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The Investment Company Institute released its latest monthly "Trends in Mutual Fund Investing - June 2018" report yesterday, which shows a $​30.​1 billion drop in money market fund assets in June to $​2.​821 trillion. This follows a $​58.​3 billion jump in May, a $​0.​4 billion decrease in April, and a $​50.​1 billion decrease in March. In the 12 months through June 30, money fund assets have increased by $​187.​5 billion, or 7.​1%. (Month-​to-​date in July through 7/​29 assets have increased by $​83.​3 billion, according to our MFI Daily. But note that we added $​63.​0 billion in new funds to our collections this month, so July'​s increase is more like $​23.​3 billion.) ICI'​s latest Portfolio Holdings totals also show a big drop in Repo holdings and another drop in Treasuries in June. We review ICI'​s Trends and Portfolio Composition statistics below, and we also quote from a new S&​P update on SOFR-​linked securities.

ICI'​s monthly report states, "The combined assets of the nation’​s mutual funds decreased by $​57.​68 billion, or 0.​3 percent, to $​18.​88 trillion in June, 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 $​10.​28 billion in June, compared with an inflow of $​7.​10 billion in May.... Money market funds had an outflow of $​32.​50 billion in June, compared with an inflow of $​56.​41 billion in May. In June funds offered primarily to institutions had an outflow of $​33.​19 billion and funds offered primarily to individuals had an inflow of $​691 million."

The latest "​Trends" shows that both Taxable and Tax Exempt MMFs lost assets last month. Taxable MMFs decreased by $​27.​1 billion in June to $​2.​685 trillion, after increasing by $​51.​6 billion in May, increasing by $​0.​8 billion in April, and decreasing by $​47.​4 billion in March. Tax-​Exempt MMFs decreased $​3.​1 billion in June to $​135.​7 billion. Over the past year through 6/​30/​18, Taxable MMF assets increased by $​180.​3 billion (​7.​2%) while Tax-​Exempt funds rose by $​7.​2 billion over the past year (​5.​6%). Bond fund assets increased by $​8.​2 billion in June to $​4.​112 trillion; they rose by $​225.​7 billion (​5.​8%) over the past year.

Money funds now represent 14.​9% all mutual fund assets (​down from 15.​1% the previous month), while bond funds represent 21.​8%, according to ICI. The total number of money market funds rose by one to 383 in June, but this total is down from 417 a year ago. (​Taxable money funds rose by one to 299 funds. Tax-​exempt money funds were flat at 84 funds over the last month.)

ICI also released its latest "Month-​End Portfolio Holdings of Taxable Money Funds," which showed a drop in Repo and Treasuries in June. Treasuries which lost their position as the largest portfolio segment three months ago, fell by $​13.​0 billion, or -​1.​8%, to $​728.​3 billion or 27.​1% of holdings. Treasury Bills & Securities have increased by $​104.​0 billion over the past 12 months, or 16.​7%. (​See our July 12 News, "July Money Fund Portfolio Holdings: Repo Falls, But Fed RRP Rebounds.")

Repurchase Agreements remained in first place among composition segments; they decreased by $​31.​2 billion, or -​3.​3%, to $​909.​0 billion, or 33.​9% of holdings. Repo holdings have risen by $​14.​9 billion, or 1.​7%, over the past year. U.​S. Government Agency Securities remained in third place; they rose by $​2.​7 billion, or 0.​4%, to $​663.​4 billion, or 24.​7% of holdings. Agency holdings have risen by $​20.​5 billion, or 3.​2%, over the past 12 months.

Certificates of Deposit (​CDs) stood in fourth place; they increased $​6.​4 billion, or 3.​7%, to $​179.​7 billion (​6.​7% of assets). CDs held by money funds have fallen by $​97 million, or -​0.​1%, over 12 months. Commercial Paper remained in fifth place, increasing $​1.​0B, or 0.​6%, to $​169.​6 billion (​6.​3% of assets). CP has increased by $​45.​2 billion, or 36.​3%, over one year. Notes (​including Corporate and Bank) were up by $​34 million, or 0.​5%, to $​6.​8 billion (​0.​3% of assets), and Other holdings increased to $​28.​4 billion.

The Number of Accounts Outstanding in ICI'​s series for taxable money funds increased by 383.​3 thousand to 32.​374 million, while the Number of Funds increased by one to to 299. Over the past 12 months, the number of accounts rose by 6.​614 million and the number of funds decreased by 18. The Average Maturity of Portfolios was 31 days in June, up 2 days from May. Over the past 12 months, WAMs of Taxable money funds have shortened by 2 days.

In other news, S&​P Global Ratings released a statement entitled, "The Secured Overnight Financing Rate (​SOFR) Is Consistent With Our Principal Stability Fund Ratings Criteria." It tells us, "The first floating-​rate security to use the secured overnight financing rate (​SOFR) as a benchmark is currently coming to market. SOFR is based on transactions in the Treasury repurchase agreement market, where banks and investors borrow or loan Treasuries overnight. Today, S&​P Global Ratings said SOFR is consistent with what it refers to as an '​anchor money market reference rate' in its principal stability fund ratings (​PSFR) criteria."

They explain, "​In our view, SOFR meets all the conditions outlined in our PSFR criteria (​see 'Principal Stability Fund Rating Methodology,' published June 23, 2016). For PSFR purposes, since SOFR is considered an '​anchor money market reference rate,' floating-​rate securities referencing SOFR would not be classified as higher-​risk investments. When determining an anchor money market reference rate, we typically assess correlation to a core local currency anchor money market reference rate over a sustained period, trading history, market acceptance, and maturity profile. We also look at whether the rate is reflective of the movements in the short-​term money markets. Indicative SOFRs show a high correlation to recognized anchor money market reference rates, such as the federal funds rate and one-​month London Interbank Offered Rate (​LIBOR)."

S&​P Global Ratings concludes, "SOFR has an extremely short maturity profile, and given it is expected to replace LIBOR in the coming years, it has gained wide market acceptance with hundreds of billions of dollars' worth of trading volume since its inception. As a broad measure of the overnight Treasury repurchase agreement (​repo) market, we believe SOFR'​s performance is reflective of the movements in short-​term money markets. Additionally, the daily reset of SOFR floating-​rate securities minimizes the index/​spread risk that funds may experience."

J.​P. Morgan Securities, in its latest "Short-​Term Fixed Income" update, writes on "Fannie Mae debuts SOFR floaters." It says, "​In spite of the quiet week in the money markets, there was a new security in town. This past Thursday, Fannie Mae issued three tranches of a floating rate note tied to the Secured Overnight Financing Rate (​SOFR). This is the first security issued that'​s tied to SOFR, the new benchmark rate that'​s expected to eventually replace Libor. In total, Fannie Mae issued $​6bn of SOFR-​linked floaters, across the 6m, 12m, and 18m tenors, at SOFR +​8bp, +​12bp, and +​16bp, respectively."

They continue, "Notably, the deal was oversubscribed though not necessarily all from the usual money market investors. In particular, participation from S&​P-​rated MMFs was minimal due to current rating agency guidelines that would consider this a '​higher-​risk investment'. S&​P notes that '​FRNs tied to indices we (​and often others) do not view to be '​anchor' money market reference indices are considered '​higher-​risk investments'.... In this context, it appears the SOFR is currently not considered an '​anchor' money market reference rate, as it does not yet demonstrate an '​established trading history, market acceptance, and performance commonly reflective of the movements in short-​term money market markets in the local currency.'"

JPM'​s earlier piece adds, "Currently, over half of the MMF market ($​1.​6tn) is rated by S&​P. That being said, we have been informed by S&​P that it is currently assessing whether SOFR would be classified as an anchor money market rate. Interestingly, even without the support of S&​P rated MMFs, the deal was still oversubscribed. We suspect unrated MMFs played a large part in the shorter tranches, while the longer tranche was distributed across a broad range of investors."

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Federated Investors reported earnings late last week and hosted its latest quarterly earnings call on Friday. (​See the Seeking Alpha transcript here.) As they do each quarter, Federated'​s management team weighed in on a number of money fund related issues. CEO & President J. Christopher Donahue commented, "​Looking now at money markets. Total money market assets decreased by about $​11 billion, with funds down about $​10 billion and separate accounts down about $​1 billion. Much of the fund decrease about $​9 billion was due to withdrawals related to client M&​A activity. This is usual business."

He continued, "We also had one client redeem a significant amount, about $​8 billion, in April due to a change in their cash management process and we saw asset decreases around tax payment periods in both April and in June. These decreases were partially offset by three clients each adding more than $​1 billion, adding [​up] to about $​5 billion, as well as net increases from other clients. Interestingly, prime money fund assets increased about 4% in the second quarter to $​31.​3 billion. Taking a look at our most recent asset totals, excluding Hermes. As of July 25 managed assets were approximately $​384 billion, including $​258 billion in money markets, $​64 billion in equities, $​62 billion in fixed income. Money market mutual fund assets were $​174 billion."

CFO Tom Donahue said, "Total revenue decreased by about $​8 million from the prior quarter due mainly to lower average assets and higher money market fund waivers partially offset by an additional day in Q2. Reported revenue was down about $​17 million compared to Q2 of last year of which $​8.​2 million was due to the impact of the adoption of the revenue recognition standard. Higher waivers primarily from money market fund and changes in asset mix of average money market assets also impacted revenues. Operating expenses decreased $​8.​9 million compared to the prior quarter and $​13.​3 million from Q2 of 2017. The decreases from the prior quarter was due to lower compensation and related expense from payroll tax seasonality and to lower incentive compensation. Distribution expense decreased mainly due to lower money market fund assets. The decrease from Q2 of 2017 was primarily due to lower distribution expense due mainly through changes in the mix of average money market fund assets. The adoption of the revenue recognition standard also reduced distribution expense by $​7.​4 million and other expense by $​1 million compared to Q2 2017."

When asked about fee waivers, Chris Donahue responded, "These are different fee waivers than those that were done in order to maintain a positive yield back in the day. So, let'​s set that aside, and I know you know that. What occasions these particular waivers are simply competitive forces in the marketplace in order to maintain these products at a competitive level." President Ray Hanley added, "​You can look through our disclosure. I mean … prior to even the low point of the rate cycle, we would report in their hundreds of millions of dollars' worth of fee waivers. So as Chris said, this is really a continuation of a long-​term trend of waving portions of our fee for competitive purposes."

Another analyst also cited the "​competitive waivers [​mentioned] in the release," asking, "​So to what extent were they more severe this quarter than you'​ve seen in the past?" Hanley responded, "​I don’​t know that they were more severe. I think that when we were doing attribution to those line items they stood out as significant enough to mention.... So, I don'​t know that I would call them more severe…. In terms of area of product, no, they kind of go across the different types within money market. So they would correlate more to asset levels … in terms of the financial impact and not necessarily to the type of asset."

Federated'​s earnings release explained, "​Revenue decreased by $​16.​8 million or 6 percent primarily due to the adoption of the new revenue recognition accounting standard. In addition, revenue decreased due to higher voluntary fee waivers for certain money market funds for competitive purposes and a change in the mix of average money market assets. During Q2 2018, Federated derived 61 percent of its revenue from equity and fixed-​income assets (​44 percent from equity assets and 17 percent from fixed-​income assets) and 39 percent from money market assets. Operating expenses decreased $​13.​3 million or 7 percent primarily due to decreases in distribution expense related to a change in the mix of average money market fund assets and the adoption of the new revenue recognition accounting standard."

Analysts also asked about the shift of deposits from banks into money market funds. Money Market CIO Deborah Cunningham answered, "Yes, we are seeing that. We started seeing that in the second half of 2017, and it is certainly continuing into 2018. As you well know, I’​m sure the deposit beta with banks is very low in an upward trending interest rate environment which we'​ve been in now for several years. And I think, certainly, the institutional side of the marketplace has recognized that and has started to transition into money funds, some of their deposit product, cash, liquidity. [​But it'​s been a] little slower on the retail side. So, from a bank'​s trust perspective, I'​d say it'​s less and maybe lagging a little bit there but it certainly has started. And it'​s interesting: the flows have gone both into the government funds as well as the prime funds. The government fund is more from a sweep product perspective because those products do not have gates and fees associated with them. For the Prime and Muni product, it seems to be more on a ticket trade basis, but substantial size from those businesses."

Another analyst asked about a shift to "​direct ownership" of securities. Cunningham responded, "That is not a trend that we'​ve been seeing.... [​In the past] the biggest direct switch from funds into a product in the market was to switch into repo, and repo is just not that accessible any longer. There'​s fewer participants in the marketplace, although the rates in the second quarter offered was a little bit better than it has been over the previous quarters compared to where other short-​term interest rates like commercial paper and CD rates are. It still is something that is contractual. It'​s got a lot of '​legal' associated with it, and as such, we'​ve not seen too much of a switch into the direct marketplace. Some of our very large clients that have some of the M&​A activity, potentially some of repatriation activity, they have taken some cash and put it into the direct commercial paper and CD marketplace. But it'​s not a big trend, its more sort of the supersized players in the market that have gone that route."

Finally, Federated'​s latest 10-​Q filing tells us, "On April 5, 2017, European Parliament passed EU money market fund reforms (​Money Market Fund Regulation or MMFR), which went into force on July 21, 2017. The MMFR provides for the following types of money market funds in the EU: (​1) Government constant NAV (​CNAV) funds; (​2) Low volatility NAV (​LVNAV) funds; (​3) Short-​term variable NAV (​VNAV) funds; and (​4) standard VNAV funds. The reforms became effective (​i.​e., must be complied with) in regards to new funds on July 21, 2018 and will be effective in regards to existing funds on January 21, 2019. Federated continues product-​type analysis (​e.​g., whether certain CNAV funds should convert to LVNAV funds), compliance and other efforts utilizing both internal and external resources to prepare for MMFR. Federated also continues to engage with trade associations and appropriate regulators in connection with the MMFR as the European Securities Market Authority and the European Commission begin work on the next stage of implementing the MMFR."

It adds, "While the MMFR will need to be complied with in 2018 or early 2019, government CNAV and LVNAV fund reforms will be subject to a future review by the European Commission in 2022. This review will consider the adequacy of the reforms from a prudential and economic perspective, taking into account, among other factors, the impact of the reforms on investors, money market funds, money fund managers and short-​term financing markets, the role that money market funds play in purchasing debt issued or guaranteed by EU Member States, and international regulatory developments. As noted above, it is uncertain whether Brexit could delay implementation of the EU money market fund reforms. For Federated money market fund products subject to the MMFR, Federated has begun to take steps to structure such products consistent with the MMFR."

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The Investment Company Institute'​s latest weekly "Money Market Fund Assets" report shows money fund assets dipped again in the past week after jumping two weeks ago, but Prime balances continue to inch higher. Money fund assets remain barely positive on a year-​to-​date basis. They'​re now up $​5 billion, or 0.​2%, YTD, and they'​ve increased by $​203 billion, or 7.​7%, over 52 weeks. We review the latest asset totals below, and also quote from a recent Pensions & Investments article on enhanced cash and a New York Times article on rising savings rates. (​Note: Federated Investors, which released earnings Thursday night, hosts its Q2'​18 earnings call at 9am Friday. Watch for coverage in Monday'​s News.)

ICI writes, "Total money market fund assets decreased by $​3.​02 billion to $​2.​84 trillion for the week ended Wednesday, July 25, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $​3.​60 billion and prime funds increased by $​3.​80 billion. Tax-​exempt money market funds decreased by $​3.​22 billion." Total Government MMF assets, which include Treasury funds too, stand at $​2.​213 trillion (​77.​8% of all money funds), while Total Prime MMFs stand at $​496.​3 billion (​17.​5%). Tax Exempt MMFs total $​133.​8 billion, or 4.​7%.

They explain, "Assets of retail money market funds decreased by $​2.​68 billion to $​1.​04 trillion. Among retail funds, government money market fund assets decreased by $​2.​75 billion to $​628.​12 billion, prime money market fund assets increased by $​3.​22 billion to $​283.​80 billion, and tax-​exempt fund assets decreased by $​3.​15 billion to $​124.​90 billion." Retail assets account for over a third of total assets, or 36.​5%, and Government Retail assets make up 60.​6% of all Retail MMFs.

ICI'​s release adds, "Assets of institutional money market funds decreased by $​334 million to $​1.​81 trillion. Among institutional funds, government money market fund assets decreased by $​849 million to $​1.​58 trillion, prime money market fund assets increased by $​585 million to $​212.​47 billion, and tax-​exempt fund assets decreased by $​70 million to $​8.​85 billion." Institutional assets account for 63.​5% of all MMF assets, with Government Inst assets making up 87.​7% of all Institutional MMFs.

Finally, it explains, "ICI reports money market fund assets to the Federal Reserve each week. Data for previous weeks reflect revisions due to data adjustments, reclassifications, and changes in the number of funds reporting. Weekly money market assets for the last 20 weeks are available on the ICI website." (Note: ICI'​s weekly and monthly asset totals are separate data series from Crane Data'​s monthly MFI XLS and daily MFI Daily asset totals, and they'​re also separate from the monthly SEC totals from Form N-​MFP.)

In other news, Pensions & Investments this week includes an article entitled, "Investors' needs have cash managers trying new strategy tweaks," which discussed cash segmenting and quotes from several managers of "​offshore" money market funds. They tells us, "As interest rates go higher globally, cash managers say they are seeing an uptick in interest in their services.... With the average U.​S. money market fund 7-​day yield at 1.​69% and a number of money market funds already offering 2% 7-​day yield, according to data provider Crane Data, compared to S&​P 500 dividend yield of 1.​9%, investors are getting better returns from cash allocations."

P&​I writes, "Asset owners also are increasingly looking for different segments of cash management. But in Europe, they say, "Sources said the need to segment cash has become much more pronounced given persistent low-​yield market conditions. As a result of central banks' quantitative easing, investors sought short-​term cash strategies like overnight cash instruments to avoid low or negative bond yields. And 'as a result of banks complying with Basel III regulations, clients holding cash have had to bear the cost of carrying that liquidity,' said Beccy Milchem [​of] BlackRock [​in] London."

They also quote Northern Trust'​s Peter Yi, "Now they are looking for that cash to work harder for them." He comments, "[​C]​ash has become a real asset class and is no longer considered insurance for a portfolio.... Investors went to risk-​controlled assets and they are looking for an overall stability in their asset allocation."

