News Archives: August, 2018

The Investment Company Institute released its latest weekly "Money Market Fund Assets" and its latest monthly "Trends in Mutual Fund Investing" reports yesterday. The former shows MMF assets flat for the third week in a row, while the latter which shows a $14.9 billion increase in money market fund assets in July to $2.835 trillion. This follows a $30.1 billion drop in June, $58.3 billion jump in May, and a $0.4 billion decrease in April. In the 12 months through July 31, money fund assets have increased by $188.4 billion, or 6.7%. (Month-to-date in August through 8/29, assets have increased by $28.3 billion, $26.5 billion of which is from Prime MMFs, according to our MFI Daily.) ICI also released its latest Portfolio Holdings totals, which show jumps in Treasuries, Repo and CP holdings in July. We review ICI's Assets, Trends and latest Portfolio Composition statistics below.

The "Assets" report shows money fund totals inching lower after hitting their highest levels since 2010 last week. Prime assets continued their strong recent growth. Overall assets are now up $26 billion, or 0.9%, YTD, and they've increased by $148 billion, or 5.4%, over 52 weeks. ICI writes, "Total money market fund assets decreased by $484 million to $2.86 trillion for the week ended Wednesday, August 29, the Investment Company Institute reported today. Among taxable money market funds, government funds decreased by $7.50 billion and prime funds increased by $6.30 billion. Tax-exempt money market funds increased by $711 million." Total Government MMF assets, which include Treasury funds too, stand at $2.206 trillion (77.0% of all money funds), while Total Prime MMFs stand at $527.6 billion (18.4%). Tax Exempt MMFs total $130.5 billion, or 4.6%.

They explain, "Assets of retail money market funds increased by $3.18 billion to $1.05 trillion. Among retail funds, government money market fund assets decreased by $296 million to $630.65 billion, prime money market fund assets increased by $2.68 billion to $300.66 billion, and tax-exempt fund assets increased by $803 million to $123.00 billion." Retail assets account for over a third of total assets, or 36.8%, and Government Retail assets make up 59.8% of all Retail MMFs.

ICI's release adds, "Assets of institutional money market funds decreased by $3.67 billion to $1.81 trillion. Among institutional funds, government money market fund assets decreased by $7.20 billion to $1.57 trillion, prime money market fund assets increased by $3.62 billion to $226.95 billion, and tax-exempt fund assets decreased by $92 million to $7.54 billion." Institutional assets account for 63.2% of all MMF assets, with Government Inst assets making up 87.0% of all Institutional MMFs.

ICI's monthly report states, "The combined assets of the nation's mutual funds increased by $343.74 billion, or 1.8 percent, to $19.24 trillion in July, 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 $17.33 billion in July, compared with an inflow of $10.97 billion in June.... Money market funds had an inflow of $12.02 billion in July, compared with an outflow of $32.69 billion in June. In July funds offered primarily to institutions had an inflow of $2.61 billion and funds offered primarily to individuals had an inflow of $9.40 billion."

The latest "Trends" shows that Taxable MMFs gained assets and Tax Exempt MMFs lost assets last month. Taxable MMFs increased by $19.3 billion in July to $2.704 trillion, after decreasing by $27.1 billion in June, increasing by $51.6 billion in May, and increasing by $0.8 billion in April. Tax-Exempt MMFs decreased $4.5 billion in July to $131.2 billion. Over the past year through 7/31/18, Taxable MMF assets increased by $187.3 billion (7.4%) while Tax-Exempt funds rose by $1.0 billion over the past year (0.8%). Bond fund assets increased by $31.0 billion in July to $4.146 trillion; they rose by $216.6 billion (5.5%) over the past year.

Money funds now represent 14.7% all mutual fund assets (down from 14.9% the previous month), while bond funds represent 21.8%, according to ICI. The total number of money market funds was unchanged at 383 in July, but this total is down from 412 a year ago. (Taxable money funds were unchanged at 299 funds, while tax-exempt money funds were also unchanged at 84 funds over the last month.)

ICI also released its latest "Month-End Portfolio Holdings of Taxable Money Funds," which showed a jump in Treasuries, Repo, CP and CDs in July. Repurchase Agreements remained in first place among composition segments; they increased by $21.6 billion, or 2.4%, to $930.5 billion, or 34.4% of holdings. Repo holdings have risen by $72.6 billion, or 8.5%, over the past year. (See our August 10 News, "August Money Fund Portfolio Holdings: Treasuries, CP, CD Show Jumps.")

