to swing to net sales in the second half of the year, and inflows will accelerate, they say."

They quote our Peter Crane, president and CEO of Crane Data, "It a little surprising that [​money funds] haven'​t gotten more attention yet." But, he says, "`​the whole shift back to cash, the story of higher yields, is in the very early innings." The piece adds, "If rates continue to rise and there'​s more turmoil in the markets, this year'​s money fund inflows will surpass those of last year, says Crane."

The article states, "​With three rate increases in 2017, money funds pulled in $​107 billion in net flows, ICI data shows. Money funds had hovered around $​2.​7 trillion in total assets since 2011, but as of the end of last year, they had inched up to $​2.​84 trillion. That is still a far cry from 2008, when the products represented $​3.​8 trillion in assets, according to the ICI."

Ignites also comments, "Money fund assets grew at nearly triple the rate of bank deposit accounts for the year ended March 1, says Federated Investors' Debbie Cunningham, CIO of global money markets, citing Federal Reserve data.... Like Crane, Cunningham says she anticipates this year'​s money fund sales to outpace those of 2017."

Finally, they add, "Money funds' higher yields have led to '​a pause' in fund liquidations and companies exiting the business, says Crane. There were 1,​026 money funds as of Jan. 2, according to iMoneyNet data, and 1,​035, as of this week. Those figures include all share classes of each product."

​

Crane Data'​s 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), rising in May after also rising in April. Offshore US Dollar MMFs have been rising and falling in waves since December 2017. They rose sharply in January, fell in February and March, rose in April, but fell again in early May. Last year, assets of all three currencies combined increased by $​100 billion, or 13.​7%, to $​831 billion. Year-​to-​date in 2017 (​through 5/​11/​18), MFII assets are up $​5.​7 billion to $​836.​5 billion, but USD assets are down slightly. U.​S. Dollar (​USD) funds (​158) account for about half ($​421.​6 billion, or 50.​4%) of the total, while Euro (​EUR) money funds (​98) total E87.​8 billion and Pound Sterling (​GBP) funds (​110) total L215.​5 billion. USD funds are down $​3.​6 billion, YTD, but were up $​27B in 2017. Many are watching these totals closely for signs of possible "​repatriation" of US dollar assets held in Europe, but the data only shows minimal outflows so far.

Euro funds are down E10.​2 billion YTD but were up E3B in 2017, while GBP funds are down L3.​4B YTD after rising L29B in 2017. USD MMFs yield 1.​67% (​7-​Day) on average (​as of 5/​11/​18), up from 1.​19% at the end of 2017 and 0.​56% at the end of 2016. EUR MMFs yield -​0.​49 on average, up from -​0.​55% on 12/​29/​17 and -​0.​49% on 12/​30/​16, while GBP MMFs yield 0.​38%, up from 0.​24% at the end of 2017 and 0.​19% at the end of 2016. We review our latest MFI International Portfolio Holdings statistics, and also excerpt from a recent Capital Advisors piece on repatriation, below.

Crane'​s latest MFI International Money Fund Portfolio Holdings, with data (​as of 4/​30/​18), shows that European-​domiciled US Dollar MMFs, on average, consist of 18% in Treasury securities, 27% in Commercial Paper (​CP), 21% in Certificates of Deposit (​CDs), 16% in Other securities (​primarily Time Deposits), 15% in Repurchase Agreements (​Repo), and 3% in Government Agency securities. USD funds have on average 30.​4% of their portfolios maturing Overnight, 11.​3% maturing in 2-​7 Days, 20.​0% maturing in 8-​30 Days, 12.​5% maturing in 31-​60 Days, 12.​2% maturing in 61-​90 Days, 11.​2% maturing in 91-​180 Days, and 2.​4% maturing beyond 181 Days. USD holdings are affiliated with the following countries: US (​27.​8%), France (​15.​9%), Japan (​9.​5%), Canada (​9.​5%), United Kingdom (​6.​1%), Sweden (​5.​0%), Australia (​4.​9%), Germany (​4.​8%), The Netherlands (​4.​5%), China (​2.​7%), Singapore (​2.​6%) and Switzerland (​1.​9%).

The 10 Largest Issuers to "​offshore" USD money funds include: the US Treasury with $​84.​8 billion (​18.​0% of total assets), BNP Paribas with $​22.​6B (​4.​8%), Credit Agricole with $​14.​4B (​3.​1%), Wells Fargo with $​12.​8B (​2.​7%), Societe Generale with $​12.​0B (​2.​5%), Toronto-​Dominion Bank with $​11.​7B (​2.​5%), Mitsubishi UFJ Financial Group Inc with $​10.​7B (​2.​3%), Mizuho Corporate Bank Ltd with $​10.​3B (​2.​2%), Barclays PLC with $​10.​2B (​2.​2%), ING Bank with $​9.​7B (​2.​1%), and Australia & New Zealand Banking Group Ltd with $​9.​2B (​2.​0%).

Euro MMFs tracked by Crane Data contain, on average 49% in CP, 25% in CDs, 20% in Other (​primarily Time Deposits), 5% in Repo, 0% in Treasuries and 1% in Agency securities. EUR funds have on average 3.​6% of their portfolios maturing Overnight, 22.​7% maturing in 2-​7 Days, 17.​6% maturing in 8-​30 Days, 25.​1% maturing in 31-​60 Days, 11.​2% maturing in 61-​90 Days, 16.​2% maturing in 91-​180 Days and 3.​6% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (​25.​7%), Japan (​14.​5%), The US (​10.​7%), The Netherlands (​9.​3%), Sweden (​7.​1%), Germany (​7.​0%), Belgium (​5.​2%), Switzerland (​4.​9%), the United Kingdom (​4.​7%), and Canada (​3.​2%).

The 10 Largest Issuers to "​offshore" EUR money funds include: Credit Agricole with E3.​7B (​4.​3%), BNP Paribas with E3.​6B (​4.​2%), ING Bank with E3.​5B (​4.​1%), Mizuho Corporate Bank Ltd with E3.​3B (​3.​8%), Svenska Handelsbanken with E3.​3B (​3.​8%), Rabobank with E3.​2B (​3.​6%), Credit Mutuel with E3.​0B (​3.​5%), KBC Group NV with E2.​8B (​3.​3%), Sumitomo Mitsui Banking Co with E2.​5B (​2.​9%), and Nordea Bank with E2.​5B (​2.​9%).

The GBP funds tracked by MFI International contain, on average (​as of 4/​30/​18): 42% in CDs, 25% in Other (​Time Deposits), 23% in CP, 8% in Repo, 1% in Treasury, and 1% in Agency. Sterling funds have on average 22.​0% of their portfolios maturing Overnight, 5.​2% maturing in 2-​7 Days, 26.​9% maturing in 8-​30 Days, 17.​3% maturing in 31-​60 Days, 11.​5% maturing in 61-​90 Days, 13.​2% maturing in 91-​180 Days, and 3.​9% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: France (​18.​9%), Japan (​15.​6%), United Kingdom (​12.​9%), The Netherlands (​10.​0%), Canada (​6.​7%), Germany (​5.​2%), the US (​4.​9%), Sweden (​4.​7%), Singapore (​4.​2%), and Australia (​4.​1%).

The 10 Largest Issuers to "​offshore" GBP money funds include: UK Treasury with L6.​9B (​4.​3%), Rabobank with L6.​6B (​4.​1%), BPCE with E6.​5B (​4.​1%), Mitsubishi UFJ Financial Group Inc. with L5.​8B (​3.​6%), BNP Paribas with L5.​8B (​3.​6%), Sumitomo Mitsui Banking Co. with L5.​4B (​3.​4%), Sumitomo Mitsui Trust Bank with L5.​3B (​3.​3%), Mizuho Corporate Bank Ltd with E5.​3B (​3.​3%), Toronto-​Dominion Bank with L5.​3B (​3.​3%), and DZ Bank AG with L4.​9B (​3.​1%).

Capital Advisor Group wrote a piece entitled, "Offshore Money Market Funds in an Age of Change," which says, "Even for U.​S.-​centric institutional cash investors, developments in the offshore money market fund space are difficult to ignore. The interconnectedness of global financial markets results in domestic and offshore liquidity funds sharing a common set of debt issuers and market liquidity. Many U.​S.-​based treasury organizations also have offshore subsidiaries or affiliates with investments in offshore funds that require attention."

The paper explains, "Interest in offshore liquidity has intensified in recent months due to several key developments: the passage of MMF reform in Europe, a new tax law in the U.​S., and Great Britain'​s imminent exit from the European Union (​Brexit).... Compared to the $​2.​7-​trillion domestic US MMF market, the combined dollar, sterling (​GBP) and euro offshore fund market is a modest $​833 billion in size as of March 2018, according to fund data firm iMoneyNet."

It continues, "The Tax Cuts and Jobs Act (​TCJA) Congress passed in December 2018 received widespread attention with respect to repatriation of foreign profits. However, the impact of the new law on offshore MMF balances is hard to quantify. How the multiple cross currents from the new law will shape the future of this market remains a mystery. Still, this is an important puzzle for both U.​S. and offshore fund investors to solve as the two markets are often intertwined.... Conventional wisdom says that repatriation of offshore earnings should cause offshore prime balances to decline as corporations bring their foreign profits homebound.... [​But] U.​S. government vs. offshore prime fund levels before and after the tax reform have yet to validate the conventional wisdom."