The piece continues, "Cash managers said the emergence of cash segmentation strategies have allowed investors to allocate portions of their cash into "​strategic buckets" and have prompted investors to move into ultra-​short bond mandates with inflows into six-​month duration products, Mr. Yi said, adding cash necessary for daily liquidity continues to be allocated to 35-​day money market funds."

P&​I adds, "Much of the recent changes to the cash business have been catalyzed by the 2016 U.​S. money market reform, and the European money market reform that started this month, sources said.... The U.​S. reform ... sparked an exodus into government money market funds from prime funds and had investors turning to cash managers for assistance in rethinking cash allocations."

Finally, the New York Times wrote last weekend, "At Least Online, Interest Rates on Savings Finally Move Up." They explain, "After years of anemic rates, savings accounts are finally offering interest that approaches the rate of inflation -- especially if they'​re digital. Online banks, in particular, are offering more competitive savings rates, often close to or even exceeding 2 percent on federally insured deposits."

The article tells us, "Though hardly breathtaking, those yields are far better than the minuscule rates below 1 percent that many big, traditional banks are still offering. '​Online rates have been going up at a much faster rate,' said Nick Clements, a co-​founder of the financial website MagnifyMoney."

But they say, "Before you move your cash to a higher-​yielding account, it'​s best to check the details, because accounts with some of the most attractive rates may come with a few asterisks. Marcus, the consumer lending arm of Goldman Sachs, is offering an online savings account with a rate of 1.​80 percent, with no minimum deposit. But the account doesn'​t come with a debit or A.​T.​M. card. Withdrawals must be done electronically to another bank account, through the automated clearinghouse network. Such transfers can take a couple of days, so consider how quickly you expect to want your cash."

The NY Times adds, "Synchrony Bank'​s rate on its high-​yield savings account is slightly lower at 1.​75 percent, but it offers an A.​T.​M. card for quick access. Some banks may offer high rates but require relatively large deposits or balances. Northpointe Bank in Grand Rapids, Mich., is offering 1.​95 percent for 12 months, with a minimum balance of $​25,​000. If you have cash on hand -- whether it'​s an emergency reserve, a down payment fund or a lump sum from the sale of a house that needs to be parked temporarily -- it'​s worth checking around for higher rates online, said Greg McBride, chief financial analyst at the rate comparison site Bankrate."

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This month, Bond Fund Intelligence excerpts from a session entitled, "UltraShort Bond Funds, SMAs & Alt-​Cash" at our recent Money Fund Symposium conference. The segment featured Dave Martucci of J.​P. Morgan Asset Management, Michael Morin of Fidelity Investments, and Peter Yi from Northern Trust Asset Management. The three discussed segmenting cash, the various shades of ultra-​short, and separately managed accounts. Highlights of the Q&​A follow. (Note: This "​profile" is reprinted from the July issue of our Bond Fund Intelligence publication. Contact us if you'​d like to see the full issue, or if you'​d like to see our most recent Bond Fund Portfolio Holdings data set.)

Martucci says, "We want to make sure our clients know what they’​re getting, that these are different animals. It'​s not just interest rate risk, but you also have spread duration risk. Clients typically want to restrict some kind of investments.... More clients are willing to go down in credit to get diversity away from the financial space ... and have gotten comfortable with the SMA space.... Much of the portfolios, say 3040%, are invested in typical money market instruments, CP, CDs, repo, etc."

Yi comments, "​I will offer two perspectives here. First, to Dave'​s point earlier, the ultra-​short space has largely been SMAs until probably about ten years ago. We'​ve been managing ultrashort, sometimes called enhanced cash, since the late '​70s but we launched our first two ultra-​short mutual funds in 2009. It has been a great success story for us and continues to be a wheelhouse within short duration at Northern Trust. We have grown our assets exponentially since then. Our two mutual funds now represent about $​6B in assets under management. Investors are starting to migrate from a customized SMA structure to a more standardized mutual fund structure. We are also starting to see peer groups develop, so it makes it easier for investors to compare funds."

He continues, "Different flavors of ultrashort are starting to evolve. There is Conservative Ultra-​Short, there is UltraShort, and there is Ultra-​Short Extended with some including sleeves of high yield that may be appropriate for certain types of investors. Even in different interest rate and credit cycles, the industry will continue to evolve. Unlike the more mature money market industry, I think the ultrashort product has enormous opportunity for innovation to unfold."

Martucci adds, "Really, in the ultrashort space, the only requirement is a year or less duration. Other than that, we see a bunch of different accounts, a bunch of different guidelines…. The way we differentiate ourselves is really through our credit process ... and how we manage duration. I think those are the two biggest processes.... When you'​re talking about a year or less portfolio, most clients are concerned with credit.... They know that this is really the thing that can really go haywire. So we think we have a very robust credit process, and we have a lot of resources devoted to it.... This is a very important aspect that has resonated with our clients."

Morin comments, "We just want to make sure the investor understands ... that you can get a little bit more return but you’​re going to have more risk."

Martucci tells us, "When you have stress and interest rates move ... that is an opportunity for us to demonstrate our risk management process and to show that we still can deliver a low volatility product and deliver an attractive return."

He explains, "Now that the market has settled down, yields are very attractive. Clients have said, '​I can get basically 70% of the '​Agg' yield with less than 10% of the duration.' That is very attractive ... with the Fed ... on a path to higher rates. That to me is a good selling point."

Yi states, "​I agree with you both. The next wave going into the ultrashort space is going to be core fixed income investors that are afraid of rising rates that go down the risk continuum. Meanwhile, over the last 10 years, it was actually the other way where money market investors looking for more yield were moving into ultrashort. Now that cash is considered a real asset class again -- the 3-​month Treasury yield is equal to the dividend yield of the S&​P 500 -- it is becoming more attractive and industry assets are growing again."

Morin says of the new breed of "​conservative" ultra-​short bond funds, "​What we'​ve been able to demonstrate since some of these ultra-​shorts have now been around 6-​7 years [​is minimal volatility]. What the industry has attempted to do was to create a new set of guidelines [​and] to take some of the lessons learned from 2007-​2008.... When you think about designing these funds, they were really designed to minimize volatility [​and] risk.... They'​re been very successful to date. Of course, you could argue that the environment hasn’​t been too challenging. But I think investors have been extremely pleased with how low the NAV volatility has been on these funds."

On Northern'​s offering, Yi tells us, "We absolutely market and make representations that the ultra-​short strategy is a total return strategy. It is differentiated from a money market fund, even from a variable NAV prime market fund. When we think about the sweet spot [​in the] ultrashort space, we target 6 months to one year target durations. We are very active in the new issue market. We are still operating in a new issue market where you get new issue concessions, even as wide as 2-​5 bps, [​that] is really attractive. That is why scale in the fixed-​income marketplace is incredibly important. Prior to 2010, the roll-​down trade was a trade that every ultra-​short manager tried to take advantage of. You’​d buy a 2-​year instrument and when it rolled down to 13 months, it became money market eligible and would fetch a good bid. You’​d get some gains that way."

He continues, "Right now, we think the new issue market seems to be a great opportunity to differentiate ourselves from a performance perspective. From a yield curve perspective, the market has repriced expectations of where the Fed is going to be in terms of the raising rates. The two-​year has not performed very well at all YTD. We are starting to see one-​year tenors look more attractive right now. From a technical perspective, short end rates are being boosted by increased Treasury bill supply. It is a little bit shorter than where we can see some of these bid-​lists that are, as we understand it, a result of repatriated cash. The one year part of the curve feels like a good spot to be in fixed rate, at least temporarily due to technical factors."

When asked about where the SMA are, Martucci tells us, "​Out of that [​JPMAM'​s] $​50B, I would say, most of it is not hugging money market funds.... Our client base can go everywhere with an asset maturity of an 18 month to 3 year range using investment grade corporates, governments and ABS."

Yi also commented on tax-​advantaged funds, saying, "​We have a Northern Tax Advantage Ultra-​Short Fund that has really grown in assets since 2009 when we launched it. Right now, it is about $​3.​8B. What we like about this fund is that it is '​tax advantaged.' We do not market it as the tax exempt fund, so what that means is generally speaking, roughly 75-​90% of the fund is generally in tax-​exempt instruments. We have the option to put it in corporates, and we do. It allows us to be nimble portfolio managers. We like to think of yield from an after-​tax perspective. If we can find an attractive taxable corporate security that is consistent with the high quality portfolio we want to construct, the yield on an after-​tax basis can be better than our opportunities on the tax exempt side. We think this type of product and approach is differentiated and a little bit unique."

Finally, Martucci comments on ETFs vs. funds. He says, "It is really about investor behavior. Our ETF is JPST. It launched in May 2017 and we are over $​1.​4B. It is actively managed.... Most of that money is retail coming down the curve. The retail community wants ETFs, and if we are able to deliver it to them, [​we will]. The timing has been great given the yield curve."

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Brokerages continue to shift cash "​sweep" assets into bank deposits and away from money market funds, but they are also steadily increasing the rates on their lower paying FDIC insured options. The latest sign of the former is a recent Prospectus Supplement announcing the liquidation of the $​6.​0 billion Morgan Stanley Active Assets Government Trust. It tells us, "The Board of Trustees of Active Assets Government Trust (​the ‘​Fund’) approved the termination (​the '​Termination') of the Fund. The Fund will suspend the offering of its shares to all investors at the close of business on August 13, 2018 and the Termination is expected to occur on or about that date." (​See also our Jun. 6 2018 News, "Morgan Stanley to Sweep More to Banks from MMFs.") Below, we review the latest rates on brokerage sweep cash options, which have been steadily climbing over the past year, in particular the last couple of months.

Crane Data'​s Brokerage Sweep Intelligence, which tracks the rates paid by the largest brokerages on their cash sweep options, shows the average sweep rate for clients with $​100,​000 in cash at 0.​22% in the latest week, as Wells Fargo hiked rates on most of its tiers from 0.​20% to 0.​25%. At the start of the year, the average brokerage sweep rate (​for the $​100K tier) was 0.​11%, and a year ago it was 0.​06%. In comparison, our Crane 100 Money Fund Index, an average of the 100 largest taxable money market funds, stands at 1.​75%, up from 1.​74% a week ago, 1.​12% at the start of the year and 0.​81% a year earlier.

Looking at individual brokerage sweep rates, Ameriprise has increased its rates (​on the $​100K tier) to 0.​14% from 0.​10% at the start of the year and from 0.​05% a year earlier. E*​Trade finally moved rates off the 0.​01% floor (​where most brokerages were prior to mid-​2017), where its rates were a year ago and at the start 2018. They now pay 0.​15%. Fidelity is paying 0.​53%,​almost double the level of the start of the year (​0.​27%) and over four times the level of a year ago (​0.​14%).

Merrill Lynch is paying the second lowest rate among brokerages (​for balances of $​100K) at 0.​14%. They'​ve been paying this same rate since the start of the year and since a year ago. Morgan Stanley Smith Barney is paying just a touch higher, 0.​15%, but they'​ve increased their $​100K tier from 0.​02% on Dec. 29, 2017 (​the same level it was a year ago too). Raymond James is paying 0.​25% on sweeps; they were at 0.​05% at year-​end and a year ago. RW Baird was also at 0.​25%, up from 0.​08% on Dec. 29, 2017 (​and a year ago).

Schwab is paying 0.​22% on $​100K cash balances, up from 0.​12% at the start of the year and up from 0.​05% a year ago. TD Ameritrade has the lowest rates of all the major brokerages. Their sweep option pays 0.​08%, up from 0.​01% a year ago and up from 0.​05% at yearend. UBS is paying 0.​30%, up from 0.​25% at the start of the year and up from 0.​05% a year earlier.

Finally, Wells Fargo increased its rates in the latest week, raising the main sweep rate ($​100K) from 0.​20% to 0.​25%. Their rates were 0.​10% at the beginning of 2018 and they were 0.​05% a year earlier. We expect sweep rates to continue inching higher in coming weeks as higher-​yielding money funds begin to draw cash back out of bank products. (​Let us know if you'​d like to see a copy of our most recent Brokerage Sweep Intelligence report.)

For more news on brokerage sweeps, see our Feb. 16 2018 News, "Schwab Changes Brokerage Cash Sweep, Adds Bank, Cuts Money Funds," our Jan. 4 2018 News, "Schwab Liquidating MMF, Shifting to FDIC; Brokerage Sweep Rates Jump," and our October 12 2017 News, "Wells Bumps Up Brokerage Sweep Rates, Raises FDIC Insurance Coverage."

In other news, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics and summary yesterday. Our weekly holdings track a shifting subset of our monthly Portfolio Holdings collection, and the latest cut (​with data as of July 20) includes Holdings information from 84 money funds (​up 16 from 68 on June 15), representing $​1.​413 trillion (​up from $​1.​142 billion on June 15) of the $​2.​871 (​49.​2%) in total money fund assets tracked by Crane Data. (​For our latest monthly Money Fund Portfolio Holdings numbers, see our July 12 News, "July Money Fund Portfolio Holdings: Repo Falls, But Fed RRP Rebounds.")

Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Repurchase Agreements (​Repo) totaling $​520.​6 billion (​up from $​422.​3 billion on June 15), or 36.​8%, Treasury debt totaling $​385.​5 billion (​up from $​372.​8 billion) or 27.​3%, and Government Agency securities totaling $​309.​5 billion (​up from $​232.​9 billion), or 21.​9%. Commercial Paper (​CP) totaled $​64.​0 billion (​up from $​35.​9 billion), or 4.​5%, and Certificates of Deposit (​CDs) totaled $​47.​0 billion (​up from $​25.​2 billion), or 3.​3%. A total of $​45.​2 billion or 3.​2%, was listed in the Other category (​primarily Time Deposits), and VRDNs accounted for $​41.​1 billion, or 2.​9%.

The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $​385.​5 billion (​27.​3% of total holdings), Federal Home Loan Bank with $​241.​7B (​17.​1%), BNP Paribas with $​80.​2 billion (​5.​7%), Federal Farm Credit Bank with $​46.​3B (​3.​3%), RBC with $​42.​5B (​3.​0%), Wells Fargo with $​31.​9B (​2.​3%), Societe Generale with $​27.​1B (​1.​9%), Credit Agricole with $​25.​7B (​1.​8%), JP Morgan with $​25.​6B (​1.​8%), and Natixis with $​24.​7B (​1.​7%).

The Ten Largest Funds tracked in our latest Weekly include: JP Morgan US Govt ($​131.​6B), Fidelity Inv MM: Govt Port ($​107.​9B), BlackRock Lq FedFund ($​94.​8B), Wells Fargo Govt MMkt ($​72.​5B), BlackRock Lq T-​Fund ($​69.​0B), Dreyfus Govt Cash Mgmt ($​68.​1B), Federated Govt Oblg ($​66.​1B), Morgan Stanley Inst Liq Govt ($​55.​4B), State Street Inst US Govt ($​50.​5B), and JP Morgan Prime MM ($​40.​6B).(​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 Securities and Exchange Commission released its latest "Money Market Fund Statistics" summary late last week. It shows that total money fund assets fell by $​51.​8 billion in June to $​3.​099 trillion, with most of the decrease coming from Government & Treasury Funds. Prime MMF assets fell by $​8.​9 billion to $​677.​1 billion. Government money funds decreased by $​39.​4 billion, while Tax Exempt MMFs fell by $​3.​7 billion. Gross yields rose for all categories in the latest month; both Prime and Government funds rose by 0.​14% and Tax Exempt Funds rose 0.​29%. 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 decreased by $​51.​8 billion in June, after increasing by $​45.​6 billion in May, increasing by $​31.​0 billion in April, and decreasing $​48.​2 billion in March. Total MMFs increased $​40.​7 billion in February and decreased by $​44.​3 billion in January. Over the 12 months through 6/​30/​18, total MMF assets increased $​201.​3 billion, or 6.​9%. (​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.​098 trillion in assets, $​677.​1 billion was in Prime funds, which decreased by $​8.​9 billion in June. Prime MMFs increased by $​0.​7 billion in May, increased by $​22.​1 billion in April, and decreased by $​3.​4 billion in March. Prime funds represented 21.​9% of total assets at the end of June. They'​ve increased by $​61.​8 billion, or 10.​0%, over the past 12 months. But they'​ve decreased by $​601.​7 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.​282 billion, or 73.​7% of assets. They were up $​38.​1 in May, up $​10.​0 billion in April, and down $​41.​7 billion in March. Govt MMFs were up $​44.​9 billion in February, but down $​54.​7 billion in January. Govt & Treas MMFs are up $​133.​5 billion over 12 months (​6.​2%). Tax Exempt Funds decreased $​3.​7B to $​139.​1 billion, or 4.​5% of all assets. The number of money funds was 381 in June, the same as in May and April.

Yields jumped again in June, after moving higher in each of the past 9 months. The Weighted Average Gross 7-​Day Yield for Prime Funds on June 30 was 2.​16%, up 14 basis points from the previous month and up 0.​93% from June 2017. Gross yields increased to 1.​94% for Government/​Treasury funds, up 0.​14% from the previous month, and up 94 bps from June 2017. Tax Exempt Weighted Average Gross Yields rose 29 bps in June to 1.​53%; they'​ve increased by 60 bps since 6/​30/​17.

The Weighted Average Net Prime Yield was 1.​98%, up 0.​14% from the previous month and up 0.​97% since 6/​30/​17. The Weighted Average Prime Expense Ratio was 0.​18% in June (​the same as the previous two months). Prime expense ratios are down by 4 bps over the past year. (​Note: These averages are asset-​weighted.)

WALs and WAMs were up across all categories in June. The average Weighted Average Life, or WAL, was 58.​4 days (​up 2.​8 days from last month) for Prime funds, 87.​7 days (​up 2.​7 days) for Government/​Treasury funds, and 23.​9 days (​up 1 day) for Tax Exempt funds. The Weighted Average Maturity, or WAM, was 29.​1 days (​up 3.​0 days from the previous month) for Prime funds, 31.​4 days (​up 2.​3 days) for Govt/​Treasury funds, and 21.​1 days (​up 0.​7 days) for Tax-​Exempt funds. Total Daily Liquidity for Prime funds was 29.​8% in June (​up 0.​6% from previous month). Total Weekly Liquidity was 48.​7% (​down 0.​9%) for Prime MMFs.