Treasuries rose by $29.7 billion, or 4.1%, to $758.0 billion or 28.0% of holdings. Treasury Bills & Securities have increased by $98.6 billion over the past 12 months, or 15.0%. U.S. Government Agency Securities were the third largest segment; they rose by $957 million, or 0.1%, to $664.3 billion, or 24.6% of holdings. Agency holdings have fallen by $11.2 billion, or -1.7%, over the past 12 months.

Certificates of Deposit (CDs) stood in fourth place; they increased $11.9 billion, or 6.6%, to $191.6 billion (7.1% of assets). CDs held by money funds have fallen by $1.4 billion, or -0.7%, over 12 months. Commercial Paper remained in fifth place, increasing $20.3B, or 12.0%, to $189.9 billion (7.0% of assets). CP has increased by $62.4 billion, or 49.0%, over one year. Notes (including Corporate and Bank) were up by $341 million, or 5.0%, to $7.1 billion (0.3% of assets), and Other holdings increased to $12.3 billion.

The Number of Accounts Outstanding in ICI's series for taxable money funds increased by 25.2 thousand to 32.369 million, while the Number of Funds remained at 299. Over the past 12 months, the number of accounts rose by 6.279 million and the number of funds decreased by 17. The Average Maturity of Portfolios was 29 days in July, down 2 days from June. Over the past 12 months, WAMs of Taxable money funds have shortened by 3 days.

T. Rowe Price published a new paper in its "Price Perspective" series, entitled "Cash Management: How Does The Changing Landscape Impact Institutional Cash Investors?" Authors Joseph Lynagh, Justin Harvey, and Whitney Reid summarize, "The Tax Cuts and Jobs Act of 2017 required companies to bring profits earned overseas back to the U.S. at lower tax rates than had historically been applied to foreign earnings. This change encouraged multinationals with significant overseas cash to reconsider the domicile of their liquid holdings. In light of this tax change, combined with the divergent rate paths of developed-market yield curves, investors should reevaluate their current cash investment policies, guidelines, goals, and objectives. We believe cash investors will benefit from quantifying the risks they are willing to take and then strategically constructing their cash portfolios to reflect that tolerance."

They explain, "By segmenting cash investment pools into tiers based on operational needs, time horizon, and risk appetite, investors may be able to increase the income generated by their cash portfolios while preserving sufficient liquidity. T. Rowe Price has developed a comprehensive investment framework that helps cash investors design customized cash strategies reflecting their income goals, risk tolerances, and liquidity requirements."

TRP writes, "Given the combination of tax changes and an evolving interest rate environment, we believe cash investors will benefit from a broader and more dynamic cash investment framework that models potential allocations based on three key inputs: income and return targets, liquidity requirements, and risk tolerance. This framework, which involves multiple steps, provides important guidance for cash investors and could lead to more effective cash investment programs."

The paper tells us, "Our cash investment framework begins with segmenting cash holdings into four tiers based on investment time horizons, which range from short term (immediate cash needs) to long term (strategic cash). By allocating cash investments into tiers, investors can better align cash income opportunities with liquidity requirements. The four tiers … are segmented by maturity profile. They are further defined by a set of characteristics, including liquidity, representative vehicle options, and target asset quality."

It continues, "Our ultimate goal is to allocate cash across the four tiers in a way that seeks to meet an investor’s income, return, risk tolerance, and liquidity requirements. The optimal allocation among the tiers is contingent on a detailed cash flow and risk analysis that investors should revisit periodically as cash flow needs and market conditions change."

The piece states, "After segmenting cash requirements into tiers based on time horizon, we start the cash investment analysis by defining an investor's current cash allocation, investment objectives, liquidity needs, and constraints.... [I]nvestment vehicles available in Tiers 2 to 4 offered more attractive income opportunities than money market strategies and bank demand deposits. However, they introduced default and interest rate risk."

Lynagh, et. al. comment, "The relationship between interest rate movements and cash investment outcomes is quite complex. Rising interest rates are a double-edged sword for cash investors: The cash portfolio may initially sustain marked-to-market losses, but subsequent coupon and maturity payments can be reinvested at higher yields. Depending on the maturity profile of current holdings and cash flow timing, the break-even point for a cash investor to recover from rising rates may actually be shorter than many investors perceive. Similarly, a decline in interest rates may produce capital appreciation in the short term, but reinvested cash flows will have less return potential in the future."