The piece concludes, "​While MMF reform dominated U.​S. fund discussions for much of the last decade, offshore funds largely sat in the periphery for U.​S.-​centric liquidity investors. With imminent implementation of European fund reform and repatriation of overseas profits, offshore funds are bracing for transformational changes. Investors in the offshore markets will no doubt be impacted. Domestic investors without an offshore presence should also take note because of the overlap of common debt issuers and market liquidity in these markets." (​See also, today'​s Wall Street Journal article, "China'​s Giant Money-​Market Fund Sharply Lowers Daily Withdrawal Limits.")

​

The May issue of Crane Data'​s Bond Fund Intelligence, which was sent out to subscribers Monday morning, features the lead story, "Tale of Two Categories: Ultra Short Hot, High-​Yield Not," which reviews the recent shift in flows into shorter-​term funds, and the profile, "ICI 2018 Fact Book Reviews Bond Fund Trends, Flows," which reviews the latest on bond funds from the annual update from the mutual fund industry'​s trade association. Also, we recap the latest Bond Fund News, including the continued move higher in yields and drop in returns. BFI also includes our Crane BFI Indexes, which show declines in April in most sectors except ultra-​short and high-​yield funds. We excerpt from the latest BFI below. (Contact us if you'​d like to see a copy of our latest Bond Fund Intelligence and BFI XLS, and watch for our next Bond Fund Portfolio Holdings data set next Monday.

Our lead "​Tale of Two Categories" BFI story says, "While flows into bond funds overall remain robust, we'​re starting to see a split in the types of funds attracting assets. Negative returns are beginning to turn investors away from some categories, and ultrashort-​term bond funds are clearly benefiting from a reduction in risk mentality. Below, we review some of the recent flow numbers and contrast recent short-​term inflows with outflows in high-​yield and other categories."

It continues, "The Wall Street Journal wrote recently, 'Bond Investors Pour Into Short-​Term Funds.' They explain, 'Investors are flocking to short-​term bond funds at a record pace as yields have risen to their highest levels in a decade. For the first time since the financial crisis, investors this year can earn 2% or more on low-​risk debt that matures in a year or less. While it'​s a paltry payout compared with pre-​crisis levels, it'​s a welcome reprieve after years of near-​zero interest rates, which dragged down payments on money-​market accounts or certificates of deposit and pushed savers to buy riskier bonds, or those with longer maturities, in pursuit of investment income.'"

The article continues, "Assets in mutual and exchange-​traded funds that buy ultra-​short-​term debt rose to a record $​168 billion in March, and inflows are near all-​time highs, according to Morningstar. Yields on the shortest-​term Treasury securities have been climbing steadily since December 2016, when the Fed began to raise interest rates in an attempt to bring monetary policy more in line with pre-​crisis norms. The Fed is expected to lift rates at least twice more this year, perhaps as early as next month."

Our 2018 Fact Book piece says, "​The Investment Company Institute recently published its "2018 Investment Company Fact Book" which contains an update on the bond fund marketplace in 2017 and a wealth of statistics on bond mutual funds. ICI'​s chapter on 'Bond Mutual Funds' says, 'Bond fund flows typically are correlated with the performance of US bonds (​Figure 3.​8), which, in turn, is largely driven by the US interest rate environment. Long-​term interest rates fluctuated in 2017, but finished the year only 5 basis points below where they started.'"

It continues, "​The 10-​year Treasury began 2017 at 2.​45 percent, and declined 14 basis points by June 30. Over the same period, the total return on bonds fell to zero. During the second half of 2017, long-​term interest rates increased, and finished the year at 2.​40 percent. Despite the modest increase in interest rates during the second half of the year, bond mutual funds received positive net new cash flows in every month. In 2017, bond mutual funds had net inflows of $​260 billion, more than double the $​107 billion in net inflows received in 2016."

The Fact Book explains, "During the first half of 2017, when long-​term interest rates were declining, taxable bond funds received $​121 billion in net inflows (​Figure 3.​9). During the second half of the year, investors added $​113 billion, on net, to taxable bond mutual funds even though long-​term interest rates were moving up."

A BF News brief entitled, "Yields Higher, Returns Down in April," explains, "Most bond fund categories showed increases in yields and negative returns last month. The BFI Total Index averaged a 1-​month return of -​0.​28% and the 12-​month gain fell to 1.​17%. The BFI 100 returned -​0.​31% in April and 0.​97% over 1 year. The BFI Conservative Ultra-​Short Index returned 0.​21% over 1 month and 1.​31% over 1-​year; the BFI Ultra-​Short Index averaged 0.​13% in April and 1.​12% over 12 mos. Our BFI Short-​Term Index returned -​0.​06% and 0.​58%, and our BFI Intm-​Term Index returned -​0.​60% and 0.​14% for the month and year. BFI'​s Long-​Term Index returned -​0.​78% in April and 0.​65% for 1 yr; BFI'​s High Yield Index returned 0.​38% in April and 2.​96% for 1 yr."

Another brief quotes The Financial Times article, "Money Flies Out of Bond Funds." They tell us, "Bond funds hoovered up cash for more than a third of a century as investors were drawn by their promise of modest, reliable returns that balanced out their allocations against more adventurous asset classes. But as global monetary policy tightens and central banks promise further interest rate rises, many commentators have called the end of the 36-​year bond bull market. The most popular fixed income funds are losing their lustre."

Yet another brief comments on the Journal'​s "​A Star Bond-​Fund Manager Avoids the Shortcuts". It quotes the article, "Mary Ellen Stanek thinks a lot about sleep.... Ms. Stanek and her team at Baird Funds are happy to avoid ... excitement. Ms. Stanek gets her buzz from hearing shareholders say that they think of her bond funds as '​sleep insurance,' something they own so that they can rest easy at night.... Ms. Stanek is president of Baird Funds [​and] has built her reputation the same way she has built the track records of her bond funds -- slowly and by avoiding big missteps."

A sidebar entitled, "ICI: Bond Flows Rebound," tells us, "​ICI'​s latest "Combined Estimated Long-​Term Fund Flows and ETF Net Issuance with data as of May 2, 2018, says, 'Bond funds had estimated inflows of $​3.​47 billion for the week, compared to estimated inflows of $​2.​24 billion during the previous week. Taxable bond funds saw estimated inflows of $​3.​63 billion, and municipal bond funds had estimated outflows of $​163 million.' Over the past 5 weeks through 5/​2/​18, bond funds and bond ETFs have seen inflows of $​23.​62 billion."

It adds, "​The ICI'​s latest 'Trends in Mutual Fund Investing - March 2018' shows bond fund assets rising $​24.​9 billion to $​4.​095 trillion. Over the 12 months through 3/​31/​18, bond fund assets have increased by $​318.​2 billion, or 8.​4%. The number of bond funds decreased by 5 to 2,​145. This was down 31 from a year ago."

​

The Investment Company Institute released its "2018 Investment Company Fact Book," an annual compilation of statistics and commentary on the mutual fund industry. Subtitled, "A Review of Trends and Activities in the Investment Company Industry," the latest edition reports that equity funds again saw outflows, bond funds had near record inflows, and money market funds had their strongest inflows in almost 10 years in 2017. Overall, money funds assets were $​2.​847 trillion at year-​end 2017, making up 15% of the $​18.​7 trillion in overall mutual fund assets. Retail investors held $​1.​007 trillion, while institutional investors held $​1.​840 trillion. We excerpt from the latest "Fact Book" below. (Note: Our Peter Crane will also be attending ICI'​s General Membership Meeting on May 23, so let us know if you'​d like to arrange a visit at the show in Washington.)

ICI writes on "Worldwide Regulated Funds," "​Forty-​four percent, or $​21.​8 trillion, of total net assets in regulated funds were in equity funds, which invest primarily in publicly traded stocks.... Mixed/​other funds made up another $​11.​2 trillion, while bond funds -- which invest primarily in fixed-​income securities -- had total net assets of $​10.​4 trillion. Money market funds, which are generally defined throughout the world as regulated funds that are restricted to holding only short-​term, high-​quality money market instruments, had $​5.​9 trillion in total net assets, or 12 percent of worldwide regulated fund total net assets."

They explain, "​In 2017 alone, investors across the globe purchased $​2.​1 trillion in additional shares of regulated long-​term funds. Forty-​two percent of those net sales ($​879 billion) went to bond funds in 2017. Much of these sales were attributable to the United States, where bond funds posted exceptionally strong inflows (​see chapters 3 and 4). With stock prices rising rapidly around the world, some fund investors may have felt it appropriate to add to their bond fund holdings to keep their allocations of stocks and bonds in line with their long-​term objectives. Worldwide net sales of money market funds totaled $​598 billion in 2017, a sharp increase from the $​82 billion of net sales in 2016."

On this global growth, the book tells us, "The pattern of net sales over 2016 and 2017 primarily owed to developments in the Asia Pacific region, where money market funds had net sales of $​404 billion in 2017, after experiencing net outflows of $​14 billion in the previous year. Investor demand for Chinese money market funds strongly influenced net sales of money market funds in the Asia Pacific region. Nearly 80 percent of Asia-​Pacific'​s total net assets in money market funds were held in funds domiciled in China at year-​end 2017."