In the SEC'​s "Prime MMF Holdings of Bank Related Securities by Country" table, Canada topped the list with $​91.​8 billion, followed by the US with $​66.​3 billion, Japan with $​59.​6B, France with $​48.​0B, and Sweden with $​44.​2B. Australia/​New Zealand ($​35.​7B), Germany ($​32.​6B), the U.​K. ($​32.​0B), the Netherlands ($​19.​0B) and Switzerland ($​17.​8B) rounded out the top 10 countries.

The gainers among Prime MMF bank related securities for the month included: Sweden (​up $​5.​1B), Norway (​up $​4.​6B), Australia/​New Zealand (​up $​3.​2B), Canada (​up $​2.​3B), Spain (​up $​1.​6B), Singapore (​up $​922M), and China (​up $​406M). The biggest drops came from the Netherlands (​down $​10.​2B), the U.​K. (​down $​9.​6B), France (​down $​8.​7B), Switzerland (​down $​7.​5B), Japan (​down $​4.​8B), Germany (​down $​2.​0B), the U.​S. (​down $​2.​0B), Belgium (​down $​1.​8B), and Other (​down $​282M). For Prime MMF Holdings of Bank-​Related Securities by Major Region, Europe had $​214.​1B (​down $​29.​3B from last month), while the Eurozone subset had $​106.​8B (​down $​21.​1B). The Americas had $​158.​7 billion (​up $​218M), while Asia Pacific had $​110.​0 billion (​up $​1.​8B).

Of the $​669.​4 billion in Prime MMF Portfolios as of June 30, $​230.​1B (​34.​4%) was in CDs (​up from $​227.​3B), $​159.​0B (​23.​8%) was in Government securities (​including direct and repo) (​down from $​161.​9B), $​94.​6B (​14.​1%) was held in Non-​Financial CP and Other Short Term Securities (​down from $​104.​6B), $​143.​8B (​21.​5%) was in Financial Company CP (​down from $​146.​7), and $​41.​9B (​6.​3%) was in ABCP (​up from $​41.​6B).

The Proportion of Non-​Government Securities in All Taxable Funds was 17.​5% at month-​end, the same as the previous month. All MMF Repo with the Federal Reserve rose to $​88.​8B in June from $​21.​5B the previous month. Finally, the "Trend in Longer Maturity Securities in Prime MMFs" tables shows 37.​4% were in maturities of 60 days and over (​up from 33.​9%), while 7.​6% were in maturities of 180 days and over (​up from 6.​1%).

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With new European money market fund regulations going into effect Saturday (​July 21), both Moody'​s Investors Service and Fitch Ratings recently commented on the changes, one in the form of a Q&​A and the other via webinar. Moody'​s published the report, "European Money Market Funds - FAQ on new money market fund regulation," and put out a press release entitled, “Moody'​s: New rules for €​1.​3 trillion EU money market funds to reshape industry landscape and boost its resilience." The latter says, "New European Union rules to improve the transparency and resilience of Europe'​s €​1.​3 trillion money market fund industry will lead to funds being managed more conservatively, a positive for fund sponsors and investors, says Moody'​s Investors Service." They add, "​The new rules will apply from 21 July 2018 and will introduce a new category of fund, the low-​volatility (​LVNAV) money market fund, while the existing prime constant net asset value (​CNAV) funds will be phased out."

The report explains, “New rules designed to improve the transparency and resilience of Europe'​s E1.​3 trillion money market fund (​MMF) industry will take effect on 21 July 2018. They introduce new minimum liquidity and stress testing requirements that will make MMFs more resilient to market shocks, a credit positive for fund sponsors and investors. The rules also introduce a new category of fund, the low-​volatility net asset value (​LVNAV) MMF, while existing prime constant net asset value (​CNAV) funds will be phased out. The rules will apply to all new MMFs from 21 July, while existing funds must comply by 21 January 2019.”

Moody'​s asks, “Will MMF managers alter their investment strategies?” They answer, “​Yes. We expect the new LVNAV funds to be managed more conservatively than the prime CNAV funds they will replace. The same is true of short term VNAV funds, which will also attract some assets currently held in prime CNAV MMFs. Under normal circumstances, investors in LVNAV funds will be able to buy and sell their fund units at a constant share price of €/​L/$​1.​00. The net asset value (​NAV) per share will remain constant at 1, provided it does not deviate by more than 20 basis points from its market-​based calculation.... This narrow share price volatility tolerance (​CNAV funds currently operate within a wider 50 basis point corridor) will likely drive portfolio managers towards higher quality securities. We also expect them to increase their investment in shorter-​dated securities (​maturing in 75 days or less), which are valued using amortized accounting.”

Another question is, “Will MMFs impose fees and gates?” Moody’​s responds, “We regard this as unlikely, absent extreme market conditions. While fees and gates would discourage potentially damaging fund withdrawals at times of high market volatility, such measures would likely deter investors from continuing to put money into any fund that applied them. We therefore believe MMF managers will maintain portfolios with high credit quality and ample liquidity in order to avoid fees and gates being triggered.... The new rules introduce specific liquidity and redemption trigger points at which LVNAV and public debt CNAV fund directors must consider applying fees and gates. However, we note that MMF boards already have the discretion to freeze redemptions at any time under current UCITS prospectuses, but have used this power only extremely rarely. The imposition of redemption gates and liquidity fees remains unlikely in practice under the new regime.”

The report also asks, “Will Moody'​s rate the new LVNAV funds?” They tell us, “​Yes. We will rate LVNAV funds using our MMF methodology, which is designed to assess funds' ability to meet the dual objectives of preserving principal and providing liquidity. The methodology combines an assessment of the MMF’​s portfolio credit profile with an evaluation of its portfolio stability. Our analysis considers portfolio risk characteristics, including credit, liquidity and market risks. It also takes into account factors such as sponsor quality, the track record of the fund managers, and any legal considerations. The MMF methodology will also apply to Public Debt CNAV MMFs and VNAV MMFs.”

Another question is, “Will the new rules prompt transfers between funds?” Moody’​s replies, “​Yes. As prime CNAV funds are phased out by January 2019, we expect the lion'​s share of their assets to flow into the new LVNAV funds. Prime CNAV MMFs currently manage about €​625 billion, nearly half of the European MMF industry'​s total assets of €​1.​3 trillion. We foresee little change in the total volume of assets managed by European MMFs. We estimate that between 70% and 80% of the assets currently held in prime CNAV MMFs could transition to LVNAV funds.... Transfers will likely reach the top end of the range if the reverse distribution mechanism (​RDM), which allows for the cancellation of MMF shares, continues under the new regulations. The European Commission recently issued technical guidance stating that this mechanism was incompatible with the new rules, but the industry is still consulting on the subject with the European Commission and the European Securities and Markets Authority (​ESMA)."

Finally, Moody'​s asks, “Will the new rules encourage further industry consolidation?” They state, “We believe this is a likely outcome. A combination of changing product structures, low interest rates, and higher operating expenses could put pressure on many of the remaining small-​to-​medium size sponsors, leading them to exit the industry. We believe there is more scope for consolidation within the unrated VNAV MMF sector, which includes a greater number of smaller providers that might struggle to comply with costly new process and transparency requirements. Although the rated industry is already very concentrated, scale will become even more crucial under the new rules.”

Fitch Ratings also commented recently during a webinar on "European money market fund reform" featuring Fitch'​s Alastair Sewell and J.​P. Morgan Asset Management'​s Kerrie Mitchener-​Nissen. Sewell tells us, “​A couple of things for you to be aware: as of the 21st of July … all new funds will have to comply with the reforms…. The 21st of January of next year … is the deadline for all existing funds to comply with the reforms…. There is going to be a review of the reforms which is set to conclude in 2022…. There is no sunset clause in the final version of the reforms, so barring any changes from this review, there is no automatic change to any of the provisions in the reforms.”

Mitchener-​Nissen comments, “​We are transitioning our fund range over the weekend of 30th November. So clients, when they wake up on Monday the 3rd of December, will find themselves in our new range of products…. The [​fund conversion] announcements so far indicate that that'​s what managers are looking to do. They'​re looking to give investors a choice, and I think that'​s one of the strengths of the regulation is that it gives really good optionality for clients. That was certainly on driving factor when we were thinking about what our fund range would look like going forward -- that ability to reflect the full range of choices that allowed us the regulation.”

Referring to a Fitch survey of the webinar audience, she says, "​I think our investors have had their opportunity to review the options at hand and make some decisions. Clearly the market is getting a lot more comfortable with these concepts…. In fact it'​s really just … new terminology. So I think this certainly reflects what I'​m hearing from clients, and I think it'​s showing clients continue to look for that stable NAV product. The LVNAV structure certainly delivers that step on that product still for clients that gives them that important aspect of being able to interact with the fund in the same way that they do today.”

Sewell says, “​At the end of the day, liquidity fund are liquid and investors will vote with their feet. What we see on this slide is the actual distribution of investors buying … prime constant net value funds today, [​they] are likely to tun into LVNAVs…. Overwhelming investor demand … is for a stable unit value per share, because of it going back to the basics of money market funds. The key utility is you put a dollar in and you get a dollar back from it…. Decision time is fast approaching. It'​s good to see the investors on this call seem more prepared perhaps than they were on the last one…. There are three key steps that investors focused on at the moment. The first is simply to understand the reforms. The next [​is for] investors [​to] ensure that their investment policy gives them appropriate flexibility to accommodate the investment options available…. Then there is going to come the decision point of actually deciding what are you going to do."

Mitchener-​Nissen responds, “​For us, our guiding principle here was to create and reach the clients where we are minimally impactful on them. For us, our structure involves us essentially mapping clients to what looks like the most appropriate option for them generally based on their current share class…. Mapping clients to that option and then giving them the choice of picking a different option if they feel that something else in the range is more appropriate for them. If they'​re happy with that proposal we'​ve given them, they actually won'​t need to do anything. They will transition over that weekend and wake up on Monday 3rd of December in their new range, in their new product. So for us, we’​re looking to keep this as simple as possible for clients and really to ensure that that transition is as smooth, calm, and quiet as possible.”

She also explains, "​The euro denominated funds across the market really adopted a mechanism of share cancellation or reverse distribution. This is a mechanism where the traditional distribution mechanism is essentially reversed. So instead of paying out the small amount of income earned in the fund every day, the daily distributions, the fund is essentially owed; the amount of negative income.” Sewell adds, “​Last year, there was issued some technical guidance on implementation of reforms, which included the suggestion that share cancellations or reverse distribution may not be possible…. I'​m certainly aware that multiple groups, industry associations, provided other interested in market participants have produced or solicited opinions which universally disagree with the basis for these opinions. In short, there [​is] some uncertainty here.” Finally, Mitchener-​Nissen says, “​I would reiterate that, for Euro investors, it is by no means a closed debate."

​

Last week, Treasury Strategies hosted its latest "Quarterly Corporate Cash Briefing," which featured TS'​s Tony Carfang, Debbie Cunningham of Federated Investors, Greg Fayvilevich of Fitch Ratings, and Michelle Price of the Association of Corporate Treasurers. Carfang discussed "earnings credit rates," saying, "​Those are the rates that bankers credit their corporate clients as an offset against service charges.... Earnings credit rates have increased at a very slow pace even at a time when market interest rates ... have of tripled.... As you can see the spreads [​between ECRs and MMFs] have widened from 19 bps in January 2017 to 170 bps today. Prime money funds are [​yielding] around 2%. So it'​s fascinating that corporate treasurers would keep cash in their banks at 59 bps [​ECR average]."

He explains, "​Probably it'​s the case that companies either have some inertia.... All of you corporate treasurers out there ... the loud and clear message is collectively you'​re sitting on a $​1 trillion that is earning well below market rates. You may have maybe a lot of reasons for that. You may not have the technology to capture all of your balances every day and get them invested. You may not have visibility on all of your bank accounts. But these are all things that you really ought to be paying attention to particularly with the gap [​in rates]."

On Brexit, Fayvilevich comments, "​There is a question of delegation. It seems like delegating investment management to a non EU entity might work. Then in terms of the funds, [​for] either European funds being sold into the U.​K. or the other way around, my understanding so far [​is] there are no limits announced [​on] European funds being sold into the U.​K.... There'​s certainly some reshuffling of domiciles and resources in the asset management industry [​that could occur].... I think everybody is going to work with as much as they can to make sure that the disruptions of clients is going to be minimal. But I think it definitely is going to be a lot of work for us on the rating side, and for the asset managers setting up their funds. In a way similar to what we'​ve seen with U.​S. reform and in European money fund reform, there'​s a lot of work that happens in the background on a lot of resources devoted to these things."

Cunningham says, "We have, at least from our own shop'​s perspective, our dollar denominated products in the E.​U. space domiciled in Ireland. We do not have euro-​denominated. We did, those were all Irish, but we closed them once we get into the negative interest rate environment. So we'​re dodging that bullet from a regulatory perspective. But because they'​re domiciled in Ireland ... those ones really shouldn'​t be much of a problem. There'​s not much of a market for those funds in the UK already. Our sterling-​denominated funds on the other hand, are very much U.​K. or U.​K.-​centric, but they'​re also registered in the U.​K. So I actually don'​t think it can pose too much of a problem no matter whether it'​s a hard Brexit or soft Brexit, one that allows for the rules to be harmonized, or segregated. I think at least for us, we'​re in a pretty good position with our products and our clients kind of aligning. [​But] we'​re working very hard for it not to become problematic."

On European money market fund regulations, Price explains, "The European money market fund regulations come into play for new funds ... in the next week or two, but for already existing funds, not until the 21st of January 2019. We'​re really expecting to see implementation by corporates over how you treat reform this year. What we are expecting is GBP-​denominated sterling funds will move to low volatility net asset value {​LVNAV) funds, while we'​re hearing that euro-​denominated funds will primarily move to VNAV funds. This difference is being caused by the negative interest rates in Europe where money market funds are denominated in euros. They may not be able to operate as LVNAV funds ... because the EU regulators are opposing the reverse distribution mechanism, which is basically the ability to cancel shares. As you know, euro-​denominated money market funds are in negative yields at the moment."

Fayvilevich adds, "​When money fund reform in the U.​S. was occurring, it coincided with the Fed starting to really raise rates. I think that was helpful for reform, because government money funds here started picking up yield and I guess made for an easier transition for investors. It is curious that the same kind of convergence might happen in Europe as well with the euro funds, as the European Central Bank is starting to tighten and rates potentially will rise. I think the convergence won'​t happen quite as well in terms of rates being high enough for LVNAV funds right away.... We think the transitions are going to happen the fourth quarter. We know this one fund manager has publicly said that they'​re going to convert funds into LVNAVs at the end of November. So investors will be able to see how that'​s really working out.... Investors [​should] take a look at their investment policies and see if they'​re able to invest in some of these products."

In related news, Strategic Treasurer'​s Craig Jeffery and Capital Advisors Group'​s Ben Campbell spoke recently on a webinar entitled, "Survey Results: Liquidity Risk" based on their "2018 Liquidity Risk Survey." The description tells us, "​This survey results webinar will cover a wide range of topics and trends on liquidity risk mitigation practices. As one of our oldest running surveys, we are able to provide valuable year-​over-​year data that shows major and minor shifts in corporate risk mitigation strategies and predict future trends. Join us as we take a look at how macroeconomic changes and new regulations continue to impact all treasury professionals as they approach business decisions."

Campell comments, "​We are into year two of adjusting to money market reform [​following] a tremendous asset shift out of the commercial paper markets and into the Treasury market. This [​has] generally made the commercial paper markets a bit cheaper relative to Treasuries and relative to some of the other positions. It has also forced a number of treasurers into switching from Prime MMFs with floating NAVs into their Treasury/​Government counterparts that have a fixed NAV. That has widened ... commercial paper ... spreads."

He continues, "The advent of liquidity coverage ratios, part of the Dodd-​Frank regulation implemented several years ago, ... generally made deposits more expensive ... for the banking community. So we had anticipated when these were put in place that there would be a general spread widening as we went through time between the other alternatives of commercial paper and the bank products.... Given this general environment ... if you are earning 50 bps or lower in a deposit product or even if you are in a treasury MMF that is earning in the 160 to 180 part of the curve, what happened with this significant opportunity caused by not doing something a little more active."

The webinar explains, "The largest number of respondents (​30%) have added asset classes. They were expanding the number of securities and types of security classes that they could go into.... It is sort of interesting for me to note that expanding asset classes was the largest factor of movement in regards to modifications in the investment policy. The other smaller numbers ... range from lowering their minimum credit rating requirement (​9%)."

Campbell adds, "The next part we are going to take a look at are the actual short-​term investment practices aside from just what modifications were made on the policy side.... If you go back and remember the significant widening of spreads between bank products ... you would expect that people would start to pursue individual securities on the front end of the curve. That is exactly what we are capturing here ... a decrease in the use of bank deposits.... I think this is the first decrease of bank deposits that we have seen since we started the survey. The other increases that we have seen are related to the individual purchases and the individual securities."

(​See also, Capital Advisors Group'​s recent paper, "Counterparty Risk Management for Corporate Treasury Functions," which says, "​One of the great lessons we learned from the financial crisis a decade ago was that the financial world we lived in was not as safe as we thought. This statement remains true today, despite recent industry and regulatory efforts aimed at bolstering the strength of the financial system…. In conversations with corporate cash investors, we found an increased awareness of counterparty risk management.")

​

Our recent Money Fund Symposium in Pittsburgh was keynoted by Federated Investors President & CEO J. Christopher Donahue. He addressed a number of topics, including the history of money funds, the effort to roll back recent regulatory reforms and money funds overseas. We excerpt from the speech below. (Note: This article is reprinted from the July issue of our flagship Money Fund Intelligence newsletter; contact us at inquiry@​cranedata.​com to request the full issue.)

Donahue comments, "​There was one Pittsburgher who wanted to make a difference, and 50 years ago he began his program talking to children. I'​m talking about '​Mr. Rogers' Neighborhood <​b:>`​_.' Interestingly enough, we, my wife and I, live in Mr. Rogers' house in Pittsburgh where he raised his children.... 'What can Mr. Rogers teach us about money market funds?' Far more than we thought." Mr. Rogers said, "'It'​s the knowing that we can be trusted, that we never have to fear the truth.' That is the bedrock of our very being. Peter Crane has also asked me a number of questions, which we will cover in this discussion."