They say, "Applying a range of interest rate scenario analyses can help cash investors quantify the opportunity and risk trade-offs of each cash allocation, which we define as higher income versus principal volatility. The former addresses the goal of our hypothetical investor to increase cash income; the latter represents the potential marked to-market losses that the portfolio may experience based on interest rate and spread changes. The goal is an analysis that integrates income opportunity with market risk."

Finally, the paper tells us, "As noted above, we believe recent tax incentive changes and divergent interest rate opportunities will encourage cash investors to reevaluate their cash investment policies, guidelines, and objectives."

It concludes, "By segmenting their cash into different liquidity tiers, cash investors can more efficiently deploy their capital across the risk and return spectrum. T. Rowe Price has developed a cash investment framework that we believe will enable cash investors to more acutely define their risk and return objectives while optimizing the total income produced by their cash investments."

State Street Global Advisors' latest Cash Market Podcast discusses European Money Market Reforms and features Portfolio Strategist Will Goldthwait and Portfolio Managers Sean Lussier and Nick Pidgeon. (See the transcript here.) Goldthwait explains, "We are going to be talking about European money market reform, but specifically the markets and portfolio positioning in light of reform." He asks, "How is this European reform different from what happened in the US?" We review the podcast and the latest on European MMF Reforms below. (Note: We'd like to again remind readers about our upcoming European Money Fund Symposium, which will take place Sept. 20-21 at the London Tower Bridge Hilton. We hope to see you in London next month!)

SSGA's Lussier explains, "European Money Fund reform is currently not stirring up the same reaction that US money fund reform received prior to the US deadline of Oct 2016. Let me remind our listeners of two key reasons why that is the case. First in the US, all institutional prime money market funds had to convert to a variable Net Asset Value pricing model or VNAV. Only Retail Prime funds had the option to value assets using amortized cost accounting or Constant Net Asset Value pricing or CNAV. Secondly, US Government and US Treasury funds had the option to decline the use of liquidity gates and redemption fees.... Both of these factors weighed heavily in clients choosing government funds as their preference."

He continues, "As for European reform, first, the regulators have listened to investor and investment manager feedback and are allowing a new pricing structure for prime funds -- the Low Volatility NAV (LVNAV). This structure will support a Constant NAV price valued at $1.00, as long as the 'shadow price,' or mark to market price of the fund, remains within a 20 basis point range, called a 'collar'.... Secondly, European reform did not give Sovereign or Government funds and or their providers the option to decline the use of liquidity gates and redemption fees for these funds."

Lussier adds, "Regardless, the feedback we have received is that European clients are pleased with the rule changes and that their preference is to remain in the strategies they are currently invested in. Now, of course, significant regulatory change such as this will create some market volatility and uncertainty, but the short end credit markets have proven that they are dynamic and flexible enough to accommodate telegraphed regulatory changes."

When asked how he is positioning the USD "offshore" funds, Lussier answers, "It has made sense to naturally position the funds during this [Fed] hiking cycle with a shorter duration and concentrated maturities around FOMC meeting dates in order to reinvest into higher rates. This natural market positioning will also coincide with the regulatory deadline of January 2019, and should provide the funds with increased liquidity and Net Asset values at or near par as we get closer to the fund specific regulatory transition date. Given the increase in U.S. Treasury bills and repurchase agreement collateral that market has experienced, in combination with attractive short date credit offerings, the supply available to the market should accommodate this cautious positioning ahead of the reform."

On the Sterling money funds, Pidgeon tells us, "It seems to be business as usual regarding money fund reform from a Sterling perspective. Like Sean mentioned there will be some exceptions but I don't think enough to see significant sterling flows. In fact, our sterling fund has seen some robust growth over the past year and we would hope this remains on track."

He also says, "The biggest adjustment will be to liquidity ratios with some minor tweaks elsewhere as most of the rules are pretty much in line. We already run the fund to a minimum 10% overnight and 30% one week liquidity, which is in line with the new regulations. But the new rules are more stringent, however, around processes and the chain of events that could be affected if liquidity falls below theses limits. So the tighter regulation will require an up-lift in liquidity provisioning to ensure ratios are maintained. This aligns with use of amortized accounting within the context of pricing for an LVNAV fund."