It continues, "Investor demand for money market funds in the Asia-​Pacific region appears to be related to changes in the total return on the short-​term money market instruments held by these funds.... Investors pulled back from Asia-​Pacific money market funds as the total return on Chinese money market instruments declined from 4.​3 percent in 2015 to 2.​6 percent in 2016. As the total return on these money market instruments rose throughout 2017, investor demand for Asia-​Pacific money market funds increased."

They add on global developments, "In Europe, money market funds saw net sales of $​72 billion in 2017, the third straight year of positive net sales.... Europe, like the United States, has adopted reforms intended to increase the resilience of money market funds to financial shocks. US reforms, which were implemented in October 2016, had significant effects on the composition of net new cash flow to US money market funds in 2016. The influence, if any, of Europe'​s impending regulatory changes on money market flows in that region is uncertain. Although European Union (​EU) reforms for money market funds were adopted in 2017, existing funds are required to be in full compliance by January 2019."

ICI writes, "In the United States, net sales of money market funds were $​118 billion in 2017, the largest year of positive net sales since 2008. Over the past decade, US money market funds have faced headwinds because of regulatory reforms and near-​zero US short-​term interest rates. With short-​term interest rates rising in the United States in 2017, US money market funds became more attractive relative to other cash management investments."

Worldwide, they tell us, "​The majority of US mutual fund and ETF assets at year-​end 2017 were in long-​term funds, with equity funds constituting 59 percent.... Bond funds held 21 percent of US mutual fund and ETF assets. Money market funds, hybrid funds, and other funds -- such as those that invest primarily in commodities -- held the remainder (​20 percent)."

The Fact Book comments, "Businesses and other institutional investors also rely on funds. For instance, institutions can use money market funds to manage some of their cash and other short-​term assets. At yearend 2017, nonfinancial businesses held $​575 billion (​16 percent) of their short-​term assets in money market funds."

It also states, "Historically, mutual funds have been one of the largest investors in the US commercial paper market -- an important source of short-​term funding for major corporations around the world. Mutual fund demand for commercial paper arose primarily from prime money market funds. In 2016, however, the assets of prime money market funds fell 70 percent (​nearly $​900 billion) as these funds adapted to the 2014 SEC rule amendments that required the money market fund industry to make substantial changes by October 2016. Consequently, prime money market funds sharply reduced their holdings of commercial paper. From yearend 2015 to year-​end 2016, mutual funds' share of the commercial paper market fell from 40 percent to 19 percent.... By year-​end 2017, mutual funds had increased their share of the commercial paper market to 25 percent."

The ICI adds, "US households, as well as businesses and other institutional investors, use money market funds as cash management tools because they provide a high degree of liquidity and competitive short-​term yields.... The total number of mutual funds that exited the industry dipped slightly in 2017, as fewer domestic equity and money market funds were liquidated, essentially offsetting an increase in the number of merged funds."

Finally, they write in an unusually short section on "Money Market Funds," "In 2017, money market funds received $​107 billion in net new cash flows. Prime money market funds received the bulk of the inflows ($​76 billion), followed by government money market funds with $​30 billion in inflows. The increased demand for money market funds likely stems from the Federal Reserve'​s decision to raise the federal funds target rate three times in 2017, which increased the attractiveness of money market funds as an investment for excess cash. Yields on prime and government money market funds ratcheted up in 2017 and far exceeded the stated rate on money market deposit accounts (​MMDAs)."

​

Crane Data released its May Money Fund Portfolio Holdings Wednesday, and our most recent collection of taxable money market securities, with data as of April 30, 2018, shows a sharp drop in Treasuries and a rebound in Repo, Agencies and Time Deposits. Money market securities held by Taxable U.​S. money funds overall (​tracked by Crane Data) increased by $​46.​4 billion to $​2.​908 trillion last month, after decreasing $​105.​0 billion in March, but increasing $​70.​6 billion in February and $​3.​2 billion in January. Repo reclaimed its spot as the largest portfolio segment, ending Treasuries brief reign. Treasury bills and securities, which dropped after a two-​month surge, fell to No. 2, followed by Agencies. CP remained a distant 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 Money Fund Portfolio Holdings reports.)

Among all taxable money funds, Repurchase Agreements (​repo) jumped $​99.​9 billion (​12.​2%) to $​917.​1 billion, or 31.​5% of holdings, after dropping $​89.​6 billion in March, $​21.​9 billion in February and $​80.​9 billion in January. Treasury securities plunged $​108.​3 billion (-​11.​5%) to $​830.​2 billion, or 28.​5% of holdings, after jumping $​95.​3 billion in March and $​104.​6 billion in Feb., but falling $​1.​5 billion in January. Government Agency Debt rose by $​23.​4 billion (​3.​6%) to $​678.​0 billion, or 23.​3% of all holdings, after falling $​58.​1 billion in March and $​9.​4 billion in February, but rising $​25.​3 billion in January. Repo, Treasuries and Agencies total $​2.​425 trillion, representing a massive 83.​4% of all taxable holdings.

CP, CDs and Other (​mainly Time Deposits) securities all rose in the fourth month of the year. Commercial Paper (​CP) was up $​8.​8 billion (​4.​3%) to $​210.​8 billion, or 7.​2% of holdings (​after falling $​16.​2 billion in March, and rising $​6.​5 billion in February and $​23.​1 billion in January). Certificates of Deposits (​CDs) rose by $​1.​7 billion (​1.​0%) to $​168.​9 billion, or 5.​8% of taxable assets (​after falling $​6.​7 billion in March and $​9.​5 billion in Feb., but increasing $​13.​3 billion in January). Other holdings, primarily Time Deposits, jumped by $​18.​4 billion (​2.​6%) to $​91.​6 billion, or 3.​1% of holdings. VRDNs held by taxable funds increased by $​2.​6 billion (​30.​3%) to $​11.​4 billion (​0.​4% of assets).

Prime money fund assets tracked by Crane Data rose to $​664 billion (​up from $​636 billion last month), or 22.​8% (​up from 22.​2%) of taxable money fund holdings' total of $​2.​908 trillion. Among Prime money funds, CDs represent a quarter of holdings at 25.​4% (​down from 26.​3% a month ago), followed by Commercial Paper at 31.​7% (​down from 31.​8%). The CP totals are comprised of: Financial Company CP, which makes up 20.​8% of total holdings, Asset-​Backed CP, which accounts for 5.​7%, and Non-​Financial Company CP, which makes up 5.​2%. Prime funds also hold 5.​4% in US Govt Agency Debt, 8.​8% in US Treasury Debt, 5.​9% in US Treasury Repo, 3.​4% in Other Instruments, 10.​6% in Non-​Negotiable Time Deposits, 8.​8% in Other Repo, 3.​4% in US Government Agency Repo, and 1.​2% in VRDNs.

Government money fund portfolios totaled $​1.​560 trillion (​53.​6% of all MMF assets), up from $​1.​546 trillion in March, while Treasury money fund assets totaled another $​683 billion (​23.​5%), up from $​679 billion the prior month. Government money fund portfolios were made up of 41.​2% US Govt Agency Debt, 19.​9% US Government Agency Repo, 18.​9% US Treasury debt, and 19.​6% in US Treasury Repo. Treasury money funds were comprised of 69.​9% US Treasury debt, 29.​9% in US Treasury Repo, and 0.​2% in Government agency repo, Other Instrument, and Investment Company shares. Government and Treasury funds combined now total $​2.​243 trillion, or 77.​1% of all taxable money fund assets, down from 77.​8% last month.

European-​affiliated holdings rose $​113.​2 billion in April to $​663.​8 billion among all taxable funds (​and including repos); their share of holdings rose to 22.​1% from 22.​8% the previous month. Eurozone-​affiliated holdings rose $​73.​4 billion to $​414.​4 billion in April; they account for 14.​3% of overall taxable money fund holdings. Asia & Pacific related holdings increased by $​17.​6 billion to $​234.​2 billion (​8.​1% of the total). Americas related holdings fell $​85.​6 billion to $​2.​007 trillion and now represent 69.​0% of holdings.

The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements, which increased $​51.​5 billion, or 10.​3%, to $​550.​2 billion, or 18.​9% of assets; US Government Agency Repurchase Agreements (​up $​50.​8 billion to $​333.​9 billion, or 11.​5% of total holdings), and Other Repurchase Agreements ($​33.​0 billion, or 1.​1% of holdings, down $​2.​4 billion from last month). The Commercial Paper totals were comprised of Financial Company Commercial Paper (​up $​10.​4 billion to $​138.​1 billion, or 4.​7% of assets), Asset Backed Commercial Paper (​down $​2.​0 billion to $​37.​9 billion, or 1.​3%), and Non-​Financial Company Commercial Paper (​up $​0.​3 billion to $​34.​7 billion, or 1.​2%).

The 20 largest Issuers to taxable money market funds as of April 30, 2018, include: the US Treasury ($​830.​2 billion, or 28.​5%), Federal Home Loan Bank ($​550.​3B, 18.​9%), BNP Paribas ($​134.​6B, 4.​6%), RBC ($​81.​9B, 2.​8%), Federal Farm Credit Bank $​78.​8B, 2.​7%), Credit Agricole ($​64.​7B, 2.​2%), Wells Fargo ($​63.​1B, 2.​2%), HSBC ($​61.​9B, 2.​1%), Barclays PLC ($​54.​1B, 1.​9%), Societe Generale ($​45.​7B, 1.​6%), Sumitomo Mitsui Banking Co ($​45.​1B, 1.​6%), Natixis ($​43.​7B, 1.​5%), JP Morgan ($​42.​9B, 1.​5%), Mitsubishi UFJ Financial Group Inc ($​40.​8B, 1.​4%), Bank of America ($​35.​3B, 1.​2%), ING Bank ($​35.​3B, 1.​2%), Credit Suisse ($​33.​7B, 1.​1%), Citi ($​33.​6B, 1.​1%), Nomura ($​33.​6B, 1.​2%), and Toronto-​Dominion ($​31.​5B, 1.​1%).