He explains, "We'​ll begin with a little history to see how whether we can be trusted and see whether we have to fear the truth. A short history, a very neighborly history began in '​74, when the SEC decided to grant three funds, Fidelity, Federated, and Dreyfus, effective [​orders] for their money market funds.... We wanted the name Federated Cash Management, but the SEC told us, '​You can'​t have that name because you cannot manage cash.' Glen Johnson [​then] chose the name Money Market Management."

Donahue tells us, "​Then, a bad neighbor appeared on the scene. The bad neighbor was the Comptroller of the Currency. They said, 'You cannot delegate cash management to a fund. This is a violation of fiduciary duty.' Well, with client support, good legal work, and with Gene Maloney of our company learning how to spell '​fiduciary,' we got [​approval] and we were back in business."

He continues, "​Another bad neighbor washed up on the beach. The SEC decided to have a hearing on amortized cost. That was [​at] the instigation of some of our competitors in the industry to have that hearing. Once again with user support, excellent legal work, and my Dad'​s testimony -- the founding father of the company -- the good guys won. And guess what happened, everyone joined the neighborhood of amortized cost and dollar-​in, dollar-​out money market funds. This was over 40 years ago."

The Federated CEO states, "Paul Volcker, another bad neighbor coming to the party, testified later that he thought he had the votes in 1982 when the Garn-​St. Germain [​banking legislation] was passed to kill money market funds. But instead that did not happen. Banks paid 22% rates and you all know the story of the '​80s. In short, I have gratitude for our industry."

Like Mr. Rogers would do, he paused for a minute, saying, "​Spend that time in full gratitude [​thinking about] who helped you with your career, who helped you to get here, and how you are thankful for that.... Why the resiliency in our money market business? Because the people you thank are dedicated to making this business go. It is the very beauty of money funds, the utility of money funds, the good neighbors that we have all been. Money market funds may not be perfect, but they are doggone close. In 2012, as Peter pointed out, I called money funds the 8th Wonder of the World, and many people were wondering whether they should continue to exist. The shareholders love the dollar in, dollar out, the issuers love the competition and the low rates, and the capital markets thrive on them because it is the very spear of the fixed income markets right at the point of short interest rates."

"What Mr. Rogers said was that real strength has to do with helping others. Empathy, stepping into the other person'​s shoes, as Rogers was very big on shoes. There was a great good neighbor who helped us get out the 2010 amendments. This was perhaps the highest number of unity and neighborliness in the money market fund business. All got together to enhance the resiliency of money market funds. We worked on maturity, liquidity, and disclosure, and one of the most important [​changes] that came out of that was that if you had a problem, you had to go to four decimal places. The custodians had to be set up to do it, and the investment advisors had to be set up to do it.... Notice in this scenario, you don'​t get punished for sins you haven'​t committed ... only if you have a problem."

He continues, "​There was an example, however, of some bad neighborly policy.... In 2014, the regulators had that kind of '​circle of life' attitude [​on] money funds. [​T]​he SEC [​basically] said, '​We are not going to kill you, but we are going to waterboard you.' ... You know the result, $​1.​2 trillion out, and the greatest regulatory-​forced run that I know of. It was the greatest crowding out ever because $​1.​2 trillion went from private markets into government securities. Peter Crane called it '​The Big Sort.' But it all worked because of the resiliency of MMFs."

He discussed waivers, saying "Waivers were a great good neighbor exercise.... [​For Federated] over $​2.​2 billion was waived, $​1.​6 billion for intermediaries and $​600 million for Federated. There were also other unintended consequences that came out.... Municipalities ... saw borrowing costs skyrocket." He adds, "​So what did Mr. Rogers say?, 'Listen to your neighbor and when the time comes respond in the most helpful way you can.'"

Donahue asks, "​How are deposit sweeps being used? We have this delicious concept now called deposit beta. It is a real fancy term for what you are going to share with your clients of the increase in rates. The way the analysts look at it, the less you share, the better. Again, not exactly a Rogerian concept. The average [​paid out] is in the 0.​20% [​range] in a 2% environment. The betas are lower than they were in the last several cycles because of lower rates, lower gross rates.... But I think it will be a positive for the money market funds because when they spring back, when the customers and competition and the marketplace demand real interest, I think you are going to see a lot of money coming back into money funds."

He adds, "​Another question [​is], '​How is the best interest rule proposed by the SEC applied? Well that'​s very interesting. I will read you a little quote from the SEC release. '​When a broker-​dealer recommends a more remunerative security or investment strategy over another reasonably available alternative offered by the broker-​dealer, the broker-​dealer would need to have a reasonable basis to believe that putting aside the broker-​dealer'​s financial incentives, the recommendation was in the best interest of the retail customer.' ... I think the best advice that we got from some smart lawyers is that both of these concepts of fiduciary and suitability are in eclipse and are overlapping [​with] what is the best interest for clients. We think the best interest is a real good way to go on this subject. I think it is better for the mutual fund industry and for the industry in general."

Donahue also comments, "​Mr. Rogers also got enraged. Imagine that? But why would you get enraged? His quote was, 'When those things that we care about so deeply become in danger, we become enraged. And what a healthy thing that is! Without it, we would never stand up and speak out for what we believe.' The 2014 [​SEC] amendments divided the neighborhood. They preserved, thank goodness, retail money market funds, but SIFI fears and other ideas caused people to throw the institutional prime and muni funds under the bus. Now it is time to restore the full neighborhood."

He says, "​No more Wall, no more East Germany, and no more having to follow exactly what the SEC determines to be product development. We are so grateful for our great business and a great asset class that we want to get back to the way it was. Hence our support for Senate Bill S.​1117 which is known conveniently as '​The Consumer Financial Choice & Capital Markets Preservation Act.' It restores us to the thrilling days of yesteryear -- to the 2010 amendments. It allows the 2014 amended products to exist. But, the marketplace is open, and people don'​t have to do the funds they disdain. For the SIFI worriers in the crowd, I say [​embrace] the 2010 funds and work on your SIFI designation issues instead of opposing this neighborly effort."

"So who is for Senate Bill 1117? Well lots of real good neighbors, hundreds of them. They include 26 local and state government associations, 29 individual counties, 48 individual, large cities, 74 public housing authorities, 55 institutions of higher education, 27 state and regional chambers of commerce, 64 regional or state economic development authorities, 9 large healthcare systems, 24 skilled construction trade unions, 28 state treasurers, many state legislators, 73 members of the U.​S. Congress (​co-​sponsors), 27 U.​S. Senators, and many national trade associations.... It has hurt them, and they see the beauty of a restored money market fund environment.... Who'​s against it? Some of the largest firms in the industry.... I still believe that the future is bright and we have an excellent chance of getting this bill through."

On global issues, he says, "The European regulations are difficult but not deadly. But they will take a lot of work and need a lot of supervision and perseverance to make them come out correct.... The repatriation money is good, but it is temporary. We found that money when it comes in already has a purpose."

Finally, Donahue tells us, "In conclusion, I am grateful and have a tremendous amount of thanks for an outstanding asset class, and for all of those of you who are dedicating your life. We realize you spend more time with your money funds than you do your family. The issuers, the shareholders, and the capital markets thank you too. So I enlist your support for S.​1117. Or at the very least, don'​t oppose the return of these funds to our neighborhood. Mr. Rogers at this point would probably intone, but I would not, '​Would you be mine? Could you be mine? Won'​t you be my neighbor?'"

​

As we mentioned last week (​see our July 11 News, "AFP Releases 2018 Liquidity Survey: Bank Deposits, and MMFs, Decrease"), the Association for Financial Professionals published its "2018 AFP Liquidity Survey" recently, which surveys corporate treasurers on cash management and short-​term investing preferences. (​See the press release here.) Below, we excerpt from portions of the report, underwritten by State Street Global Advisors, relating to bank deposits, money fund selection, and European money fund reforms.

A section entitled, "Banks as Major Depositories for Cash and Short-​term Investment Holdings," tells us, "​Organizations rely on various bank instruments for their cash and short-​term investments. The most commonly used bank products are time deposits and structured bank deposit products. Time deposits are still the most-​often cited bank product: 48 percent of treasury and finance professionals report their organizations use time deposits, although this is lower than the 54 percent and 57 percent reported in 2017 and 2016, respectively. Structured bank deposit products are being held by 44 percent of organizations, similar to the 43 percent reported last year and significantly higher than the 23 percent in 2016. The share of organizations using non-​interest-​bearing accounts continues to decline, with 38 percent of respondents reporting using these instruments in 2017 compared to the 39 percent and 42 percent reported in 2016 and 2015, respectively."

The AFP survey explains, "Organizations continue to place most of their short-​term investment portfolios into instruments with very short maturities. On average, 71 percent of all short-​term investment holdings are in vehicles with maturities of one month or less -- two percentage points higher than the figure reported in 2017. Another 14 percent of short-​term investments are held in vehicles with maturities between 31 and 90 days. Larger organizations with annual revenue of at least $​1 billion manage their cash in investment with shorter maturity terms than do smaller organizations with annual revenue less than $​1 billion."

Regarding "Primary Drivers in Selection of Money Market Fund," they tell us, "​There are various drivers that play a role in the selection of money market funds. The three factors that play the most important role are: Fixed or Floating NAV, Investment Manager for separately managed accounts and Yield. Sixty-​four percent of treasury and finance professionals cite Fixed or Floating NAV as a primary driver, while 38 percent cite investment manager for separately managed accounts and 35 percent cite yield as the most important driver when selecting a MMF."

AFP'​s update says, "Banks play a key role in supporting organizations in their cash and short-​term investment strategies by providing them with critical information on economic indicators and trends. In the past few years, it has been challenging to accurately predict the economic environment, and organizations are more likely to look to their banking partners for sound advice. This year'​s survey results substantiate this claim; 88 percent of finance professionals identify banks as resources their organizations use to access cash and short-​term investment holding information."

It continues, "Other resources used by treasury and finance professionals include: Investment research from brokers/​investment banks (​cited by 42 percent of respondents); Credit rating agencies (​32 percent); and, Money market fund portals (​30 percent). Over half the survey respondents (​52 percent) would prefer to receive information from the above sources via email or website, and 43 percent would like to receive this information from a combination of in-​person meetings and electronically."

On "SEC Money Market Reform," the Liquidity Survey comments, "​The SEC Reforms that took effect in October 2016 mandate that Prime money market funds now operate with a floating NAV and Government money market funds operate with a stable NAV. In light of these reforms, 50 percent of organizations do not have plans to resume investing in Prime money market funds. Twenty-​three percent of treasury and finance professionals report that the NAV will have to prove that it does not move much before their organizations resume investing in Prime money market funds; another 23 percent would resume investing in Prime money market funds if the spread between Prime and Compelling investments is significant."

It states, "Nearly half of survey respondents (​49 percent) indicates that no amount of spread between Government and Prime money market funds would incentivize their organizations to invest in Prime/​Municipal funds. This is nine percentage points higher than the share who that held the same view last year, and 19 percentage points higher than the figure reported in 2016. Treasury and finance professionals indicate they might consider alternatives in their investment selection as options to complement current investment solutions. Thirty-​seven percent are considering separately managed accounts operational (​0-​6 months) and 23 percent are considering extending maturities. Separately managed accounts, core and strategic, are each cited by 16 percent of survey respondents."

The AFP explains, "​In 2008, the G20 group of countries agreed to reforms for money market funds. The European Commission proposed legislation in 2013. The culmination of this is new regulations on money market funds (​MMFs) in Europe. The regulations will take effect in January 2019. The Institutional Money Market Funds Association (​IMMFA) reports that tighter provisions will apply to all MMFs that are established, marketed or managed in the European Union. The revisions are somewhat similar to those in the U.​S., with slight variations. There will be three types of money market funds: Public debt constant NAV funds (​similar to Government/​Treasury money market funds in the U.​S.); Low volatility NAV funds (​stringent liquidity provisions similar to U.​S. Prime money market funds); and, Variable NAV funds (​similar to U.​S. Prime money market funds)."

They add, "Public debt and low volatility funds will have amortized cost accounting applied, and mandatory gates and fees should the fund liquidity fall below 10 percent on a weekly basis. Variable NAV funds will have market or model accounting applied. Discretionary gates and fees as determined by Collective Investment in Transferable Securities (​UCITS) provisions on fund redemptions will apply to all funds, and there will be further liquidity requirements for Constant Net Asset Value funds."

Finally, the AFP writes, "Nearly 40 percent of treasury and finance professionals are unaware of the changes in the rules that will impact European MMFs. Thirty-​five percent are aware of these changes and planning for them. The remaining 26 percent, while aware of these changes, have no plans in place to deal with the new rules. Survey respondents have varied responses about when they will make changes if they plan to shift their European investment choices: 39 percent plan to do so just one month prior to reform, 36 percent will take a step to change three months prior to reform and 25 percent plan to do so six months prior to reform."

​

Morgan Stanley Investment Management released a document entitled, "European Money Market Fund Reform Transition Plan Announcement." It states, "Morgan Stanley is pleased to announce our anticipated money market fund (​MMF) product range in response to the new European Union (​EU) MMF regulations. Our New product lineup has been designed to offer our clients: Seamless transition to the new regulatory regime; Comprehensive product range within three currencies; Consistent intra-​daily liquidity; Continued operational simplicity; Provisional conversion date targeted for the fourth quarter of 2018." We review their update, and we also summarize Crane Data'​s latest MFI International statistics and Portfolio Holdings, below.

MSIM explains, "After carefully taking into consideration client feedback, our product lineup will include constant net asset (​CNAV) funds, low volatility net asset value (​LVNAV) funds, and variable net asset value (​VNAV) funds. Please note that the planned line up set out in the below table is subject to regulatory and board approval and may change in response to client demand. The lineup will be as follows."

Their "Planned MMF Product Spectrum" table shows: an existing "USD CNAV Fund" will convert to "USD LVNAV;" the existing "USD CNAV Treasury Fund" will convert to a "USD Public Debt CNAV;" their existing "Euro CNAV Fund" will convert to a "EUR VNAV (​short-​term);" and, an existing "GBP CNAV Fund" will convert to a "GBP LVNAV." MSIM'​s "Proposed New Funds" include: a USD VNAV (​short-​term), a USD VNAV (​standard), a EUR LVNAV (​subject to a positive net yield environment), a EUR VNAV (​standard), and a GBP VNAV (​short-​term).

Morgan Stanley'​s update tells us, "​There has been much discussion by the regulatory authorities about the reverse distribution mechanism (​RDM) which is currently utilised by EUR CNAV funds to reflect the net negative yield that the funds generate. This mechanism has previously allowed euro-​denominated MMFs to continue to transact at a constant EUR 1.​00 unit price despite the negative interest rate environment. At the time of writing, it appears likely that the regulators will not allow RDM to be utilised post reform, making LVNAV and Public Debt CNAV structures for EUR MMFs unfeasible as long as the net negative interest rate environment for EUR persists. As a result, we are converting our existing CNAV EUR Fund to a short-​term VNAV EUR fund."

It continues, "We intend to have a LVNAV EUR fund offering in our prospectus in readiness for when returns become positive. Additionally, in the current negative yield environment we will offer only an accumulating share class for the VNAV structure. Once the yield turns positive, we will offer both a distributing and accumulating share class for the LVNAV and VNAV structures."

The piece asks, "What can I expect around and after the implementation date?" Morgan Stanley writes, "If you are an existing investor in the Morgan Stanley Liquidity Funds, you will be automatically converted to the new structures referenced above. Investors will be asked to vote on updates to the Funds' articles of incorporation. We anticipate a smooth and seamless transition to the new fund structures. However, your ongoing user experience will be impacted depending on which fund(​s) you'​re invested in."

Finally, they say, "For the USD and GBP LVNAV funds: There will be no change to the intraday liquidity provided; No change to the daily dealing process; No change to cutoff times; No expected change to the accounting classification of cash and cash equivalents (​C&​CE). For the EUR Short-​Term VNAV fund: Intraday liquidity will be provided at two points; and, No expected change to the accounting classification of C&​CE."

In other "​offshore" money fund news, 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), down slightly year-​to-​date in 2018. Year-​to-​date in 2018 (​through 7/​13/​18), MFII assets are down $​24 billion to $​806 billion. U.​S. Dollar (​USD) funds (​158) account for about half ($​417 billion, or 41.​7%) of the total, while Euro (​EUR) money funds (​98) total E91 billion and Pound Sterling (​GBP) funds (​110) total L214 billion. USD funds are down $​9 billion, YTD, but were up $​27B in 2017. Euro funds are down E7 billion YTD but were up E3B in 2017, while GBP funds are down L5B after rising L29B in 2017.

USD MMFs yield 1.​83% (​7-​Day) on average (​as of 7/​13/​18), up from 1.​19% at the end of 2017 and 0.​56% at the end of 2016. EUR MMFs yield -​0.​48 on average, up from -​0.​55% on 12/​29/​17 and -​0.​49% on 12/​30/​16, while GBP MMFs yield 0.​40%, up from 0.​24% at the end of 2017 and 0.​19% at the end of 2016. (​See our latest Money Fund Intelligence International for more on the "​offshore" money fund marketplace.)

Crane'​s latest MFI International Money Fund Portfolio Holdings, with data (​as of 6/​30/​18), shows that European-​domiciled US Dollar MMFs, on average, consist of 19% in Treasury securities, 28% in Commercial Paper (​CP), 22% in Certificates of Deposit (​CDs), 14% in Other securities (​primarily Time Deposits), 14% in Repurchase Agreements (​Repo), and 3% in Government Agency securities. USD funds have on average 30.​6% of their portfolios maturing Overnight, 11.​7% maturing in 2-​7 Days, 25.​1% maturing in 8-​30 Days, 11.​2% maturing in 31-​60 Days, 11.​1% maturing in 61-​90 Days, 8.​5% maturing in 91-​180 Days, and 1.​7% maturing beyond 181 Days. USD holdings are affiliated with the following countries: US (​28.​7%), France (​14.​7%), Japan (​9.​9%), Canada (​9.​5%), United Kingdom (​5.​9%), Sweden (​5.​8%), Australia (​4.​6%), Germany (​4.​4%), The Netherlands (​4.​1%), China (​2.​9%), Singapore (​2.​6%), and Switzerland (​1.​5%).

The 10 Largest Issuers to "​offshore" USD money funds include: the US Treasury with $​88.​4 billion (​19.​3% of total assets), BNP Paribas with $​25.​8B (​5.​6%), Toronto-​Dominion Bank with $​12.​7B (​2.​8%), Mitsubishi UFJ Financial Group Inc with $​10.​5B (​2.​3%), Mizuho Corporate Bank Ltd with $​10.​0B (​2.​2%), Wells Fargo with $​9.​3B (​2.​0%), ING Bank with $​8.​8B (​1.​9%), Australia & New Zealand Banking Group Ltd with $​8.​5B (​1.​9%), Societe Generale with $​8.​1B (​1.​8%), and Svenska Handelsbanken with $​7.​8B (​1.​7%).

Euro MMFs tracked by Crane Data contain, on average 47% in CP, 25% in CDs, 19% in Other (​primarily Time Deposits), 8% in Repo, 0.​4% in Treasuries and 0.​8% in Agency securities. EUR funds have on average 22.​6% of their portfolios maturing Overnight, 7.​8% maturing in 2-​7 Days, 14.​7% maturing in 8-​30 Days, 15.​2% maturing in 31-​60 Days, 20.​5% maturing in 61-​90 Days, 16.​0% maturing in 91-​180 Days and 3.​3% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (​26.​1%), Japan (​15.​1%), The US (​11.​1%), The Netherlands (​8.​6%), Germany (​7.​4%), Sweden (​6.​4%), China (​4.​5%), Switzerland (​4.​1%), Belgium (​3.​8%), and The United Kingdom (​3.​5%).

The 10 Largest Issuers to "​offshore" EUR money funds include: BNP Paribas with E4.​4B (​5.​0%), Credit Agricole with E4.​4B (​4.​9%), Mizuho Corporate Bank Ltd with E3.​4B (​3.​8%), Credit Mutuel with E3.​2B (​3.​5%), BPCE SA with E2.​9B (​3.​3%), Svenska Handelsbanken with E2.​9B (​3.​2%), ING Bank with E2.​9B (​3.​2%), Rabobank with E2.​8B (​3.​1%), Mitsubishi UFJ Financial Group Inc. with E2.​6B (​2.​9%), and Procter & Gamble Co with E2.​5B (​2.​8%).

The GBP funds tracked by MFI International contain, on average (​as of 6/​30/​18): 40% in CDs, 26% in Other (​Time Deposits), 22% in CP, 9% in Repo, 2% in Treasury, and 1% in Agency. Sterling funds have on average 22.​9% of their portfolios maturing Overnight, 7.​9% maturing in 2-​7 Days, 15.​1% maturing in 8-​30 Days, 19.​8% maturing in 31-​60 Days, 18.​3% maturing in 61-​90 Days, 12.​2% maturing in 91-​180 Days, and 3.​8% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: France (​17.​1%), Japan (​15.​5%), United Kingdom (​13.​7%), The Netherlands (​9.​5%), Canada (​7.​8%), the US (​5.​0%), Germany (​5.​0%), Australia (​5.​0%), Singapore (​4.​2%), and Sweden (​4.​1%).

The 10 Largest Issuers to "​offshore" GBP money funds include: UK Treasury with L9.​4B (​5.​6%), Sumitomo Mitsui Banking Co with L6.​8B (​4.​1%), Toronto-​Dominion Bank with L6.​5B (​3.​9%), Credit Agricole with L4.​9B (​3.​6%), ING Bank with E5.​8B (​3.​5%), BNP Paribas with L5.​8B (​3.​5%), BPCE SA with L5.​6B (​3.​4%), Sumitomo Mitsui Banking Co with E5.​4B (​3.​2%), Mitsubishi UFJ Financial Group Inc. with L5.​3B (​3.​2%), and Rabobank with L5.​1B (​3.​1%).

​

The July issue of our Bond Fund Intelligence, which was sent out to subscribers Monday morning, features the lead story, "Worldwide Bond Fund Assets Keep Growing in Q1; China," which reviews the latest bond fund totals from other countries, and the profile, "Martucci, Morin & Yi Talk Ultra-​Shorts at Symposium," which reviews comments from a session on ultra-​short bond funds from Crane Data'​s recent Pittsburgh conference. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that most bond fund category yields and returns inched higher last month (​except Long-​Term, High-​Yield and Global). We excerpt from the latest issue below. (Contact us if you'​d like to see a copy of Bond Fund Intelligence and our BFI XLS spreadsheet "​complement," and watch for our next Bond Fund Portfolio Holdings data set to be sent out next Monday, 8/​21.)

Our lead BFI story says, "​The Investment Company Institute released its "Worldwide Regulated Open-​Fund Assets and Flows First Quarter 2018" late last month, and the latest data collection on mutual funds in other countries (​as well as in the U.​​S.) shows that global bond fund assets rose by $​174.​3 billion, or 1.​7%, to $​10.​547 trillion in Q1'​18. This was led by jumps in bond funds domiciled in China, the U.​S., Luxembourg, Ireland and France. Worldwide bond fund assets, which broke over the $​10 trillion level in Q4'​17, have increased by $​1.​198 trillion, or 12.​8%, the past 12 months."

It tells us, "Over 12 months, the US, Luxembourg, and Ireland showed the largest increases in bond fund assets. France, the U.​K. and China also showed big gains. India, The Netherlands, Japan and Canada saw declines in the past quarter, while Australia, Korea and Japan were the only asset losers over the past year."

ICI'​s release says, "On a US dollar–​denominated basis ... bond fund assets increased by 1.​7 percent to $​10.​55 trillion in the first quarter. Balanced/​mixed fund assets increased by 0.​8 percent to $​6.​47 trillion in the first quarter, while money market fund assets increased by 3.​4 percent globally to $​6.​10 trillion."

They write, "At the end of the first quarter of 2018 ... the asset share of bond funds was 21 percent and the asset share of balanced/​mixed funds was 13 percent. Money market fund assets represented 12 percent of the worldwide total.... Globally, bond funds posted an inflow of $​147 billion in the first quarter of 2018, after recording an inflow of $​162 billion in the fourth quarter."

Our "​profile" article says, "This month, Bond Fund Intelligence excerpts from a session entitled, "​Ultra-​Short Bond Funds, SMAs & Alt-​Cash" at our recent Money Fund Symposium conference. The segment featured Dave Martucci of J.​P. Morgan Asset Management, Michael Morin of Fidelity Investments, and Peter Yi from Northern Trust Asset Management. The three discuss segmenting cash, the various shades of ultra-​short, and separately managed accounts. Highlights of the Q&​A follow."

Martucci says, "We want to make sure our clients know what they'​re getting, that these are different animals. It'​s not just interest rate risk, but you also have spread duration risk. Clients typically want to restrict some kind of investments.... More clients are willing to go down in credit to get diversity away from the financial space ... and have gotten comfortable with the SMA space.... Much of the portfolios, say 30-​40%, are invested in typical money market instruments, CP, CDs, repo, etc."

Yi comments, "​I will offer two perspectives here. First, to Dave'​s point, the ultra-​short space has largely been SMAs from our perspective until probably about ten years ago. We'​ve been managing ultra-​short, sometimes called enhanced cash or cash strategies ... since the late '​70s and we launched our first two ultra-​short mutual funds in 2009."

He continues, "​It has been a really big success story for us, we have grown our assets really exponentially since then. Our two mutual funds that are now represent about $​6B in assets.... Now things are starting to move from that customized, SMA structure to a more standardized mutual fund structure. We are now starting to see peer groups develop.... So it makes it easier to compare funds."

A Bond Fund News brief, entitled, "Yields and Returns Mostly Up in June," tells us, "Bond fund yields and returns moved higher last month for most categories, except Long-​Term, High-​Yield and Global. The BFI Total Index averaged a 1-​month return of 0.​01% and the 12-​month gain was 0.​86%. The BFI 100 returned 0.​07% in June and 0.​77% over 1 year. The BFI Conservative Ultra-​Short Index returned 0.​16% over 1 month and 1.​49% over 1-​year; the BFI Ultra-​Short Index averaged 0.​09% in June and 1.​16% over 12 mos. Our BFI Short-​Term Index returned 0.​04% and 0.​62%, and our BFI Intm-​Term Index returned -​0.​02% and 0.​02% for the month and year. BFI'​s Long-​Term Index returned -​0.​08% in June and -​0.​22% for 1 yr; BFI'​s High Yield Index returned 0.​15% in June and 2.​26% over 1 year."

Another new brief, "Barron'​s Writes '​Bolster Your Bond Portfolio,' explains, "[I]​investors can'​t be blamed for wondering whether it'​s worth investing in bonds at all, now that they'​re finding negative returns across the market: Investment-​grade corporate bonds are down 4.​9% this year, including interest payments, which puts them on track for their worst calendar-​year performance since 1974, according to Bank of America Merrill Lynch.... So what are investors to do in today'​s high-​risk, low-​return environment? ... Investors can sidestep losses by sticking with high-​grade, short-​term funds, and have a better shot at gains in attractive areas such as floating-​rate corporate loans and high-​yield municipal bonds."

Finally, a sidebar entitled, "Bond Fund Flows Slowing, says, "​ICI'​s latest 'Combined Estimated Long-​Term Fund Flows and ETF Net Issuance' with data as of July 3, 2018, says, 'Bond funds had estimated inflows of $​4.​59 billion for the week, compared to estimated inflows of $​2.​98 billion during the previous week. Taxable bond funds saw estimated inflows of $​4.​23 billion, and municipal bond funds had estimated inflows of $​356 million.' Over the past 5 weeks through 7/​3/​18, bond funds and bond ETFs have seen inflows of $​19.​1 billion."

It adds, "​The ICI'​s latest 'Trends in Mutual Fund Investing - May 2018' shows bond fund assets increasing $​19.​5 billion to $​4.​104 trillion. Over the 12 months through 5/​31/​18, bond fund assets have increased by $​235.​0 billion, or 6.​1%. The number of bond funds decreased by 9 to 2,​124. This was down 47 from a year ago."

​

The Investment Company Institute'​s latest weekly "Money Market Fund Assets" report shows money fund assets jumped in the first full week of July, after inching lower at quarter-​end. Money fund assets broke back into the black on a year-​to-​date basis. They'​re now up $​13 billion, or 0.​4%, YTD, and `​they'​ve increased by $​224 billion, or 8.​5%, over 52 weeks. We expect assets to grow strongly in coming months, as July and August are seasonally the 4th and 3rd strongest months of inflows. (​December and November are the strongest.) We review ICI'​s latest asset totals below, and we also quote from Wells Fargo Funds' latest monthly update.

ICI writes, "Total money market fund assets increased by $​28.​85 billion to $​2.​85 trillion for the eight-​day period ended Wednesday, July 11, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $​18.​94 billion and prime funds increased by $​9.​93 billion. Tax-​exempt money market funds decreased by $​17 million." Total Government MMF assets, which include Treasury funds too, stand at $​2.​227 trillion (​78.​1% of all money funds), while Total Prime MMFs stand at $​485.​8 billion (​17.​0%). Tax Exempt MMFs total $​138.​3 billion, or 4.​8%.

They explain, "Assets of retail money market funds increased by $​4.​96 billion to $​1.​04 trillion. Among retail funds, government money market fund assets increased by $​2.​11 billion to $​631.​37 billion, prime money market fund assets increased by $​2.​73 billion to $​277.​30 billion, and tax-​exempt fund assets increased by $​124 million to $​129.​32 billion." Retail assets account for over a third of total assets, or 36.​4%, and Government Retail assets make up 60.​8% of all Retail MMFs.

ICI'​s release adds, "Assets of institutional money market funds increased by $​23.​89 billion to $​1.​81 trillion. Among institutional funds, government money market fund assets increased by $​16.​83 billion to $​1.​60 trillion, prime money market fund assets increased by $​7.​21 billion to $​208.​53 billion, and tax-​exempt fund assets decreased by $​141 million to $​8.​94 billion." Institutional assets account for 63.​6% of all MMF assets, with Government Inst assets making up 88.​0% of all Institutional MMFs.

In related news, Wells Fargo Money Market Funds' latest "Portfolio Manager Commentary" tells us, "After spending eight years with near-​zero yields, money market funds are garnering attention as a real asset class again: Cash is NOT trash! The bear flattening of the U.​S. Treasury curve and sputtering performance of equities have brought favorable attention back to the short end of the yield curve."

It says, "​To place this in context, large-​cap equities, as represented by the S&​P 500 Index, have returned only 2.​65% in the first half of the year; during the same time, high-​grade corporate bonds, as represented by the Bloomberg Barclays U.​S. Corporate Bond Index, have turned negative, returning -​3.​27%. In contrast, prime institutional funds look relatively attractive, having returned 1.​54% on average through May 28, according to iMoneyNet."

Wells continues, "As a result, the rise in short rates has brought not only attention but perhaps also nontraditional money market investors (​those that typically invest in longer-​term debt or equities) into the short end of the market. According to Crane Data, institutional prime money market assets rose almost $​600 million in June, and total commercial paper outstandings not seasonally adjusted were up $​5.​5 billion through June 28. Those two figures might lead one to conclude that rates on investments needed to increase in order to attract buyers."

Their latest update also explains, "Against a backdrop of favorable economic conditions and an FOMC that is anticipating removing accommodation for the foreseeable future, we continue to favor maintaining our funds' weighted average maturities shorter than the industry average and maintaining a high degree of interest rate sensitivity. These shorter profiles also may afford us the flexibility to add longer-​dated product as opportunities arise. While rates in general continue to drift higher, we believe our investment strategy of emphasizing highly liquid portfolios, relatively short weighted average maturities, and a position in securities that reset frequently should allow us to capture future FOMC rate moves with minimal net asset value pricing pressures."

On Muni MMFs, Wells' James Randazzo comments, "The municipal money market space continued to exhibit roller-​coaster-​like rate action this month, as usually dependable seasonal cash flows ran counter to expectations for the second month in a row. Whereas municipal money market fund assets grew by a surprising $​6.​2 billion during the month of May (​an astonishingly large inflow for a typically quiet month), June saw equally unexpected outflows of roughly $​2.​8 billion. This unforeseen reversal in trend caused demand for overnight and weekly variable-​rate demand notes and tender option bonds to evaporate, leading dealers to rapidly ratchet rates higher in order to entice nontraditional buyers in the short end of the curve."

He adds, "The FOMC rate hike on June 13 provided additional impetus for the tax-​exempt market to play catch-​up after May'​s unexpected drop in rates left tax-​exempt to taxable ratios at their lowest level of 2018. The Securities Industry and Financial Markets Association (​SIFMA) Municipal Swap Index would ultimately rise from 1.​05% (​59% of one-​week LIBOR) on June 6 to 1.​51% (​76% of one-​week LIBOR) on June 27."

Wells Fargo Securities' Vanessa McMichael also commented on the SIFMA index yesterday. She wrote in her "Daily Short Stuff, "The weekly SIFMA index dropped 18 basis points week-​over-​week, resetting yesterday at 1.​01 percent. It is not unusual to see the index begin to subside going into July as the overall fixed income market generally gets a little "​summertime" sluggish. Supply was muted last week, much like the investment grade corporate bond market that we wrote about earlier this week."

She tells us, "SIFMA is a compilation of seven-​day investment grade variable rate demand notes with specific characteristics (​e.​g. weekly reset, not subject to AMT, $​10MM or more outstanding, pay interest monthly). This week'​s new published SIFMA level has brought the four-​week moving average to 1.​30 percent, an eight basis point drop from the prior four-​week moving average at 1.​38 percent. We have seen some fairly wide fluctuations in this index year-​to-​date with SIFMA hitting its YTD low of 98 basis points the beginning of February to climbing to 1.​81 percent mid-​April, its YTD high."

Finally, she adds, "On the overall issuance front, according to data from Thomson Reuters, VRD issuance is lower YTD versus 2017 with $​14,​615MM issued YTD versus $​19.​080MM during the same timeframe in 2017. The largest regional decline over this period is from West coast issuers which have issued 56 percent less than 2017."

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Crane Data released its July Money Fund Portfolio Holdings Wednesday, and our most recent collection of taxable money market securities, with data as of June 30, 2018, shows a drop in Repo overall but a sharp rebound in Fed Repo. Money market securities held by Taxable U.​S. money funds (​tracked by Crane Data) decreased by $​53.​8 billion to $​2.​871 trillion last month, after increasing by $​16.​7 billion in May and $​46.​4 billion in April, but decreasing $​105.​0 billion in March. Repo continued to be the largest portfolio segment, followed by Treasury securities then Agencies. CP remained fourth ahead of CDs, Other/​Time Deposits and VRDNs. Below, we review our latest Money Fund Portfolio Holdings statistics. (​Visit our Content center to download the latest files, or contact us to see our latest Portfolio Holdings reports.)

Among taxable money funds, Repurchase Agreements (​repo) fell $​31.​4 billion (-​3.​2%) to $​952.​8 billion, or 33.​2% of holdings, after jumping $​67.​1 billion in May and $​99.​9 in April, but dropping $​89.​6 billion in March. Treasury securities fell again, down $​6.​3 billion (-​0.​8%) to $​773.​0 billion, or 26.​9% of holdings, after dropping $​50.​9 billion in May and $​108.​3 billion in April, but jumping $​95.​3 billion in March. Government Agency Debt fell by $​9.​3 billion (-​1.​4%) to $​674.​2 billion, or 23.​5% of all holdings, after rising by $​5.​5 billion in May, rising $​23.​4 in April, and falling $​58.​1 billion in March. Repo, Treasuries and Agencies total $​2.​400 trillion, representing a massive 83.​6% of all taxable holdings.

CP fell in the sixth month of the year, while CDs and Other (​mainly Time Deposits) securities increased. Commercial Paper (​CP) was down $​10.​0 billion (-​4.​5%) to $​213.​9 billion, or 7.​5% of holdings, after rising $​13.​2 billion in May, rising $​8.​8 billion in April and falling $​16.​2 billion in March. Certificates of Deposits (​CDs) rose by $​1.​6 billion (​0.​9%) to $​169.​3 billion, or 5.​9% of taxable assets (​after dropping by $​1.​2 billion in May and rising $​1.​7 billion in April). Other holdings, primarily Time Deposits, rose by $​1.​6 billion (​2.​1%) to $​79.​3 billion, or 2.​8% of holdings. VRDNs held by taxable funds fell by $​0.​0B (-​0.​4%) (​0.​3% of assets).