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 ($​123.​6B, 13.​5%), RBC ($​62.​9B, 6.​9%), HSBC ($​53.​4B, 5.​8%), Credit Agricole ($​51.​9B, 5.​7%), Wells Fargo ($​49.​4B, 5.​4%), Barclays PLC ($​42.​9B, 4.​7%), Societe Generale ($​40.​9B, 4.​5%), JP Morgan ($​35.​0B, 3.​8%), Natixis ($​33.​7B, 3.​7%), and Nomura ($​33.​6B, 3.​7%).

The 7 largest Fed Repo positions among MMFs on 4/​30/​18 include: JP Morgan US Trs Plus ($​4.​7B in Fed Repo), Franklin IFT US Govt MM ($​3.​8B), JP Morgan US Govt ($​1.​7B), Morgan Stanley Inst Liq Govt Sec ($​1.​7B), BlackRock Lq FedFund ($​0.​9B), BlackRock Lq T-​Fund ($​0.​6B), and BlackRock Cash Treas ($​0.​5B).

The 10 largest issuers of "​credit" -- CDs, CP and Other securities (​including Time Deposits and Notes) combined -- include: RBC ($​19.​1B, 4.​7%), Toronto-​Dominion Bank ($​16.​4B, 4.​1%), Credit Suisse ($​15.​7B, 3.​9%), Swedbank AB ($​15.​6B, 3.​9%), Mitsubishi UFJ Financial Group Inc. ($​14.​0B, 3.​5%), Wells Fargo ($​13.​7B, 3.​4%), Credit Agricole ($​12.​4, 3.​2%), Sumitomo Mitsui Banking Co ($​12.​5, 3.​1%), Australia & New Zealand Banking Group Ltd ($​12.​2B, 3.​0%) and Canadian Imperial Bank of Commerce ($​11.​5B, 2.​9%).

The 10 largest CD issuers include: Wells Fargo ($​13.​6B, 8.​1%), Bank of Montreal ($​10.​5B, 6.​3%), RBC ($​10.​2, 6.​1%), Mitsubishi UFJ Financial Group Inc ($​9.​6B, 5.​7%), Svenska Handelsbanken ($​9.​3B, 5.​5%), Swedbank AB ($​8.​6B, 5.​1%), Mizuho Corporate Bank Ltd ($​8.​3B, 5.​0%) Sumitomo Mitsui Banking Co ($​7.​4B, 4.​4%), Canadian Imperial Bank of Commerce ($​6.​5B, 3.​9%), and Citi ($​6.​1B, 3.​7%).

The 10 largest CP issuers (​we include affiliated ABCP programs) include: Toronto-​Dominion Bank ($​9.​2B, 5.​1%), Credit Suisse ($​8.​5B, 4.​7%), Commonwealth Bank of Australia ($​8.​2B, 4.​6%), JPMorgan ($​7.​8B, 4.​3%), RBC ($​6.​9B, 3.​9%), Australia & New Zealand Banking Group Ltd ($​6.​5B, 3.​6%), Bank of Nova Scotia ($​6.​3B, 3.​5%), National Australia Bank Ltd ($​6.​2B, 3.​4%), Westpac Banking Co ($​5.​7B, 3.​2%), and HSBC ($​5.​6B, 3.​1%).

The largest increases among Issuers include: Credit Agricole (​up $​39.​6B to $​64.​7B), Federal Home Loan Bank (​up $​29.​8B to $​550.​3B), Credit Suisse (​up $​18.​8B to $​33.​7B), Mizuho Corporate Bank Ltd (​up $​13.​8B to $​28.​5B), Natixis (​up $​12.​5B to $​43.​7B), Goldman Sachs (​up $​11.​2B to $​26.​0B), Societe Generale (​up $​9.​3B to $​45.​7B), JP Morgan (​up $​7.​2B to $​42.​9B), Sumitomo Mitsui Banking Co (​up $​6.​6B to $​45.​1B), and Swedbank AB (​up $​6.​0B to $​15.​6B).

The largest decreases among Issuers of money market securities (​including Repo) in April were shown by: the US Treasury (​down $​108.​3B to $​830.​2B), the Federal Reserve Bank of New York (​down $​8.​9B to $​13.​7B), Bank of Nova Scotia (​down $​8.​7B to $​26.​2B), Federal Home Loan Mortgage Co (​down $​5.​5B to $​28.​5B), RBC (​down $​4.​9B to $​81.​9B), Fixed Income Clearing Co (​down $​4.​1B to $​19.​6B), Canadian Imperial Bank of Commerce (​down $​3.​1B to $​24.​9B), National Australia Bank Ltd (​down $​2.​9B to $​8.​1B), Bank of Montreal (​down $​2.​0B to $​29.​6B), and Federal National Mortgage Association (​down $​1.​5B to $​15.​2B).

The United States remained the largest segment of country-​affiliations; it represents 62.​0% of holdings, or $​1.​802 trillion. France (​10.​3%, $​298.​0B) remained in the No. 2 spot and Canada (​7.​0%, $​204.​5B) remained No. 3. Japan (​6.​3%, $​183.​9B) stayed in fourth place, while the United Kingdom (​5.​1%, $​147.​7B) remained in fifth place. The Netherlands (​2.​0%, $​57.​4B) remained ahead of Germany (​1.​7%, $​49.​5B) in sixth and seventh place, respectively. Switzerland (​1.​6%, $​45.​2B) and Sweden (​1.​5%, $​43.​6B) moved ahead of Australia (​1.​3%, $​37.​9B) to rank 8th, 9th and 10th place. (​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 April 30, 2018, Taxable money funds held 31.​6% (​up from 28.​6%) of their assets in securities maturing Overnight, and another 14.​2% maturing in 2-​7 days (​down from 15.​0%). Thus, 45.​8% in total matures in 1-​7 days. Another 24.​6% matures in 8-​30 days, while 12.​2% matures in 31-​60 days. Note that over three-​quarters, or 82.​6% 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 7.​4% of taxable securities, while 8.​6% matures in 91-​180 days, and just 1.​4% matures beyond 181 days.

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With less than 2 months to go before our big show, Crane'​s Money Fund Symposium, which will be held in Pittsburgh, June 25-​27, we are also preparing for our 6th Annual European Money Fund Symposium, the largest money market event in Europe. The preliminary agenda is now ready and registrations are being taken for this year'​s European MFS, which will take place Sept. 20-​21 at the London Tower Bridge Hilton. See below for more information, or contact us for details. (Note: If you haven'​t registered yet for the U.​S. Money Fund Symposium, you can still do so via www.​moneyfundsymposium.​com.) We look forward to seeing many of you in Pittsburgh later next month and/​or in London this September!

Last year'​s European Crane Symposium event in Paris attracted 125 attendees, sponsors and speakers -- our largest European event ever. Given pending new money fund regulations in Europe and possible plans for "​repatriation" of assets back to the U.​S., we expect our show in London to attract even more interest this year.

"European Money Fund Symposium offers European, global and "​offshore" money market portfolio managers, investors, issuers, dealers and service providers a concentrated and affordable educational experience, and an excellent and informal networking venue," says Crane Data President, Peter Crane. "Our mission is to deliver the best possible conference content at an affordable price to money market fund professionals," he adds.

EMFS will be held at the Hilton London Tower Bridge Hotel. Hotel rooms must be booked before Monday, August 6 to receive the discounted rate of L295 plus tax. Registration for our 2018 Crane'​s European Money Fund Symposium is $​1,​000 USD (​or L750). Visit www.​euromfs.​com to register, or contact us to request the PDF brochure or for Sponsorship pricing and info.

The EMFS agenda features sessions conducted by many of the leading authorities on money funds in Europe and worldwide. The Day One Agenda for Crane'​s European Money Fund Symposium includes: "Welcome to European Money Fund Symposium" with Peter Crane of Crane Data; followed by "IMMFA Update: The State of MMFs in Europe" with Reyer Kooy and Jane Lowe of IMMFA; "European, Euro, & LVNAV Money Funds," with David Callahan of Lombard Odier, James Vincent of Goldman Sachs, and a speaker from Aviva Investors; "Senior Portfolio Manager Perspectives," moderated by Dan Singer of J.​P. Morgan Securities and featuring Joe McConnell of JP Morgan AM, Jim O'​Connor, of Dreyfus/​BNY Mellon CIS, and another PM.

The afternoon will consist of: "French & Continental Money Update" with with Manuel Arrive of Fitch Ratings and Vanessa Robert of Moody'​s Investors Service; "U.​K. & Sterling MMF Issues" with Dennis Gepp of Federated Investors and Paul Mueller of Invesco; "U.​S. Money Funds vs. European USD MMFs" with Peter Crane of Crane Data, Deborah Cunningham of Federated Investors, and Rob Sabatino of UBS Asset Management; and, "Chinese, Japanese & Australian Money Funds with Andrew Paranthoiene of Standard & Poor'​s and Alastair Sewell of Fitch Ratings.