Prime money fund assets tracked by Crane Data dipped again to $​651 billion (​down from $​662 billion last month), or 22.​7% (​up from 22.​6%) of taxable money fund holdings' total of $​2.​871 trillion. Among Prime money funds, CDs represent over a quarter of holdings at 26.​0% (​up from 25.​3% a month ago), followed by Commercial Paper at 33.​0% (​down from 33.​8%). The CP totals are comprised of: Financial Company CP, which makes up 21.​5% of total holdings, Asset-​Backed CP, which accounts for 6.​5%, and Non-​Financial Company CP, which makes up 5.​0%. Prime funds also hold 5.​5% in US Govt Agency Debt, 6.​9% in US Treasury Debt, 7.​2% in US Treasury Repo, 1.​6% in Other Instruments, 8.​9% in Non-​Negotiable Time Deposits, 5.​1% in Other Repo, 3.​5% in US Government Agency Repo, and 1.​0% in VRDNs.

Government money fund portfolios totaled $​1.​539 trillion (​53.​6% of all MMF assets), down from $​1.​589 trillion in May, while Treasury money fund assets totaled another $​681 billion (​23.​7%), up from $​673 billion the prior month. Government money fund portfolios were made up of 41.​5% US Govt Agency Debt, 19.​8% US Government Agency Repo, 16.​4% US Treasury debt, and 22.​0% in US Treasury Repo. Treasury money funds were comprised of 69.​7% US Treasury debt, 30.​1% in US Treasury Repo, and 0.​1% in Government agency repo, Other Instrument, and Investment Company shares. Government and Treasury funds combined now total $​2.​220 trillion, or 77.​3% of all taxable money fund assets, the same as last month.

European-​affiliated holdings fell $​136.​5 billion in June to $​541.​0 billion among all taxable funds (​and including repos); their share of holdings fell to 18.​4% from 23.​2% the previous month. Eurozone-​affiliated holdings fell $​98.​2 billion to $​337.​3 billion in June; they account for 11.​8% of overall taxable money fund holdings. Asia & Pacific related holdings increased by $​0.​9 billion to $​244.​8 billion (​8.​5% of the total). Americas related holdings rose $​0.​1 billion to $​2.​083 trillion and now represent 72.​6% of holdings.

The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements, which decreased $​26.​2 billion, or -​4.​3%, to $​591.​1 billion, or 20.​6% of assets; US Government Agency Repurchase Agreements (​down $​5.​1 billion to $​328.​0 billion, or 11.​4% of total holdings), and Other Repurchase Agreements ($​33.​7 billion, or 1.​2% of holdings, down $​0.​1 billion from last month). The Commercial Paper totals were comprised of Financial Company Commercial Paper (​down $​2.​1 billion to $​139.​6 billion, or 4.​9% of assets), Asset Backed Commercial Paper (​up $​0.​3 billion to $​42.​2 billion, or 1.​5%), and Non-​Financial Company Commercial Paper (​down $​8.​2 billion to $​32.​2 billion, or 1.​1%).

The 20 largest Issuers to taxable money market funds as of June 30, 2018, include: the US Treasury ($​773.​0 billion, or 26.​9%), Federal Home Loan Bank ($​549.​0B, 19.​1%), BNP Paribas ($​143.​4B, 5.​0%), RBC ($​95.​5B, 3.​3%), Federal Reserve Bank of New York $​88.​6B, 3.​1%), Federal Farm Credit Bank $​76.​9B, 2.​7%), Wells Fargo ($​67.​5B, 2.​4%), Fixed Income Clearing Corp ($​51.​0B, 1.​8%), HSBC ($​51.​0B, 1.​8%), Mitsubishi UFJ Financial Group Inc ($​46.​1B, 1.​6%), Sumitomo Mitsui Banking Co ($​45.​1B, 1.​6%), JP Morgan ($​43.​3B, 1.​5%), Bank of Montreal ($​41.​5B, 1.​4%), Nomura ($​40.​4B, 1.​4%), Bank of America ($​38.​2B, 1.​3%), Barclays PLC ($​36.​8B, 1.​3%), Societe Generale ($​36.​1B, 1.​3%), Toronto-​Dominion ($​33.​7B, 1.​2%), Citi ($​30.​2B, 1.​1%), and Federal Home Loan Mortgage Co ($​29.​9B, 1.​0%).

In the repo space, the 10 largest Repo counterparties (​dealers) with the amount of repo outstanding and market share (​among the money funds we track) include: BNP Paribas ($​133.​5B, 14.​0%), Federal Reserve Bank of New York ($​88.​6B, 9.​3%), RBC ($​79.​0B, 8.​3%), Wells Fargo ($​54.​0B, 5.​7%), Fixed Income Clearing Corp ($​51.​0B, 5.​4%), HSBC ($​42.​7B, 4.​5%), Nomura ($​40.​4B, 4.​2%), JP Morgan ($​34.​7B, 3.​6%), Bank of America ($​34.​1B, 3.​6%), and Sumitomo Mitsui Banking Co ($​32.​4B, 3.​4%).

The 10 largest Fed Repo positions among MMFs on 6/​30/​18 include: Fidelity Cash Central Fund ($​15.​1B in Fed Repo), Fidelity Sec Lending Cash Central ($​8.​7B), Dreyfus Govt Cash Mgmt ($​8.​5B), Schwab Govt MMkt ($​8.​4B), Fidelity Inv MM: Treasury Port ($​6.​2B), Dreyfus Tr&​Ag Cash Mgmt ($​4.​0B), JP Morgan US Govt ($​3.​7B), BlackRock Lq FedFund ($​3.​4B), JP Morgan US Trs Plus ($​2.​9B), and BlackRock Cash Treas ($​2.​8B),.

The 10 largest issuers of "​credit" -- CDs, CP and Other securities (​including Time Deposits and Notes) combined -- include: Toronto-​Dominion Bank ($​21.​3B, 5.​4%), RBC ($​16.​5B, 4.​2%), Mitsubishi UFJ Financial Group Inc. ($​15.​2B, 3.​9%), Swedbank AB ($​14.​7B, 3.​7%), Canadian Imperial Bank of Commerce ($​14.​0B, 3.​6%), Bank of Montreal ($​13.​5B, 3.​4%) Wells Fargo ($​13.​5B, 3.​4%), Sumitomo Mitsui Banking Co ($​12.​7, 3.​2%), Australia & New Zealand Banking Group Ltd ($​12.​0B, 3.​1%), and Svenska Handelsbanken ($​11.​9, 3.​0%).

The 10 largest CD issuers include: Wells Fargo ($​13.​4B, 8.​0%), Bank of Montreal ($​12.​6B, 7.​4%), RBC ($​10.​1, 6.​0%), Svenska Handelsbanken ($​9.​3B, 5.​5%), Mitsubishi UFJ Financial Group Inc ($​9.​0B, 5.​3%), Sumitomo Mitsui Trust Bank ($​8.​8B, 5.​2%), Swedbank AB ($​8.​7B, 5.​2%), Sumitomo Mitsui Banking Co ($​7.​7B, 4.​6%), Mizuho Corporate Bank Ltd ($​7.​6B, 4.​5%), and Canadian Imperial Bank of Commerce ($​6.​8B, 4.​0%).

The 10 largest CP issuers (​we include affiliated ABCP programs) include: Toronto-​Dominion Bank ($​13.​2B, 7.​3%), JPMorgan ($​8.​5B, 4.​7%), Commonwealth Bank of Australia ($​7.​2B, 3.​9%), Credit Suisse ($​6.​8B, 3.​7%), UBS AG ($​6.​6B, 3.​6%), Australia & New Zealand Banking Group Ltd ($​6.​5B, 3.​6%), National Australia Bank Ltd ($​6.​4B, 3.​5%), Mitsubishi UFJ Financial Group Inc ($​6.​1B, 3.​4%), Bank of Nova Scotia ($​5.​8B, 3.​2%), and Canadian Imperial Bank of Commerce ($​5.​7B, 3.​1%).

The largest increases among Issuers include: Federal Reserve Bank of New York (​up $​67.​1B to $​88.​6B), RBC (​up $​12.​6B to $​95.​5B), Bank of Montreal (​up $​6.​7B to $​41.​5B), Nomura (​up $​6.​0B to $​40.​4B), Sumitomo Mitsui Trust Bank (​up $​4.​1B to $​14.​1B), Fixed Income Clearing Co (​up $​4.​1B to $​51.​0B), BNP Paribas (​up $​3.​7B to $​143.​4B), DNB ASA (​up $​3.​6B to $​14.​0B), Mitsubishi UFJ Financial Group Inc (​up $​3.​4B to $​46.​1B), and Bank of America (​up $​3.​3B to $​38.​2B).

The largest decreases among Issuers of money market securities (​including Repo) in June were shown by: Credit Agricole (​down $​42.​1B to $​24.​4B), Barclays PLC (​down $​21.​9B to 36.​8B), Credit Suisse (​down $​18.​1B to $​11.​2B), Natixis (​down $​15.​3B to $​28.​0B), Societe Generale (​down $​15.​2B to $​36.​1B), Mizuho Corporate Bank Ltd (​down $​11.​6B to $​17.​8B), Deutsche Bank AG (​down $​10.​5B to $​7.​2B), JP Morgan (​down $​9.​3B to $​43.​3B), Federal Home Loan Bank (​down $​6.​7B to $​549.​0B), and the US Treasury (​down $​6.​3B to $​773.​0B).

The United States remained the largest segment of country-​affiliations; it represents 64.​3% of holdings, or $​1.​846 trillion. France (​8.​5%, $​243.​9B) remained in the No. 2 spot and Canada (​8.​3%, $​237.​1B) remained No. 3. Japan (​6.​7%, $​191.​3B) stayed in fourth place, while the United Kingdom (​4.​2%, $​119.​5B) remained in fifth place. Germany (​1.​5%, $​43.​9B) moved ahead of The Netherlands (​1.​5%, $​42.​4B) into sixth place. Sweden (​1.​5%, $​44.​1B) ranked 8th while Australia (​1.​4%, $​39.​1B) moved ahead of Switzerland (​0.​8%, $​23.​7B) to rank 9th and 10th. (​Note: Crane Data attributes Treasury and Government repo to the dealer'​s parent country of origin, though money funds themselves "​look-​through" and consider these U.​S. government securities. All money market securities must be U.​S. dollar-​denominated.)

As of June 30, 2018, Taxable money funds held 31.​8% (​down from 32.​0%) of their assets in securities maturing Overnight, and another 15.​5% maturing in 2-​7 days (​down from 16.​2%). Thus, 47.​3% in total matures in 1-​7 days. Another 23.​4% matures in 8-​30 days, while 10.​0% matures in 31-​60 days. Note that over three-​quarters, or 80.​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 10.​6% of taxable securities, while 7.​5% matures in 91-​180 days, and just 1.​3% matures beyond 181 days.

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The Association for Financial Professionals, an organization of corporate treasurers, published its "2018 AFP Liquidity Survey" yesterday, which polled "​nearly 640 corporate treasury and finance professionals in April" about some of their cash management and short-​term investing preferences. Their press release says, "The 2018 AFP Liquidity Survey, underwritten by State Street Global Advisors, found that 40 percent of respondents anticipate no changes in spending at their companies in the wake of corporate tax reform. About one-​fourth of companies (​26 percent) plan to pay down debt, and 24 percent plan to repatriate foreign cash, or have already repatriated these funds."

AFP explains, "Organizations continue to allocate a significant share of their short-​term investment balances -- an average of 75 percent -- to safe and liquid investment vehicles like bank deposits, money market funds (​MMFs) and Treasury securities, with the typical organization currently maintaining 49 percent of its short-​term investment portfolio in bank deposits."

Yeng Felipe Butler, Global Head of Cash Business at State Street Global Advisors, comments, "​Current markets have been causing concerns for US economic growth, yet cash balances remain high, acting as a buffer against these market uncertainties. We'​re seeing a shift in investment professionals using cash management as part of a broader corporate strategy from historically being an operational afterthought."

The release adds, "Fully 59 percent of respondents do not foresee a change in their organization'​s short-​term investments, and only 11 percent project a shift in the mix. Any changes in an organization'​s investment mix are more likely to be observed in prime/​diversified money market funds and government/​treasury MMFs. Of the organizations anticipating a change in their organization'​s investment mix, 24 percent indicate they expect an increase in each of these categories of MMFs. About 20 percent predict an increase in commercial paper and bank deposits."

AFP'​s full survey tells us, "​This year marks the 10th anniversary of the 2008 financial crisis. While much has remained the same in financial markets in the wake of the crisis, regulatory reforms affecting money market funds and banks, continue to have lasting impacts on organizations’ operating cash portfolios.... Results from the most recent survey on liquidity by the Association for Financial Professionals substantiate this: nearly 40 percent of survey respondents indicate they prefer to take a '​wait and see' approach and anticipate no changes in their organizations' approach to cash and short-​term investment as a result of the new tax law. While some repatriation of off-​shore funds has occurred and will continue to do so, less than one-​fourth of survey respondents reports repatriation of funds is on their agenda."

It states, "In addition, corporate treasury departments remain cautiously optimistic in their perception of Prime money market funds. [​But] the floating net asset value (​NAV) is a deal breaker for most organizations, and the threshold to consider moving back to Prime funds has not yet been reached despite yield differentials compelling enough with NAVs not floating much and balances not increasing significantly…. Practitioners are keeping investment vehicle maturities short -- less than 30 days -- and are probably planning to take full advantage when interest rates do increase."

On "Cash and Short-​Term Investments/​Securities," the survey says, "​There has been no apparent change in organizations' spending, and despite the passage of tax reform legislation in late 2017, provisions of the new law were not enough to encourage organizations to begin deploying their cash and short-​term holdings.... Sixty-​five percent of organizations hold some amount of cash outside of the U.​S. -- slightly more than the 60 percent reported last year.... A majority of organizations' investment policies requires money market funds be rated. Thirty-​six percent of organizations require at least one rating agency assign an AAA rating and 29 percent mandate that their money funds earn an AAA rating from at least two agencies."

It explains, "​While the uncertainty surrounding tariffs and the threats of a trade war have prevented financial practitioners from taking any meaningful steps to deploy cash, they are, however, modestly optimistic, demonstrated by the fact that the typical organization currently maintains 49 percent of its short-​term investment portfolio in bank deposits. This allocation is a four-​percentage-​point decrease from 2017 and the lowest share since 2011.... Companies maintain their investments in relatively few investment vehicles. Organizations invest in an average of 2.​6 vehicles for their cash and short-​term investments, higher than the average 2.​3 and 2.​4 reported in 2017 and 2016, respectively."

AFP writes, "​Corporate treasury departments remain cautious. Yet with anticipated interest-​rate increases they are willing to move their allocations, albeit small, into commercial paper, Prime money funds and Eurodollar deposits as well. This reallocation demonstrates that while bank deposits continue to be the number-​one holding, the overall interest-​rate environment is causing some finance professionals to reallocate their organizations’ holdings into other, higher yield, more opportunistic investments where the credit risk is indifferent."

They tell us, "The overall majority of organizations continues to allocate a large share of their short-​term investment balances -- an average of 75 percent -- in safe and liquid investment vehicles: bank deposits, money market funds (​MMFs) and Treasury securities. Money market funds currently account for 19 percent of organizations' short-​term investment portfolios, a smaller share than the 21 percent reported in 2017 but larger than the 17 percent reported in 2016. The allocation to Government funds is 13 percent, similar to the 14 percent reported last year."

The survey comments, "The anticipated changes in investment mix are more likely to be observed in Prime/​Diversified money market funds and Government/​Treasury money market funds, with 24 percent of survey respondents indicating they expect an increase in each of these types of funds. About 20 percent anticipate an increase in commercial paper and bank deposits."

It adds, "Those organizations with cash and short-​term investment holdings outside of the U.​S. manage their cash holdings similarly as they do their domestic ones. Sixty-​one percent of non-​U.​S. cash holdings are maintained in bank-​type investments (​including certificates of deposits, time deposits, etc.). This is a 10-​percentage point decrease from the percentage reported in last year’​s survey. Another 21 percent are held in MMFs and government-​type securities -- higher than the 16 percent that reported investing in these vehicles last year. There does appear to be a shift away from banks and towards MMFs."

On banks, AFP says, "As the survey results suggest, banks are still major depositories for companies' cash and short-​term investment holdings, but they are not as dominant as they have been in the past few years. Survey results reveal a decrease in cash and short-​term investments being held at banks for U.​S. and non-​U.​S. cash holdings compared to last year'​s figures (​53 percent for cash held within the U.​S. and 71 percent for balances held outside the U.​S. in 2017)."

Finally, they tell us, "Treasury and finance professionals consider a number of factors when deciding where to place their organizations' cash and short-​term investments. A vast majority considers the overall relationship with their banks a determinant (​cited by 90 percent of survey respondents) while 73 percent indicate that the credit quality of a bank is a deciding factor." (​Watch for a second piece on the AFP Liquidity Survey in coming days.)

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Crane Data'​s latest Money Fund Market Share rankings show assets were lower for the majority of U.​S. money fund complexes in June. Money fund assets overall fell by $​32.​5 billion, or 1.​1% last month to $​3.​025 trillion, but assets have risen by $​41.​0 billion, or 1.​4%, over the past 3 months. They have increased by $​229.​4 billion, or 8.​2%, over the past 12 months through June 30, 2018. Increases among the 25 largest managers last month were seen by Goldman Sachs, Vanguard, First American, Dreyfus, UBS and Federated, who increased assets by $​7.​4 billion, $​4.​1B, $​2.​5B, and $​2.​0B, $​720M and $​602M, respectively. We review the latest market share totals below, and we also look at money fund yields in June.

Notable declines in June among the largest complexes were seen by JP Morgan, whose MMFs fell by $​21.​3 billion, or -​7.​5%, BlackRock, whose MMFs fell by $​5.​0 billion, or -​1.​7%, DWS, whose MMFs fell by $​4.​9 billion, or -​16.​4%, Schwab, whose MMFs fell by $​4.​6 billion, or -​3.​3%, and Morgan Stanley whose MMFs fell by $​4.​5 billion, or -​3.​8%,. Our domestic U.​S. "Family" rankings are available in our MFI XLS product, our global rankings are available in our MFI International product. The combined "​Family & Global Rankings" are available to Money Fund Wisdom subscribers.

Over the past year through June 30, 2018, Fidelity (​up $​61.​1B, or 11.​6%), Vanguard (​up $​42.​9B, or 15.​8%), BlackRock (​up $​38.​0B, or 14.​8%), Goldman Sachs (​up $​26.​9B, or 16.​2%), Columbia (​up $​14.​3B, or 1679.​6%), JP Morgan (​up $​13.​7B, or 5.​5%), and Wells Fargo (​up $​13.​6B, or 14.​5%) were the largest gainers. These 1-​year gainers were followed by Federated (​up $​9.​2B, or 5.​0%), SSgA (​up $​9.​0B, or 11.​2%), DWS (​up $​7.​4B, or 42.​4%), and UBS (​up $​6.​8B, or 17.​4%).

Vanguard, BlackRock, J.​P. Morgan, Goldman Sachs, Fidelity, and First American had the largest money fund asset increases over the past 3 months, rising by $​19.​4B, $​15.​0B, $​13.​3B, $​8.​4B, $​7.​6B, and $​4.​1B respectively. The biggest decliners over 12 months include: Schwab (​down $​21.​4B, or -​13.​9%), T Rowe Price (​down $​7.​5B, or -​18.​9%), Western (​down $​4.​9B, or -​16.​9%), Dreyfus (​down $​1.​1B, or -​0.​7%), and HSBC (​down $​395M, or -​3.​2%).

Our latest domestic U.​S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $​586.​9 billion, or 19.​4% of all assets. It was down $​291 million in June, up $​7.​6 billion over 3 mos., and up $​61.​1B over 12 months. Vanguard ranked second with $​314.​8 billion, or 10.​4% market share (​up $​4.​1B, up $​19.​4B, and up $​42.​9B). BlackRock was third with $​294.​2 billion, or 9.​7% market share (​down $​5.​0B, up $​15.​0B, and up $​38.​0B for the past 1-​month, 3-​mos. and 12-​mos., respectively). JP Morgan ranked fourth with $​262.​2 billion, or 8.​7% of assets (​down $​21.​3B, up $​13.​3B, and up $​13.​7B for the past 1-​month, 3-​mos. and 12-​mos., respectively), while Goldman Sachs was ranked fifth with $​192.​7 billion, or 6.​4% of assets (​up $​7.​4B, up $​8.​4B, and up $​26.​9B).

Federated was ranked in sixth place with $​192.​4 billion, or 6.​4% of assets (​up $​602M, down $​8.​0B, and up $​9.​2B), while Dreyfus held seventh place with $​167.​4 billion, or 5.​5% (​up $​2.​0B, down $​2.​4B, and down $​1.​1B). Schwab ($​132.​5B, or 4.​4%) was in eighth place, followed by Morgan Stanley in ninth place ($​132.​5B, or 3.​8%) and Wells Fargo in tenth place ($​107.​0B, or 3.​5%).

The eleventh through twentieth largest U.​S. money fund managers (​in order) include: Northern ($​99.​4B, or 3.​3%), SSgA ($​89.​6B, or 3.​0%), Invesco ($​62.​2B, or 2.​1%), First American ($​54.​1B, or 1.​8%), UBS ($​46.​0B, or 1.​5%), T Rowe Price ($​32.​1B, or 1.​1%), DFA ($​28.​6B, or 0.​9%), DWS ($​24.​8B, or 0.​8%), Western ($​24.​3B, or 0.​8%), and Franklin ($​23.​3B, or 0.​8%). The 11th through 20th ranked managers are the same as last month. (​Note, however that Deutsche was renamed DWS.) Crane Data currently tracks 67 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 BlackRock and J.​P. Morgan move ahead of Vanguard, Morgan Stanley moves ahead of Schwab, and Northern moves ahead of Wells Fargo. 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 ($​596.​3 billion), BlackRock ($​439.​2B), J.​P. Morgan ($​415.​6B), Vanguard ($​314.​8B), and Goldman Sachs ($​295.​2B). Federated ($​200.​7B) was sixth and Dreyfus/​BNY Mellon ($​185.​8B) was in seventh, followed by Morgan Stanley ($​151.​2B), Schwab ($​132.​5B), and Northern ($​126.​6B), 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 July issue of our Money Fund Intelligence and MFI XLS, with data as of 6/​30/​18, shows that yields were up again in June 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 11 bps to 1.​53% for the 7-​Day Yield (​annualized, net) Average, and the 30-​Day Yield was up 8 bps to 1.​47%. The MFA'​s Gross 7-​Day Yield increased 11 bps to 1.​98%, while the Gross 30-​Day Yield rose to 1.​87%.

Our Crane 100 Money Fund Index shows an average 7-​Day (​Net) Yield of 1.​74% (​up 13 bps) and an average 30-​Day Yield of 1.​68% (​up 9 bps). The Crane 100 shows a Gross 7-​Day Yield of 2.​01% (​up 13 bps), and a Gross 30-​Day Yield of 1.​91% (​up 9 bps). For the 12 month return through 6/​30/​18, our Crane MF Average returned 0.​96% and our Crane 100 returned 1.​16%. The total number of funds, including taxable and tax-​exempt, was up 1 fund to 965. There are currently 766 taxable and 199 tax-​exempt money funds.

Our Prime Institutional MF Index (​7-​day) yielded 1.​80% (​up 12 bps) as of June 30, while the Crane Govt Inst Index was 1.​59% (​up 12 bps) and the Treasury Inst Index was 1.​59% (​up 11 bps). Thus, the spread between Prime funds and Treasury funds is 21 basis points, up 1 bps from last month, while the spread between Prime funds and Govt funds is also 21 basis points, down 1 bps from last month. The Crane Prime Retail Index yielded 1.​62% (​up 12 bps), while the Govt Retail Index yielded 1.​26% (​up 10 bps) and the Treasury Retail Index was 1.​31% (​up 12 bps). The Crane Tax Exempt MF Index yield increased in June to 0.​98% (​up 29 bps).

Gross 7-​Day Yields for these indexes in June were: Prime Inst 2.​20% (​up 12 bps), Govt Inst 1.​91% (​up 12 bps), Treasury Inst 1.​91% (​up 11 bps), Prime Retail 2.​17% (​up 12 bps), Govt Retail 1.​88% (​up 9 bps), and Treasury Retail 1.​90% (​up 12 bps). The Crane Tax Exempt Index increased 29 basis points to 1.​51%. The Crane 100 MF Index returned on average 0.​14% over 1-​month, 0.​40% over 3-​months, 0.​69% YTD, 1.​16% over the past 1-​year, 0.​57% over 3-​years (​annualized), 0.​35% over 5-​years, and 0.​31% over 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 July issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Monday morning, features the articles: "Money Fund Symposium Focus on Rising Yields, Pending Flows," which cites highlights and quotes from our recent Pittsburgh conference; "Federated'​s Donahue Tells MFS: Be Good Neighbors," which excerpts Federated Investors' CEO Chris Donahue'​s keynote speech at MFS; and, "Worldwide MF Assets: Chinese MFs Jump, US Drop," which reviews ICI'​s latest quarterly collection of global fund statistics. We'​ve also updated our Money Fund Wisdom database with June 30, 2018, statistics, and sent out our MFI XLS spreadsheet Monday a.​m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our July Money Fund Portfolio Holdings are scheduled to ship on Wednesday, July 11, and our June Bond Fund Intelligence is scheduled to go out Monday, July 16.

MFI'​s "MF Symposium Recap" article says, "​Two weeks ago, Crane Data hosted its 10th annual Money Fund Symposium, which brought together a near-​record 565 money fund managers, issuers, dealers, investors and servicers to the $​3.​0 trillion money market fund industry. The mood overall was warm (​thanks in part to an air conditioning issue on the first day) and upbeat, as money market funds celebrated what no doubt will be their best year in a decade. Higher yields, rising assets, the continued gradual recovery in Prime funds, and the potential to take back market share from bank deposits dominated the agenda. We quote from some of the sessions below."

The lead piece continues, "​Our 'Major Money Fund Issues 2018,' moderated by Crane Data'​s Peter Crane, featured Dreyfus'​s Tracy Hopkins, Goldman Sachs Asset Management'​s Pat O’​Callaghan, and Wells Fargo AM'​s Jeff Weaver. (Note: Thanks to those who attended and supported our Pittsburgh show. Visit our 'Money Fund Symposium 2018 Download Center' to access the conference materials, and mark your calendars for next year’​s show, June 24-​26, 2019, at the Boston Renaissance.)"

It tells us, "​On the 'Major Issues' panel, Crane first asked about ultra-​short issues and whether investors were still interested in this segment. O'​Callaghan says, '​Yes, absolutely. I think there are a lot of issues going on right now in the front end.... The Fed being active is drawing people'​s attention.... If you go back to a couple of years ago -- there wasn'​t a lot of deviation [​between MMFs and ultra-​shorts].... Now you have a situation where rates are going higher and spreads are growing wider.... They'​re not just looking at money funds; they'​re looking at products across the board, whether it’​s ultra-​shorts or Treasury funds.... All of that is good for us.'"

MFI'​s latest Profile reads, "​Our recent Money Fund Symposium in Pittsburgh was keynoted by Federated Investors President & CEO J. Christopher Donahue. He addressed a number of topics, including the history of money funds, the effort to roll back recent regulatory reforms and money funds overseas. We excerpt from the speech below."

Donahue comments, "​There was one Pittsburgher who wanted to make a difference, and 50 years ago he began his program talking to children. I'​m talking about 'Mr. Rogers' Neighborhood.' Interestingly enough, we, my wife and I, live in Mr. Rogers' house in Pittsburgh where he raised his children.... 'What can Mr. Rogers teach us about money market funds?' Far more than we thought."

Mr. Rogers said, "It'​s the knowing that we can be trusted, that we never have to fear the truth." That is the bedrock of our very being. Peter Crane has also asked me a number of questions, which we will cover in this discussion."

He explains, "We'​ll begin with a little history to see how whether we can be trusted and see whether we have to fear the truth. A short history, a very neighborly history began in '​74, when the SEC decided to grant three funds, Fidelity, Federated, and Dreyfus, effective [​orders] for their money market funds.... We wanted the name Federated Cash Management, but the SEC told us, '​You can'​t have that name because you cannot manage cash.' Glen Johnson [​then] chose the name Money Market Management."

Donahue tells us, "​Then, a bad neighbor appeared on the scene. The bad neighbor was the Comptroller of the Currency. They said, 'You cannot delegate cash management to a fund. This is a violation of fiduciary duty.' Well, with client support, good legal work, and with Gene Maloney of our company learning how to spell '​fiduciary,' we got [​approval] and we were back in business." (​See Donahue'​s full speech in MFI or watch for more excerpts in coming weeks.)

MFI'​s "Worldwide" article says, "​The Investment Company Institute released its "Worldwide Regulated Open-​Fund Assets and Flows, First Quarter 2018” late last month. The most recent data collection on mutual funds in other countries (​as well as the U.​S.) shows that money fund assets globally rose by $​198.​0 billion, or 3.​4%, in Q1’​18 to $​6.​098 trillion, led by big jumps in Chinese and French money funds. Money funds in Korea, India, Ireland, and Mexico also rose. MMF assets worldwide have increased by $​940.​6 billion, or 18.​2%, the past 12 months. The U.​S., Luxembourg, and Japan were the only countries showing noticeable decreases in Q1’​18. We review the latest Worldwide MMF totals below."

ICI’​s release says, "Worldwide regulated open-​end fund assets increased 1.​5 percent to $​50.​01 trillion at the end of the first quarter of 2018, excluding funds of funds. Worldwide net cash inflow to all funds was $​584 billion in the first quarter, compared with $​687 billion of net inflows in the fourth quarter of 2017. The Investment Company Institute compiles worldwide open-​end fund statistics on behalf of the International Investment Funds Association, the organization of national fund associations. The collection for the first quarter of 2018 contains statistics from 47 jurisdictions.”

Our July MFI XLS, with June 30, 2018, data, shows total assets decreased $​32.​6 billion in June to $​3.​025 trillion, after increasing $​63.​5 billion in May and $​19.​9 billion in April, and decreasing $​42.​9 billion in March. Our broad Crane Money Fund Average 7-​Day Yield was up 11 basis points to 1.​53% during the month, while our Crane 100 Money Fund Index (​the 100 largest taxable funds) was up 13 bps to 1.​74%.

On a Gross Yield Basis (​7-​Day) (​before expenses were taken out), the Crane MFA rose to 1.​98% and the Crane 100 rose to 2.​01%. 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 both 29 days, respectively (​up one day from last month). (​See our Crane Index or craneindexes.​xlsx history file for more on our averages.)

​

The U.​K.-​based Treasury Today published an article entitled, "European MMF regs: time to cut to the chase," which gives a brief update on pending European money market fund reforms. It says, "​So much has been said about money market reform in the US and Europe over the past couple of years that it is difficult sometimes to know where we are. J.​P. Morgan Asset Management'​s recent Global Liquidity Investment Forum 2018 in London offered a refreshingly brief update and call to action. Whether the money market industry needed reform or not, it is happening." We review the brief below, and we also excerpt from the session "Global & European Money Fund Issues" from our recent Money Fund Symposium. (Note: Crane Data will host its 6th annual European Money Fund Symposium at the Hilton London Tower Bridge in London, England on Sept. 20-​21.)

The TT piece explains, "J.​P. Morgan Asset Management set out its timeline for clients at its recent Global Liquidity Investment Forum 2018 and is aiming for transition at the end of November. Subject to regulatory approval around the first week of September, its clients will receive a letter laying out the options, mapping the most appropriate path to take under the new regime and establishing a transition programme."

Kerrie Mitchener-​Nissen, Head of Product Development International, Global Liquidity, J.​P. Morgan Asset Management, says, "If a client is happy with that mapping, there is nothing for them to do." The article explains, "After close of trading on Friday 30th November, clients will be shifted over the weekend to their chosen fund options to begin under the new regime on Monday 3rd December. This is all well in advance of 21st January 2019 regulatory deadline, notes Mitchener-​Nissen."

Treasury Today quotes JPMAM Sterling PM Olivia Maguire, "Reform is not having an impact on the [​portfolio] strategy.... The regulations do not bring in many fundamental changes as to how we manage a portfolio." Mitchener-​Nissen adds, "​For the major currencies (​USD, EUR and GBP) this means clients will continue to have options of government funds and credit funds.... We will be looking to make available both in each space."

The article comments, "​New rules include maximum percentages for holdings of asset-​backed commercial paper, and some repo counterparty diversification limits, '​but all of these limits are generally what the funds are managed within today.' Although new regulatory mandated daily and weekly liquidity buckets will be imposed, Maguire says '​our AAA rated funds are already subject to a Fitch weekly minimum liquidity of 30%.' The funds will look to maintain a buffer over and above the weekly regulatory minimum but '​this won'​t be a significant change to how we need to run the portfolio.'"

It adds, "In terms of yield, where current credit funds will split into LVNAV and VNAV, the two new funds will be similarly rated and follow a similar strategy, confirms Maguire.... LVNAV funds need to hold a higher mandated minimum level of daily and weekly assets than the VNAV funds and the cost of liquidity to hold a buffer of daily/​weekly assets may cause the yield to be slightly lower than where the credit fund is today, she explains."

Finally, the piece asks, "What to do now?" They tell us, "For treasurers, the transition should be '​fairly smooth,' says Mitchener-​Nissen. For J.​P. Morgan Asset Management clients, if the mapping offered is agreeable then nothing needs to be done.... However, discussions may be necessary regarding fund options.... Beyond fund choice, she suggests that now is a good time to look at portals and platforms to see if there is anything that needs changing to accommodate the transition.... Anecdotal evidence offered by treasurers at this event suggested that the conversations of the last few years around the transition will in fact culminate in very little difference for the investor. The views of J.​P. Morgan Asset Management'​s own experts seem to concur."

In related news, our recent Money Fund Symposium in Pittsburgh featured a presentation on Global & European MMFs, which featured Jonathan Curry of HSBC Global Asset Management, Reyer Kooy of IMMFA & DWS, and Alastair Sewell of Fitch Ratings. Kooy explains, "We are now 7 months from the [​reforms] finish, except for negative yielding funds where the situation is unclear." While there is "Limited guidance for the industry on how to implement [​them], `​nonetheless reforms will happen and MMF '​shadow banking' risks will be remedied in Europe."

He continues, "For years MMFs have successfully used an operational mechanism in which negative yield is '​distributed' through share cancellation: RDM [​Reverse Distribution Mechanism], but the RDM [​was] opposed in an ESMA Consultation of May 2017.... The ESMA view of RDM was upheld by the European Commission in January 2018." But he says we'​re awaiting final word from ESMA and "There'​s been no resolution yet."

Kooy concludes that the "New European MMFs will be in place January 2019 [​and that] statutory regulation across the EU should boost product visibility." He expects "​Funds under management to continue growing" and says that "IMMFA is committed to maintaining standards in the industry, so expect further changes to their Principles of Best Practice."

Finally, Sewell commented on French and Chinese money market funds. He says of the former, "France is a very large market, so I think they have E600B or so ... most of these [​are] what we call standard money market funds. As such, they have a longer maturity profile than short term money market funds.... When yields went negative 7 years ago, investors responded [​by shifting] from short term money market funds ... to standard money market funds.... A question here would be, if yields turn positive again [​will they] move back to short term or stay in the standard funds?"

Crane Data'​s MFI International, which tracks "​offshore" money market mutual funds domiciled in Ireland or Luxemburg and denominated in USD, Euro and GBP (​sterling), shows assets falling year-​to-​date in 2017. Last year, assets of all three currencies combined increased by $​100 billion, or 13.​7%, to $​831 billion. Year-​to-​date in 2018 (​through 7/​3/​18), MFII assets are up $​1 billion to $​832 billion (​due to currency moves), but USD assets are down noticeably. U.​S. Dollar (​USD) funds (​158) account for about half ($​415 billion, or 49.​9%) of the total, while Euro (​EUR) money funds (​98) total E92 billion and Pound Sterling (​GBP) funds (​110) total L213 billion. USD funds are down $​10 billion, YTD, but were up $​27B in 2017.

Euro funds are down E6 billion YTD but were up E3B in 2017, while GBP funds are down L5B YTD after rising L29B in 2017. USD MMFs yield 1.​84% (​7-​Day) on average (​as of 7/​3/​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.​39%, up from 0.​24% at the end of 2017 and 0.​19% at the end of 2016. (​See also our June 19 News, "UK Prepares for European Money Fund Regulations," and our May 25 News, "Euromoney Cites Cross, Goldthwait on European Reforms.")