The Day Two Agenda includes: "Irish & European Fund Issues" with Rudolph Siebel of BVI; "European Money Fund Reform Roundtable" with Dan Morrissey of William Fry and John Hunt of Sullivan & Worcester LLP; "Money Fund Portals & Distribution in Europe" with Jim Fuell of J.​P. Morgan, Justin Meadows of NEX Treasury, and Sabrina Hartzog of Citibank Online Investments.

The second day'​s afternoon will include: "Dealer Update and Issuance Outlook" with David Hynes of Northcross Capital LLP and Marianne Medora of Group BPCE/​Natixis; "Ultra-​Short Bond Funds & Enhanced Cash" with Neil Hutchinson of J.​P. Morgan and Thierry Darmon of Amundi; "Strategists Speak: Negative Rates & Reforms" with Vikram Rai of Citi; and "Offshore Money Fund Data & Disclosures" with Peter Crane of Crane Data and Michael Tram of Cachematrix.

In other European money fund news, Fitch Ratings and the U.​K.-​based ACT (​Association of Corporate Treasurers) recently hosted a webinar entitled, "European Money Market Fund Reform," which featured Fitch'​s Alastair Sewell and ACT'​s Michelle Price. Price asks, "As we enter the final months of implementation of new European money market regulations, many are beginning to announce their transition plans outlining what type and range of funds they will be launching later in the year. As investors in money market funds, corporate treasurers would need to make some key decisions over the next few months; but what are the key considerations and pitfalls that treasurers should be looking out for?"

Sewell tells us, "​I spend a great deal of time looking at money market funds and the key issue of reform. We will be going over: what will happen, what are the risks, what will the reforms mean for corporate treasurers, and a conclusion." Regarding "What will happen," he says, "​All new funds after the 21st of July, 2018 will need to comply with the reforms. All existing funds must convert into one of the formats prescribed by the 21st of January, 2019. This format will allow three (​3) months for new funds and nine (​9) months for existing funds."

He explains, "The three (​3) broad funds currently available to investors are: short-​term constant net asset value, short-​term variable net asset value, and standard variable net asset value funds. Post-​reform, the investment bandwidth of the VNAV funds will be limited to government securities only.... Short-​term and standard VNAVs will continue to exist in a broadly comparable format to today'​s funds with some minor differences. There will be a new fund type: Low Volatility Net Asset Value (​LVNAV).... The advent of the LVNAV fund-​type is significant; we anticipate it will become the most popular fund type in Europe overall (​post-​reform)."

Sewell explains, "What we have heard from the fund providers is the peak of transition of the majority funds in or around the fourth quarter of this year. The types of funds available after this transition are still seeking approval.... Current funds have not begun adjusting themselves to conform to the new regulations yet.... Even without the funds making any adjustments, the vast majority has liquidity in excess of the 30% discretion threshold level. All of them have significantly more liquidity than the mandatory threshold."

He adds, "The pricing of LVNAVs is another important point. If it [​moves] more than 20 bps with its book value, it moves to variable pricing. A technicality of this is the funds do not actually change type. Theoretically, LVNAVs can move to variable pricing, but remains an LVNAV even though it would be pricing on a variable basis. If the price moves back closer to the book value, it will move back to being a stable-​price LVNAV."

Finally, Sewell and Price comment, "The key takeaways are: Updating investment guidelines to accommodate the post-​reform fund types and characteristics is a priority; The reforms are coming in July 2018 for new funds and January 2019 for existing funds; LVNAV will look and feel much like today'​s CNAVs but also has specific, distinctive characteristics which are important to understand; How corporate treasurers react, and how funds manage the transition process will be key sensitivities as we get closer to the final implementation; Europe is unlikely to see the massive flows from prime to government funds we saw in the U.​S.; and, Fitch'​s global rating criteria is applicable to all short-​term MMF types."

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Crane Data'​s latest Money Fund Market Share rankings show assets were mixed for U.​S. money fund complexes in April. Money fund assets overall rose by just $​117 million, or 0.​0% last month to $​2.​984 trillion, but assets have fallen by $​5.​3 billion, or -​0.​2%, over the past 3 months. They have increased by $​179.​4 billion, or 6.​4%, over the past 12 months through April 30, 2018. Increases among the 25 largest managers were seen by BlackRock, J.​P. Morgan, Morgan Stanley, Deutsche and Western. The biggest losers in April were Northern, whose MMFs fell by $​10.​8 billion, or -​10.​1%, Goldman Sachs, whose MMFs fell by $​10.​6 billion, or -​5.​7%, and Federated, whose MMFs fell by $​9.​2 billion, or -​4.​6%.

Schwab, Wells Fargo, SSgA, Fidelity, and T Rowe Price also saw assets decrease in April, falling by $​4.​1B, $​2.​9B, $​2.​0B, $​2.​0B, and $​1.​3B, respectively. (​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.) We review these market share totals below, and we also look at money fund yields the past month, which continued higher in April.

Over the past year through April 30, 2018, Fidelity (​up $​46.​1B, or 8.​7%), BlackRock (​up $​44.​1B, or 17.​4%), Vanguard (​up $​20.​6B, or 7.​5%), Columbia (​up $​14.​2B, or 1519.​6%), Deutsche (​up $​13.​1B, or 82.​4%), Wells Fargo (​up $​12.​3B, or 13.​8%) and Invesco (​up $​10.​4B, or 18.​9%) were the largest gainers. These 1-​year gainers were followed by SSgA (​up $​9.​4B, or 11.​8%), Dreyfus (​up $​9.​1B, or 5.​7%), Morgan Stanley (​up $​7.​8B, or 6.​9%), and J.​P. Morgan (​up $​7.​9B, or 3.​1%).

Vanguard, Goldman Sachs, BlackRock, Morgan Stanley, Fidelity and J.​P. Morgan had the largest money fund asset increases over the past 3 months, rising by $​11.​4B, $​7.​5B, $​5.​6B, $​5.​2B, $​4.​8B, and $​4.​3 respectively. The biggest decliners over 12 months include: Schwab (​down $​16.​9B, or –​10.​8%), Northern (​down $​14.​8B, or -​13.​4%), Wells Fargo (​down $​6.​B, or -​6.​0%), Dreyfus (​down $​4.​9B, or -​2.​8%), and Federated (​down $​4.​6B, or -​2.​4%).

Our latest domestic U.​S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $​577.​4 billion, or 19.​3% of all assets. It was down $​2.​0 billion in April, down $​4.​8 billion over 3 mos., and up $​46.​1B over 12 months. BlackRock moved into second with $​297.​4 billion, or 10.​0% market share (​up $​18.​2B, up $​5.​6B, and up $​44.​1B for the past 1-​month, 3-​mos. and 12-​mos., respectively), while Vanguard was third with $​296.​2 billion, or 9.​9% market share (​up $​818M, up $​11.​4B, and up $​20.​6B). JP Morgan ranked fourth with $​258.​1 billion, or 8.​6% of assets (​up $​9.​1B, up $​4.​3B, and up $​7.​9B for the past 1-​month, 3-​mos. and 12-​mos., respectively), while Federated was ranked fifth with $​191.​1 billion, or 6.​4% of assets (​down $​9.​2B, down $​4.​6B, and up $​7.​8B).

Goldman Sachs was ranked in to sixth place with $​173.​8 billion, or 5.​8% of assets (​down $​10.​6B, up $​7.​5B, and down $​1.​9B), while Dreyfus held seventh place with $​169.​2 billion, or 5.​7% (​down $​608M, down $​4.​9B, and up $​9.​1B). Schwab ($​138.​8B, or 4.​7%) was in eighth place, followed by Morgan Stanley in ninth place ($​121.​7B, or 4.​1%) and Wells Fargo in tenth place ($​101.​4B, or 3.​4%).

The eleventh through twentieth largest U.​S. money fund managers (​in order) include: Northern ($​96.​3B, or 3.​2%), SSgA ($​88.​8B, or 3.​0%), Invesco ($​65.​3B, or 2.​2%), First American ($​51.​4B, or 1.​7%), UBS ($​45.​3B, or 1.​5%), T Rowe Price ($​30.​7B, or 1.​0%), DFA ($​30.​5B, or 1.​0%), Deutsche ($​29.​1B, or 1.​0%), Western ($​26.​1B, or 0.​9%), and Franklin ($​23.​4B, or 0.​8%). The 11th through 20th ranked managers are the same as last month. Crane Data currently tracks 66 U.​S. MMF managers, the same number as last month.

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 J.​P. Morgan moves ahead of Vanguard, Goldman Sachs moves ahead of Federated, and Morgan Stanley moves 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 ($​586.​5 billion), BlackRock ($​437.​8.​5B), J.​P. Morgan ($​417.​7B), Vanguard ($​296.​2B), and Goldman Sachs ($​271.​4B). Federated ($​199.​3B) was sixth and Dreyfus/​BNY Mellon ($​190.​0B) was in seventh, followed by Morgan Stanley ($​157.​9B), Schwab ($​138.​8B), and Northern ($​126.​9B), 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 May issue of our Money Fund Intelligence and MFI XLS, with data as of 4/​30/​18, shows that yields were up again in April across all of our Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (​currently 766), was up 6 bps to 1.​35% for the 7-​Day Yield (​annualized, net) Average, and the 30-​Day Yield was up 14 bps to 1.​31%. The MFA'​s Gross 7-​Day Yield increased 6 bps to 1.​80%, while the Gross 30-​Day Yield was up 13 bps to 1.​73%.