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On Monday, we quoted from the "Major Issues" panel at our recent Money Fund Symposium conference, which we hosted a week and a half ago in Pittsburgh. Today, we excerpt from the "​Senior Portfolio Manager Perspectives" segment that featured Laurie Brignac of Invesco, John Tobin of J.​P. Morgan Asset Management, and Dave Walczak of UBS Asset Management. Moderator Peter Crane asked the three about what they'​re buying, risks in today'​s market and a number of other portfolio management topics. We review this session below. (​Visit our "Money Fund Symposium 2018 Download Center" to access the Powerpoints, recordings and binder materials from our Pittsburgh show, and mark your calendars for next year'​s show, June 24-​26, 2019, at the Boston Renaissance.)

Crane first asked Walczak about the risks of rising rates. He answered, "I think from our standpoint, the risk really comes in ... potentially if you are forced to sell a security to raise liquidity. Obviously, with rates continuing to increase, that means that chances are pretty good that [​any] security you are looking [​to sell] might be at slight mark-​to-​market loss, something that we'​re very mindful of.... We tend to think that the best liquidity is maturity, so that definitely causes us to be much more focused on liquidity in our fund, [​especially] on the Prime side.... So I would say that'​s one concern on our end.... The other is ... there is more competition from the buyer base ... in terms of some non-​money market funds investors stepping into our base."

With the World Cup going on, Crane joked that being a portfolio manager is like being a soccer goalie -- 99 percent boredom and one percent sheer terror. He asked Tobin, "What are you buying now? What aren'​t you buying?" Tobin answered, "In terms of credit ... we'​re happy to stay relatively short and liquid." He mentioned floaters, and added, "We'​re holding more cash and more liquidity [​due to repatriation and due to] the Fed tightening cycle."

Brignac said, "When we sit here and talk about what could go wrong: the good news is [​from a] credit perspective, I think we are in pretty good shape. We really haven'​t had a whole lot of changes to our approved list. I think if we think about risk right now, it is all idiosyncratic risk. It is event risk. That is the kind of stuff that has been keeping us up at night.... We don'​t know what tweets are coming out, with trade wars, Brexit and the EU, etc. So, there is definitely a lot of event risk out there that you have to be mindful of.... From our perspective, we really [​focus on] keeping a lot of liquidity and making sure these don'​t hurt you."

Walczak added, "On the buy side, to echo John'​s point, we'​ve generally been pretty favorable on floating rate securities. They'​ve served us pretty well ever since the Fed started hiking.... Back in March, we saw the 3-​month LIBOR get particularly attractive as we saw the widening there.... But recently, we'​ve seen the spreads come in on floaters.... We'​ve finally seen more interest come back in. A little bit less being issuance too has also helped spreads compress. But we continue to like floaters in this environment ... given our outlook for the Fed."

Finally, on portfolio construction and procedures, Brignac stated, "​There are a couple ways to look at it -- top-​down, bottom-​up, etc.... But one of the things I love about the liquidity space is, the details really matter, so that very much is bottom-​up. The first thing you have to do is obviously know your clients [​and know that you'​ve got] plenty of liquidity on that side.... On the credit side, we work off approved lists and have separate reporting lines.... We can talk about a macro view, but we deal in such short-​time periods. We don'​t lead with yield, we lead with liquidity and safety."

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 June 29) includes Holdings information from 52 money funds (​down from 78 on June 22), representing $​936.​9 billion (​down from $​1.​260 billion on June 22) of the $​2.​925 (​32.​0%) in total money fund assets tracked by Crane Data. (​See our June 12 News, "June Money Fund Portfolio Holdings: Repo Jumps Again, Treasuries Fall" for commentary on our full monthly series.)

Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Repurchase Agreements (​Repo) totaling $​329.​4 billion (​down from $​437.​6 billion on June 22), or 35.​2%, Treasury debt totaling $​304.​7 billion (​down from $​371.​6 billion) or 32.​5%, and Government Agency securities totaling $​202.​2 billion (​down from $​280.​1 billion), or 21.​6%. Commercial Paper (​CP) totaled $​29.​0 billion (​down from $​56.​0 billion), or 3.​1%, and Certificates of Deposit (​CDs) totaled $​26.​0 billion (​down from $​40.​9 billion), or 2.​8%. A total of $​22.​3 billion or 2.​4%, was listed in the Other category (​primarily Time Deposits), and VRDNs accounted for $​23.​3 billion, or 2.​5%.

The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $​304.​7 billion (​32.​5% of total holdings), Federal Home Loan Bank with $​162.​0B (​17.​3%), BNP Paribas with $​42.​9 billion (​4.​6%), RBC with $​33.​6B (​3.​6%), Federal Farm Credit Bank with $​33.​0B (​3.​5%), Federal Reserve Bank of New York with $​25.​3B (​2.​7%), Wells Fargo with $​22.​8B (​2.​4%), Nomura with $​19.​1B (​2.​0%), HSBC with $​18.​9B (​2.​0%), and JP Morgan with $​14.​2B (​1.​5%).

The Ten Largest Funds tracked in our latest Weekly include: JP Morgan US Govt ($​131.​5B), Goldman Sachs FS Govt ($​97.​2B), Wells Fargo Govt MMkt ($​73.​4B), Dreyfus Govt Cash Mgmt ($​64.​9B), Goldman Sachs FS Trs Instruments ($​56.​1B), Morgan Stanley Inst Liq Govt ($​53.​8B), State Street Inst US Govt ($​52.​5B), JP Morgan Prime MM ($​38.​7B), JP Morgan 100% US Trs MMkt ($​37.​7B), and First American Govt Oblig ($​36.​1B). (Note: BlackRock and Federated, among others, don'​t report weekly but report twice a month, so these funds normally only appear in mid-​month cuts. 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 Investment Company Institute released its "Worldwide Regulated Open-​Fund Assets and Flows, First Quarter 2018" late last month. The most recent data collection on mutual funds in other countries (​as well as the U.​S.) shows that money fund assets globally rose by $​198.​0 billion, or 3.​4%, in Q1'​18, led by big jumps in Chinese and French money funds. Money funds in Korea, India, Ireland, and Mexico also rose. MMF assets worldwide have increased by $​940.​6 billion, or 18.​2%, the past 12 months. The U.​S., Luxembourg, and Japan were the only countries showing noticeable decreases in Q1'​18. We review the latest Worldwide MMF totals below.

ICI'​s release says, "Worldwide regulated open-​end fund assets increased 1.​5 percent to $​50.​01 trillion at the end of the first quarter of 2018, excluding funds of funds. Worldwide net cash inflow to all funds was $​584 billion in the first quarter, compared with $​687 billion of net inflows in the fourth quarter of 2017."

It explains, "The Investment Company Institute compiles worldwide open-​end fund statistics on behalf of the International Investment Funds Association, the organization of national fund associations. The collection for the first quarter of 2018 contains statistics from 47 jurisdictions."

ICI tells us, "Total regulated open-​end fund assets reported in US dollars increased in the first quarter of 2018 in part reflecting depreciation of the US dollar. For example, on a US dollar-​denominated basis, fund assets in Europe increased by 2.​3 percent in the first quarter, compared with a decrease of 0.​5 percent on a euro-​denominated basis."

They continue, "​On a US dollar-​denominated basis, equity fund assets increased by 0.​6 percent to $​21.​96 trillion at the end of the first quarter of 2018. Bond fund assets increased by 1.​7 percent to $​10.​55 trillion in the first quarter. Balanced/​mixed fund assets increased by 0.​8 percent to $​6.​47 trillion in the first quarter, while money market fund assets increased by 3.​4 percent globally to $​6.​10 trillion."

ICI writes, "​At the end of the first quarter of 2018, 44 percent of worldwide regulated open-​end fund assets were held in equity funds. The asset share of bond funds was 21 percent and the asset share of balanced/​mixed funds was 13 percent. Money market fund assets represented 12 percent of the worldwide total."

The release adds, "Net sales of regulated open-​end funds worldwide were $​584 billion in the first quarter of 2018. Flows into equity funds worldwide were $​263 billion in the first quarter, after experiencing $​283 billion of net inflows in the fourth quarter of 2017. Globally, bond funds posted an inflow of $​147 billion in the first quarter of 2018, after recording an inflow of $​162 billion in the fourth quarter. Inflows from balanced/​mixed funds worldwide totaled $​86 billion in the first quarter of 2018, compared with $​79 billion of inflows in the fourth quarter of 2017. Money market funds worldwide experienced an inflow of $​132 billion in the fourth quarter of 2017 after registering an inflow of $​310 billion in the third quarter of 2017."

According to Crane Data'​s analysis of ICI'​s "​Worldwide" fund data, the U.​S. maintained its position as the largest money fund market in Q1'​18 with $​2.​793 trillion, or 45.​8% of all global MMF assets. U.​S. MMF assets decreased by $​54.​4 billion in Q1'​18 and increased by $​128.​6B in the 12 months through March 31, 2018. China remained in second place among countries overall, as assets continued surging in the latest quarter and year. China saw assets increase $​204.​0 billion (​up 19.​7%) in Q1 to $​1.​239 trillion (​20.​3% of worldwide assets). Over the last 12 months through March 31, 2018, Chinese MMF assets have risen by $​653.​8 billion, or 111.​7%.

Ireland remained third among these country rankings, ending Q1 with $​590.​7 billion (​9.​7% of worldwide assets). Dublin-​based MMFs were up $​6.​7B for the quarter, or 1.​1%, and up $​74.​7B, or 14.​5%, over the last 12 months. France remained in fourth place with $​445.​3 billion (​7.​3% of worldwide assets). Assets here increased $​32.​5 billion, or 7.​9%, in Q1, and were up $​40.​5 billion, or 10.​0%, over one year. Luxembourg was in fifth place with $​377.​2B, or 6.​2% of the total, down $​16.​6 billion in Q1 (-​4.​2%) and up $​14.​3B (​3.​9%) over 12 months.

Japan remained in sixth place with $​108.​1 billion (​1.​8%); assets there dropped $​7.​2 billion. Japanese MMFs are up $​187 million, or 0.​2%, over the past 12 months. Korea, the 7th ranked country, saw MMF assets rise $​8.​6 billion, or 9.​3%, to $​100.​4 billion (​remaining 1.​6% of total) in Q1 and fell $​6.​0 billion (-​5.​7%) for the year. Brazil continued to remain in 8th place; assets increased $​2.​3 billion, or 2.​9%, to $​81.​5 billion (​1.​3% of total assets) in Q1. They have decreased $​5.​3 billion (-​6.​1%) over the previous 12 months.

ICI'​s statistics show Mexico in 9th place with $​58.​6B, or 1.​0% of total, up $​5.​3B (​9.​9%) in Q1 and up $​6.​4B (​12.​2%) for the year. India was in 10th place, increasing $​6.​8 billion, or 15.​1%, to $​51.​6 billion (​0.​8% of total assets) in Q1 and increasing $​3.​2 billion (​6.​6%) over the previous 12 months. (​Note also that ICI'​s data no longer includes money fund figures for Australia. Australia'​s MMF assets were shifted into the "​Other" category three years ago.)

The United Kingdom ($​29.​7B, up $​2.​3B and up $​7.​0B over the quarter and year, respectively) ranked ahead of Chinese Tapei ($​28.​8B, up $​2.​0B and up $​1.​5B), South Africa ($​26.​2B, up $​442M and up $​3.​8B) stayed ahead of Chile ($​25.​5B, up $​3.​8B and up $​3.​4B) and Switzerland ($​22.​1B, down $​239M and up $​3.​3B). These countries ranked 11th through 15th, respectively. Sweden, Canada, Poland, Norway and Germany round out the 20 largest countries with money market mutual funds.

Note that Ireland and Luxembourg'​s totals are primarily "​offshore" money funds marketed to global multinationals, while most of the other countries in the survey have primarily domestic money fund offerings. Contact us if you'​d like our latest "Largest Money Market Funds Markets Worldwide" spreadsheet, based on ICI'​s data, or if you'​d like to see our MFI International product.

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Last week, Crane Data hosted its 10th annual Money Fund Symposium, which brought together 565 money fund managers and professionals, issuers, dealers, cash investors and servicers to the $​3.​0 trillion money market fund industry. We'​ll be excerpting the keynote speech from Federated Investors CEO Chris Donahue in the upcoming issue of our Money Fund Intelligence, and we'​ll also be transcribing and excerpting some of the other conference highlights in coming days. Below, we quote from the segment "Major Money Fund Issues 2018," which was moderated by Crane Data'​s Peter Crane and which featured Dreyfus'​s Tracy Hopkins, Goldman Sachs Asset Management'​s Pat O'​Callaghan, and Wells Fargo AM'​s Jeff Weaver. They discussed the major topics of the event and industry, including rising rates, competition to bank deposits, the prevalence of Government money funds in the industry and the continued popularity of ultra-​short and "​alt-​cash" options. (Note: Thanks to those who attended and supported our Pittsburgh show! Visit our "Money Fund Symposium 2018 Download Center" to access the Powerpoints, recordings and binder materials, and mark your calendars for next year'​s show, June 24-​26, 2019, at the Boston Renaissance.)

On the "Major Issues" panel, Crane first asked about ultra-​short issues and whether investors were still interested in this segment. O'​Callaghan says, "​Yes, absolutely. I think there are a lot of issues going on right now in the front end. There is offshore reform coming in at the beginning of next year -- when it is fully implemented.... The previous panel discussed the Fed, and that ... is a key component to cash right now. The Fed being active is drawing people'​s attention back to the front end. If you go back to a couple of years ago -- there wasn'​t a lot of deviation [​between MMFs and ultra-​shorts].... Now you have a situation where rates are going higher and spreads are growing wider ... [​and you also have issues] like repatriation.... So all of this is getting investors' attention.... They'​re not just looking at money funds; they'​re looking at products across the board ... whether it'​s ultra-​shorts or Treasury funds.... All of that is very good for us."

When asked whether we'​re biased towards Prime over Government MMFs, Hopkins comments, "​I think [​whether investors choose prime or govt] it'​s all good. We like to see the markets being healthy and assets being diversified across various asset classes. I am very happy to see Prime assets coming back in. It'​s been a slow and steady increase. [​A]​fter [​the] 2014 [​reforms], we saw the mass migration go into Government funds. But now that there is some yield, near a 2% level and we'​re short and liquid ... I think it is a healthy thing to see customers diversifying their assets and moving back into Prime. And, yes, I am a little bit biased because I do think that the market requires people to be invested across all asset classes."

Weaver says about rising rates, "Certainly, money market funds are a great place to be when rates are going up, with the shortest duration and the least amount of interest rate risk.... We do expect the Fed to continue to raise interest rates.... At the beginning of the year, we expected there would be four raises and that has come to fruition.... We still believe there will be two more this year and that'​s now reflected in the dot plot.... [​We also expect more] in 2019, since the economy is doing well." He adds, "I think we'​re pretty content with our fund lineup.... I feel like we have a good suite of products."

On spreads, Hopkins tells us, "Before reform in 2016, you had some corporate and other institutional investors saying they would not look at Prime unless there is a spread of 50 bps. What we are seeing now is that these some customers are starting to ... become much more comfortable with the options that are out there, whether it'​s an SMA [​or other].... We are seeing these customers start to dip their toes back into Prime.... Since October 2016, institutional prime funds are up 65%, or 11% year to date.... So I think customers were getting used to seeing maybe a 15 bps yield spread. But [​when] it ticks up to 35 or 40, you are just leaving money on the table. If you are bucketing your cash appropriately, that is return that you do not want to leave on the table, especially with some big cash investors. Some customers still would like to see 40 bps before they dip their toe in, but there is a number of customers who have come back at this point."

When asked about fees, O'​Callaghan says, "On Prime funds, we did waive and have been waiving additional fees to increase shareholder return. The reason behind that was, if you look at our Prime funds we are generally an institutional shop, so the fact that [​reforms had] impacted our prime fund assets.... This year we made a concerted effort to get the Prime funds back up to scale.... Scale really has different meanings to different people, but within the corporate treasurer sector, you generally need assets of $​5 to $​10 billion.... So this definitely was an exercise to make our Prime funds relevant to our corporate clients again, and it'​s been mostly successful. We raised about $​8 billion through the waiver program, and will continue to do that until we'​re at scale."

Hopkins adds, "Well, the good thing is there'​s no [​zero-​yield] waivers on the funds anymore. There are still competitive waivers going on.... We'​ve done that for the same reason that Goldman has, we'​re trying to build up the funds.... Even in the Government space, there'​s some competitive waivers going on.... Our question is really whether the market has repriced itself.... What we'​re seeing right now is we'​re about 15 bps in that [​high-​end institutional] space."

Weaver comments, "The NAIC did change their view on money market funds because [​agency funds] are not guaranteed by the US government. They are now excluded from their list of approved money funds. This is [​primarily an] insurance focused development. I think while we somewhat disagree about it, it is what it is, and I think we should all be playing by the same rules.... The Government funds have grown so much relative to the Treasury funds [​so it shouldn'​t have a big impact]."

On flows and repatriation, O'​Callaghan tells us, "Offshore, our complex is down slightly. I would say the vast majority of that is repatriation related. Onshore, the prime space is up. As we mentioned, we have a free waiver program in place. It is unclear if repatriation [​is driving this].... On the government fund side, we are up slightly on the year. I know the industry is down.... So I would say net-​net flows have been good." Weaver adds, "​We feel good about flows, and people are excited about yields in the front end."

Next, we asked about some alternative products. Hopkins says, "The ETF component is an interesting one and we are taking a look at that.... It is something that gets some interest on our end. On the ultrashort side, we do have an ultrashort bond fund that [​is] a little bit longer in duration. With money market reform, we took the maturity and duration play so it looks more like the old 2a-​7 where it has a 120-​day WAM and its invested in high grade securities to be held in maturity and securities were held in 18 months. It is really conservative.... I think where we were seeing interest is in the private wealth space. But corporates are starting to take a bigger role."

Finally, Crane asked about ESG (​environmental, social and governance) issues and recounted the tale of a couple of these funds in the 1990'​s. O'​Callaghan tells us, "​Over the last year to a year and a half, definitely investors have been talking about it [​discussing] progressive policies and how to effectively incorporate that into their investment policies." He says separately managed accounts are the primary vehicle for these investors.

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