Our Crane 100 Money Fund Index shows an average 7-​Day (​Net) Yield of 1.​55% (​up 8 bps) and an average 30-​Day Yield of 1.​53% (​up 17 bps). The Crane 100 shows a Gross 7-​Day Yield of 1.​84% (​up 8 bps), and a Gross 30-​Day Yield of 1.​77% (​up 16 bps). For the 12 month return through 4/​30/​18, our Crane MF Average returned 0.​80% and our Crane 100 returned 0.​98%. The total number of funds, including taxable and tax-​exempt, was up 2 funds to 965. There are currently 766 taxable and 199 tax-​exempt money funds.

Our Prime Institutional MF Index (​7-​day) yielded 1.​64% (​up 11 bps) as of April 30, while the Crane Govt Inst Index was 1.​41% (​up 5 bps) and the Treasury Inst Index was 1.​41% (​up 4 bps). Thus, the spread between Prime funds and Treasury funds is 23 basis points, up 7 bps from last month, while the spread between Prime funds and Govt funds is 23 basis points, up 6 bps from last month. The Crane Prime Retail Index yielded 1.​44% (​up 10 bps), while the Govt Retail Index yielded 1.​07% (​up 4 bps) and the Treasury Retail Index was 1.​14% (​up 6 bps). The Crane Tax Exempt MF Index yield rose in April to 1.​19% (​up 24 bps).

Gross 7-​Day Yields for these indexes in April were: Prime Inst 2.​03% (​up 10 bps), Govt Inst 1.​72% (​up 4 bps), Treasury Inst 1.​73% (​up 5 bps), Prime Retail 2.​00% (​up 10 bps), Govt Retail 1.​70% (​up 4 bps), and Treasury Retail 1.​73% (​up 6 bps). The Crane Tax Exempt Index increased 24 basis points to 1.​72%. The Crane 100 MF Index returned on average 0.​12% for 1-​month, 0.​29% for 3-​month, 0.​42% for YTD, 0.​98% for 1-​year, 0.​47% for 3-​years (​annualized), 0.​29% for 5-​years, and 0.​31% for 10-​years. (Contact us if you'​d like to see our latest MFI XLS, Crane Indexes or Market Share report.)

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The May issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers over the weekend, features the articles: "Money Fund Expenses Higher in ‘​17; Crane Data Turns 12," which discusses the decline in fee waivers due to higher yields; "Investortools' James Morris on Money Fund Software," which interviews the VP of a money fund software tool provider; and, "FDIC Sweep Rates Rising, Feeling Pressure from MMFs," which highlights a recent increase in brokerage sweep yields. We'​ve also updated our Money Fund Wisdom database with April 30, 2018, statistics, and sent out our MFI XLS spreadsheet Saturday. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our May Money Fund Portfolio Holdings are scheduled to ship on Wednesday, May 9, and our May Bond Fund Intelligence is scheduled to go out Monday, May 14.

MFI'​s "Expenses" article says, "ICI published “Trends in the Expenses and Fees of Funds, 2017” recently, which finds that while overall mutual fund expenses continue lower, money market fund expenses rose for the second year in a row on declining fee waivers. ICI writes, 'The average expense ratios for money market funds rose 5 basis points in 2017 to 0.​25%. This increase was indirectly related to the Federal Reserve raising short-​term interest rates three times in 2017. These actions prompted fund advisers to continue paring expense waivers.'"

Our lead piece continues, "​They tell us, '​On an asset-​weighted basis, average expense ratios incurred by mutual fund investors have fallen substantially over the past two decades…. The average expense ratio for money market funds dropped from 0.​52% to 0.​25% over this period.'"

MFI'​s latest Profile reads, "This month, Money Fund Intelligence interviews James Morris, a Vice President at Investortools, an Illinois-​based company that produces portfolio management and compliance software. We talk about their history and software products, recent regulatory changes, and cash separate accounts. Our interview follows."

MFI says, "Tell us about your beginnings. Morris explains, "Investortools goes all the way back to 1983 … back to the early days. We started out focusing on tax exempt mutual funds, and have grown our product suite from our initial product, which is called ‘Perform.’ We now offer of a handful of products that all can be integrated into one common software suite, or used on a standalone basis. Our presence in the money fund space started around the middle 1990s."

Morris continues, "​I have been with the company for over 17 years now, and our presence in the money fund space predates that. Our money fund product is called ‘​Smart,’ which stands for Short Maturity Analytic Reporting Tool. We have seen some pretty substantive growth in this space, as the fixed income market has evolved over the past couple of decades. About half of our business relates to separate accounts or SMAs. I use the term broadly -- I'​m talking about institutional SMAs, private clients, high net worth, family office, and retail separate accounts."

MFI also says, "Tell us more about the products." Morris responds, "If you are in the short maturity space, Smart is the focal point of our products. So that means it incorporates all of our 2a-​7 compliance and stress testing with reports and graphs oriented to short maturity. It also is designed to integrate into that suite I mentioned, so you can have Perform for your long portfolios, and Smart for the short and ultrashort portfolios, all integrated with CreditScope, which provides the credit team instant answers to how much credit exposure they have."

Our "FDIC Sweep" article says, "Brokerage '​sweep' providers continue to feel the heat from higher rates, but they also continue to shift assets into bank deposits and away from money market funds. Our Brokerage Sweep Intelligence product shows the average yield for FDIC insured sweeps has risen to 0.​18% (​for accounts of $​100K) from 0.​02% a year ago. (​See our table on p. 8 too.) Like we did 2 years ago in MFI, we briefly review some of the recent changes in this $​1 trillion market below."

It continues, "FDIC-​insured sweeps now make up the vast majority of brokerage sweep cash, but this could change as money fund yields continue to rise. The signals are mixed though. A handful of recent articles have discussed brokerage clients’ growing frustration with near-​zero yields, but brokerages continue to lag in raising rates and continue to funnel cash into banks. (​See our “WSJ Hits Brokerage Sweep Rates.”)

The piece adds, "Charles Schwab, the 8th largest manager of money market mutual funds with $​138.​8 billion in assets as of April 30, is the latest and one of the last brokerages to shift sweep assets from money funds to bank deposits. But their shift may prove to be a contrarian indicator. (​They’​ve also have been hedging by offering low expense and high-​yielding “​position” money funds.) In Q1, they shifted $​25 billion from MMFs to deposits (​and it looks like this continued in April)."

Our May MFI XLS, with April 30, 2018, data, shows total assets increased $​203 million in April to $​2.​984 trillion, after decreasing $​52.​6 billion in March, increasing $​37.​2 billion in February, and decreasing $​54.​3 billion in January. Our broad Crane Money Fund Average 7-​Day Yield was up 6 basis points to 1.​35% during the month, while our Crane 100 Money Fund Index (​the 100 largest taxable funds) was up 8 bps to 1.​55%.

On a Gross Yield Basis (​7-​Day) (​before expenses were taken out), the Crane MFA rose 6 bps to 1.​80% and the Crane 100 rose 8 bps to 1.​84%. Charged Expenses averaged 0.​45% and 0.​28% (​unchanged), respectively for the Crane MFA and Crane 100. The average WAM (​weighted average maturity) for the Crane MFA and Crane 100 were 30 and 29 days, respectively (​down 2 days from last month). (​See our Crane Index or craneindexes.​xlsx history file for more on our averages.)

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Both Reuters and The Wall Street Journal featured articles yesterday on China'​s massive Yu'​e Bao money market fund, which saw assets decline in the latest month and which has begun redirecting assets into other money market funds, according to the two articles. Reuters writes that "China'​s money market funds shrink at end-​March as curbs bite." They explain, "The combined size of China'​s money market funds shrank by 6 percent in March from February, suggesting regulators' efforts to rein in the sector'​s feverish growth has started to show results. The monthly fall follows a doubling in net assets during the previous year, which prompted regulators to impose curbs amid concerns that rapid growth in some money market funds could lead to systemic risks in case of massive redemptions." We review the two updates on China'​s largest money fund, as well as the ICI'​s latest money fund asset totals.

The Reuters piece explains, "China'​s money market funds swelled to 7.​81 trillion yuan ($​1.​23 trillion) at the end of February, but fell to 7.​32 trillion yuan at the end of March, according to the Asset Management Association of China, underlining the impact of government intervention. The government published rules last year to tighten liquidity management in the mutual funds industry, and guided individual funds, including Ant Financial'​s money market fund Yu'​e Bao, to place daily caps on subscription volumes. Yu'​e Bao, the country'​s largest money market fund, saw its net assets jump more than 40 percent to 1.​69 trillion yuan during the first quarter."

The Journal'​s piece, entitled, "Overflowing With Cash, The World'​s Largest-​Money Market Fund Is Trying a New Tactic tells us, "​The world'​s largest money-​market fund has too much cash to manage. Billionaire Jack Ma'​s Ant Financial Services Group on Thursday said it would offer two additional money-​market funds to customers who have been parking their spare cash in its hugely popular online fund, the latest attempt by the company to limit flows into the giant fund."

It continues, "The fund known as Tianhong Yu'​e Bao, which a unit of Ant created in 2013, had $​266 billion in assets under management as of March 31, after nearly doubling in size last year. The yuan-​denominated fund is more than twice the size of the largest U.​S. dollar money-​market fund.... Ant ... said starting Friday it will add two funds managed by third-​party asset management firms to its Yu’​e Bao platform, whose name stands for '​leftover treasure'."

The WSJ says, "The fund'​s massive size, however, has drawn scrutiny from regulators who have labeled it as systemically significant. The fund has drawn a flood of money by offering generous yields, which were recently 3.​96% on an annualized basis, well above interest rates on bank deposits. Like other Chinese money-​market funds, it invests primarily in certificates of deposit issued by Chinese banks, short-​term government securities and commercial paper."

They add, "Ant said in a statement that individuals can invest in two money-​market funds managed by Bosera Asset Management Co. and Zhong Ou Asset Management Co., two relatively well-​known Chinese fund managers that aren'​t affiliated with it. Bosera'​s fund was set up in 2004, has $​496 million in assets and seven-​day annualized yield of 4%. Zhong Ou'​s fund, which has been around since 2015, has $​765 million under management and a seven-​day annualized yield of 4.​45%. There will be no limits on what individuals can invest in the two funds. Tianhong'​s Yu'​e Bao fund will continue to impose daily and aggregate investment limits, said Le Shen, a spokesman for Ant."

According to Crane Data'​s analysis of the Investment Company Institute'​s quarterly Worldwide mutual fund data, China ranks as the second largest money fund market in the world, breaking above the $​1 trillion level in total assets in Q4 2017. China has $​1.​035 trillion, or 17.​5% of the world'​s money fund assets (​up $​418 billion, or 68% in 2017) vs. the world'​s largest market, the U.​S., with $​2.​847 trillion, or 48.​3%. Ireland ranks third with $​584 billion, followed by France with $​413 billion and Luxembourg with $​394 billion. (​See our March 28 News, "`​Worldwide Money Fund Assets: US Jumps in Q4, China Breaks 1.​0 Tril..")

In other news, ICI released its latest "Money Market Fund Assets" reports yesterday. Their numbers show money fund assets rebounding in the past week after 3 straight weeks of tax-​driven declines. Year-​to-​date, MMF assets have decreased by $​38 billion, or -​1.​3%, but they'​ve increased by $​156 billion, or 5.​9%, over 52 weeks.

ICI writes, "Total money market fund assets increased by $​7.​59 billion to $​2.​80 trillion for the week ended Wednesday, May 2, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $​2.​02 billion and prime funds increased by $​3.​01 billion. Tax-​exempt money market funds increased by $​2.​55 billion." Total Government MMF assets, which include Treasury funds too, stand at $​2.​208 trillion (​78.​9% of all money funds), while Total Prime MMFs stand at $​458.​0 billion (​16.​4%). Tax Exempt MMFs total $​133.​3 billion, or 4.​8%.

They explain, "Assets of retail money market funds increased by $​7.​41 billion to $​1.​01 trillion. Among retail funds, government money market fund assets increased by $​3.​14 billion to $​625.​60 billion, prime money market fund assets increased by $​2.​27 billion to $​262.​47 billion, and tax-​exempt fund assets increased by $​1.​99 billion to $​125.​80 billion." Retail assets account for over a third of total assets, or 36.​2%, and Government Retail assets make up 61.​7% of all Retail MMFs.

ICI'​s release adds, "Assets of institutional money market funds increased by $​178 million to $​1.​79 trillion. Among institutional funds, government money market fund assets decreased by $​1.​12 billion to $​1.​58 trillion, prime money market fund assets increased by $​738 million to $​195.​52 billion, and tax-​exempt fund assets increased by $​561 million to $​7.​51 billion." Institutional assets account for 63.​8% of all MMF assets, with Government Inst assets making up 88.​6% of all Institutional MMFs.

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As expected, the Federal Reserve didn'​t hike short-​term interest rates at its meeting yesterday, but they remain on track to raise rates above the 2% level at their June 12-​13 meeting next month. A release entitled, "Federal Reserve issues FOMC statement" explains, "Information received since the Federal Open Market Committee met in March indicates that the labor market has continued to strengthen and that economic activity has been rising at a moderate rate. Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low.... On a 12-​month basis, both overall inflation and inflation for items other than food and energy have moved close to 2 percent." We review the Fed'​s statement, as well as the latest Treasury auction and statement and our latest Weekly Portfolio Holdings data set below.

The FOMC says, "​Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with further gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in the medium term and labor market conditions will remain strong. Inflation on a 12-​month basis is expected to run near the Committee'​s symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced."

They continue, "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 1-​1/​2 to 1-​3/​4 percent. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation."

The Fed adds, "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 objectives of maximum employment and 2 percent inflation.... The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data."

The "U.​S. Treasury'​s latest Quarterly Refunding Statement" tells us, "[​A]​ggregate bill supply, which peaked in late March in response to elevated borrowing needs, including seasonal factors and Treasury'​s efforts to rebuild cash balances consistent with our stated cash balance policy, is expected to decrease modestly over the remainder of the fiscal year, barring any substantial, unexpected changes in financing needs." (​See the Treasury'​s "Most Recent Quarterly Refunding Documents" here.)

The statement continues, "Treasury intends to introduce a new 2-​month bill later this calendar year. Treasury has had extensive discussions about the benefits of a 2-​month bill offering with a variety of market participants, including the Treasury Borrowing Advisory Committee (​TBAC). Our analysis suggests that this new product will meet the needs of many investors, while also enhancing Treasury cash management, reducing operational risks, and helping us in our mission to fund the government at the least cost over time."

It adds, "In the coming months, Treasury will further study operational details related to offering the 2-​month bill for settlement on a date different from the traditional Thursday settlement date for Treasury bills, such as Tuesday. Treasury will explore alternative ways to enhance liquidity of the 2-​month bill, if it is offered on a different settlement date, such as moving the settlement date of an existing bill tenor so that it aligns with the settlement date of the 2-​month bill. More details regarding the operational aspects of this decision, including the timing of the first auction, will be provided at a later Quarterly Refunding." (Note: The U.​S. Treasury'​s Debt Manager Tom Katzenbach has been added to the agenda for our upcoming Money Fund Symposium conference, which is June 25-​27 in Pittsburgh.)

In other news, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics and summary Tuesday. Our weekly holdings track a shifting subset of our monthly Portfolio Holdings collection, and the latest cut (​with data as of April 27) includes Holdings information from 76 money funds (​down 14 from 4/​20), representing $​1.​414 trillion (​down from $​1.​560 trillion last week) of the $​2.​967 (​47.​7%) in total money fund assets tracked by Crane Data. (​For our monthly Holdings recap, see our April 11 News, "April Money Fund Portfolio Holdings: Treasury Now Biggest; Repo Down.")

Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Repurchase Agreements (​Repo) totaling $​505.​4 billion (​down from $​542.​3 billion a week ago), or 35.​7%, Treasury debt totaling $​460.​9 billion (​down from $​507.​0 billion) or 32.​6%, and Government Agency securities totaling $​293.​0 billion (​down from $​327.​9 billion), or 20.​7%. Commercial Paper (​CP) totaled $​51.​6 billion (​down from $​60.​5 billion), or 3.​6%, and Certificates of Deposit (​CDs) totaled $​40.​5 billion (​down from $​45.​0 billion), or 2.​9%. A total of $​31.​1 billion or 2.​2%, was listed in the Other category (​primarily Time Deposits), and VRDNs accounted for $​31.​8 billion, or 2.​3%.

The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $​460.​9 billion (​32.​6% of total holdings), Federal Home Loan Bank with $​236.​7B (​16.​7%), BNP Paribas with $​77.​8 billion (​5.​5%), Federal Farm Credit Bank with $​39.​6B (​2.​8%), RBC with $​36.​5B (​2.​6%), Credit Agricole with $​33.​3B (​2.​4%), Wells Fargo with $​32.​0B (​2.​3%), HSBC with $​30.​1B (​2.​1%), Societe Generale with $​26.​1B (​1.​8%), and Natixis with $​25.​3B (​1.​8%).

The Ten Largest Funds tracked in our latest Weekly include: JP Morgan US Govt ($​134.​7B), Fidelity Inv MM: Govt Port ($​107.​6B), BlackRock Lq FedFund ($​96.​1B), Goldman Sachs FS Govt ($​92.​9B), BlackRock Lq T-​Fund ($​72.​8B), Wells Fargo Govt MMkt ($​68.​2B), Dreyfus Govt Cash Mgmt ($​67.​0B), Morgan Stanley Inst Liq Govt ($​58.​9B), State Street Inst US Govt ($​54.​3B), and Goldman Sachs FS Trs Instruments ($​49.​0B). (​Let us know if you'​d like to see our latest domestic U.​S. and/​or "​offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)

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The financial press is beginning to notice the yields on cash and money markets, which have moved above 1.​5% and towards 2% on average, as we'​ve reported in recent days and weeks. (​See some of our latest "Link of the Day entries.) The latest to comment include the website WealthManagement.​com, which published an article entitled, "Cash Is (​Once Again) King," and Morningstar, which features, "What Rising Rates Mean for Retirees." The former says, "Money-​market funds, often used as a cash equivalent in some investors' portfolios, fell out of favor after the 2008-​09 financial crisis, with yields dropping to 0.​1 percent in many cases. But the Federal Reserve'​s interest-​rate hikes, which began in December 2015, have changed the equation for the better. The Crane 100 Money Fund Index, which measures the average yield of the 100 largest taxable funds, registered 1.​47 percent as of March 31. And the Crane Money Fund Average, the average yield of all taxable funds, totaled 1.​27 percent."

The article tells us, "Prior to the financial crisis, in 2007, many money-​market funds yielded 5 percent or more. But the crash of the banking industry led the Fed to push short-​term interest rates to almost zero. Now things are different. The Fed has raised rates six times over the last two-​plus years, most recently in March, leaving the federal funds rate target at 1.​5 to 1.​75 percent. And Fed officials indicate another two to three rate increases are likely this year."

The Wealth Management piece continues, "Money-​market funds, often used as a cash equivalent in some investors' portfolios, fell out of favor after the 2008-​09 financial crisis, with yields dropping to 0.​1 percent in many cases. But the Federal Reserve'​s interest-​rate hikes, which began in December 2015, have changed the equation for the better."

It states, "​As long as the Fed keeps pushing rates higher, money-​market yields should rise. By the end of the year, money-​market fund yields could push 2 percent, says Peter Crane, president of Crane Data. The slew of Treasury-​bill issuance also is boosting money-​market yields, he says. The Treasury sold $​330 billion of T-​bills in the two weeks ended April 6 alone."

They quote Crane, "Certainly, cash is looking better than it has in a long time." The piece adds, "​And he'​s not the only one who feels that way. Money-​market fund assets climbed about 1 percent in 2017, the first advance in seven years. They now total $​2.​97 trillion."

The article also says, "To be sure, not everyone is gung ho on money-​market funds. '​It'​s so important for people to understand that even though money-​market funds are historically safe and new regulations should make them even safer, there is still some risk,' says Christine Benz, director of personal finance for Morningstar. 'They don'​t have iron-​clad guarantees from FDIC insurance' like savings accounts do."

It adds, "​Individuals investing directly with discount brokerages can use money-​market funds as their core account, allowing them to write checks and buy securities directly with the account. The funds can yield more than 1.​3 percent. But advisers are generally stuck with sweep accounts for their clients, and these can yield less than 0.​2 percent."

Finally, they write, "On the exchange traded fund, there are no pure money-​market ETFs now. Rather, there are several ultra-​short bond ETFs, such as PIMCO Enhanced Short Maturity Active ETF (​MINT). The share prices of these funds will generally dip when interest rates rise, so they aren'​t a cash substitute. The Securities and Exchange Commission is likely to allow pure money-​market ETFs soon, Crane says."

In related news, Morningstar writes "​What Rising Rates Mean for Retirees". The piece quotes the above-​mentioned Christine Benz, "Investors have seen a little bit of volatility in their long-​term assets ... but if you are a cash investor, if you are a retired person and you are holding some assets aside in true cash investments because you want to hold them to meet your ongoing living expenses, cash yields are a lot more attractive than they were a year or two ago. My advice is that people should get serious about wringing as much as they possibly can out of their cash accounts, shop around, revisit this if they haven'​t for a while."

She continues, "A couple of years ago, it was hard to get excited about making 0.​5% versus 0.​2%. Now, you don'​t have to look too hard to find online savings account, FDIC-​insured investments that are paying 1.​75% or more. So, shop around. Be careful if you have brokerage sweep accounts. Those have notoriously low yields attached to them. Keep the bare minimum in your brokerage accounts, try to get that money out and invested in the highest-​yielding option that you can find."

Benz comments, "​Money market mutual funds are not FDIC-​insured, so that stirs up a lot of confusion. Banks offer what are called money market accounts that are FDIC-​insured. If you are looking to a mutual fund, there might be a convenience factor to have those assets side-​by-​side with your other long-​term mutual fund assets. Just bear in mind that you do not have a guarantee associated with those investments. But there are relatively new restrictions that have gone into effect for money market mutual funds. They are safer than they were in the past. They need to have more liquidity in their portfolios. They need to focus on higher credit quality."

When asked about bonds, she responds, "If we look at the core intermediate-​term bond products that a lot of investors hold in their portfolios, year to date, they are looking at losses of 2%, 3% in some cases, which certainly is more loss than most investors want in their bond funds. But we have seen a gradation among bond funds. Certainly, the short-​term and the ultrashort-​term investments have held up quite well, whereas the long-​term funds, especially, the long-​term government funds, have really borne the brunt of some of the interest-​rate-​related volatility that we'​ve seen so far this year."

Finally, Benz adds, "​If you are a bond investor and you have a time horizon of, say, five years or longer, I think it'​s safe to say that you will earn a higher return over that time horizon than you are likely to earn in your cash investments, but you will have more principal-​related volatility. If that makes you uncomfortable, well, then you can stick with cash and short-​term bond funds. Just know that you probably will lag an intermediate-​term portfolio over a longer time horizon."

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The Investment Company Institute published a new "Research Perspective" paper entitled, "Trends in the Expenses and Fees of Funds, 2017," which finds that while overall mutual fund expenses continue lower, money market fund expenses rose for the second year in a row on declining fee waivers. ICI explains, "The average expense ratios for money market funds rose 5 basis points in 2017 to 0.​25 percent. This increase was indirectly related to the Federal Reserve raising short-​term interest rates three times in 2017. These actions prompted fund advisers to continue paring expense waivers that most money market funds offered during the period of near-​zero short-​term interest rates that had prevailed in the post–​financial crisis era."

A section entitled, "Mutual Fund Expense Ratios Have Declined Substantially over the Past Two Decades," explains, "Fund expenses cover portfolio management, fund administration and compliance, shareholder services, recordkeeping, certain kinds of distribution charges (​known as 12b-​1 fees), and other operating costs. A fund'​s expense ratio, which is shown in the fund'​s prospectus and shareholder reports, is the fund'​s total annual expenses expressed as a percentage of its net assets. Unlike sales loads, fund expenses are paid from fund assets. Many factors affect a mutual fund'​s expense ratio, including its investment objective, its assets, the average account balance of its investors, the range of services it offers, fees that investors may pay directly, and whether the fund is a load or no-​load fund."

They tell us, "On an asset-​weighted basis, average expense ratios incurred by mutual fund investors have fallen substantially over the past two decades. In 1996, equity mutual fund investors incurred expense ratios of 1.​04 percent, on average, or $​1.​04 for every $​100 in assets. By 2017, that average had fallen to 0.​59 percent. Hybrid and bond mutual fund expense ratios also have declined since 1996. The average hybrid mutual fund expense ratio fell from 0.​95 percent in 1996 to 0.​70 percent in 2017, and the average bond mutual fund expense ratio fell from 0.​84 percent to 0.​48 percent. The average expense ratio for money market funds dropped from 0.​52 percent to 0.​25 percent over this period."

ICI adds, "​In addition to varying from year to year, fund expense ratios can also vary by fund type. For example, bond and money market mutual funds tend to have lower expense ratios than equity and hybrid mutual funds."

A section on "Money Market Funds," states, "The average expense ratio of money market funds rose to 0.​25 percent in 2017, an increase of 5 basis points from the previous year. This represents the second year that money market fund expense ratios have risen, continuing a reversal from the historical trend in which money market fund expense ratios had remained steady or fallen each year since 1996."

ICI explains, "​From 2000 to 2009, a combination of two factors played a significant role in reducing the average expense ratios of money market funds. First, the market share of institutional share classes (​which tend to have larger average account balances and therefore tend to have lower expense ratios) rose to two-​thirds of money market fund total net assets. Second, expense ratios of retail money market fund share classes declined 21 percent over this period."

They continue, "After 2009, however, other factors pulled down the average expense ratios of these funds -- primarily developments that stemmed from the ultralow interest rate environment. Over 2008–​2009, the Federal Reserve sharply reduced short-​term interest rates. By 2009, the federal funds rate was hovering only a little more than zero. Gross yields on taxable money market funds (​the yield before deducting the fund'​s expense ratio), which closely track short-​term interest rates, fell to all-​time lows. This situation remained in stasis from 2010 to late 2015."

The study tells us, "In this environment, most money market funds adopted expense waivers to ensure that net yields (​the yield on a fund after deducting fund expenses) did not fall below zero. With an expense waiver, a fund'​s adviser agrees to absorb the cost of all or a portion of a fund'​s fees and expenses for some time. The expense waiver, by reducing the fund'​s expense ratio, boosts the fund'​s net yield."

It continues, "​These expense waivers are costly for fund advisers, reducing their revenues and profits. From 2009 to 2015, advisers waived an estimated $​36 billion in money market fund expenses. It was expected that when short-​term interest rates rose and pushed up gross yields on money market funds, advisers would reduce or eliminate expense waivers, causing the expense ratios of money market funds to rise somewhat."

ICI'​s study states, "​That, ultimately, is what happened. In December 2015, the Federal Reserve raised the federal funds rate by 0.​25 percent, signifying a strengthening economy. The Federal Reserve raised the federal funds rate four more times in 2016 and 2017, each time by 0.​25 percent. These actions were reflected in short-​term interest rates and gross yields on money market funds. With gross yields rising, there has been less chance that the net yields of money market funds might fall below zero."

Finally, it adds, "Consequently, advisers have pared back the expense waivers they had provided to their money market funds. For example, at the end of 2015, 97 percent of money market fund share classes had expense waivers. That dropped to 66 percent by the end of 2017, and expenses waived dropped sharply from an estimated $​5.​5 billion in 2015 to an estimated $​1.​1 billion in 2017."

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