Pidgeon explains, "Although we will still aim to create a robust maturity ladder on investments, only securities that are less than 75 days to maturity can use amortized accounting. Therefore, you should expect a higher ratio of 75 day or less to maturity securities, which both assist in stable fund pricing and assist in higher liquidity ratios in a laddered portfolio. I still wouldn't expect a huge difference in the Weighted Average Maturity & Weighted Average Life over time of the fund though against the daily average of the current CNAV offering."

He adds, "Sterling Repo investments can be tricky at quarter ends and year ends. We have seen huge swings in yields offered over these periods and generally yields have turned negative. You could see less reliance on repo this yearend though and more reliance on UK sovereign debt."

When asked by Goldthwait about a conversion date for the new funds, Lussier responds, "We have heard from some fund companies that they will be converting in the 4th Quarter.... We continue to discuss the date that we will be converting our funds. It's possible we transition all 4 of our funds at once or stagger the transitions over a series of dates. Regardless, you can be sure the transition dates will be fully vetted with our internal and external partners to ensure a smooth and seamless conversion."

The SSGA PM adds "If what is expected actually occurs, very little AUM movement, then the conversion date should not mean much to the shareholders of the funds. Although we know the final rules or end state of Euro funds has not been determined due to the negative interest rates in that currency, those clients in European funds could be forced to choose a variable NAV instead of the constant NAV if ESMA's decision on Reverse Distribution Mechanism or RDM, is not appealed."

Finally, Pidgeon states, "The door for Reverse Distribution Mechanism funds is still slightly open, with options for the RDM still being discussed by competent authorities to see if they are able to agree a possible way forward. As it stands, however, ESMA has directed that the RDM will not be allowed for CNAV and LVNAV funds because those funds are negative yielding, as you said. Therefore current Euro CNAV MMF investors could have fewer options open to them, whilst we remain in a negative rate environment in the Eurozone."

He adds, "We do know the rule changes around RDM and conversion to VNAV is more significant for some investors, but others feel comforted by the lack of liquidity gates and fees. We do have a robust process to identify what each client of the fund will do with their balances, and while liquidity requirements for the STVNAV funds are slightly lower than what is required for LVNAV, I suspect the main change we will see in managing the fund will be liquidity. This is likely to be elevated going into the conversion date, and until we get more comfortable with the client positioning under new reforms. That aside, we will look to continue managing a well laddered liquid portfolio in line with current ECB outlook for markets."

For more on European Money Market Fund Reforms, see these recent Crane Data News stories: Goldman on Repatriation, European Reforms; Federated Plans; Assets (8/24), BlackRock Details European Money Fund Reform Plans; Love the LVNAV (8/17), SEC Shows Private Liquidity Funds Up in Q4; HSBC's European MF Plans (8/14), Morgan Stanley European MMF Reform Plans; Offshore Port Composition (7/17), JPMAM European MMFs Plan for Nov 2018 Conversion; MF Assets Plunge (3/16), and JP Morgan To Offer All European Fund Options; ICI MMF Holdings Update (11/16/17).

This month, Bond Fund Intelligence speaks with Brad Camden, Director of Fixed Income Strategy at Northern Trust Asset Management. Camden oversees the $3.7 billion Northern High Yield Fixed Income Fund, among others, and gives us an update on the high yield bond fund market. With high yield, he says, "It's all about avoiding the blowups." Our discussion follows. (Note: This "profile" is reprinted from the August issue of our Bond Fund Intelligence publication. Contact us if you'd like to see the full issue, or if you'd like to see our BFI XLS performance spreadsheet, our BFI Indexes and averages, or our most recent Bond Fund Portfolio Holdings data set.)

BFI: Give us a little history. Camden: Northern Trust Asset Management has been managing bond funds for decades. The Northern High Yield Fixed Income Fund (NHFIX) was launched in 1998. This year will mark its 20th anniversary, during which time we're most proud of its strong, consistent performance, including largely avoiding problem investments. Overall, the high yield fund is part of our broader fixed income management capabilities…. We have about $5 billion of assets under management in dedicated high yield strategies. I joined Northern Trust Asset Management in 2002, and I joined fixed income in 2005. I've been part of the high yield fund and strategy team in a variety of capacities since 2005, and I was named a co-PM in 2016.

BFI: It's been a good run for high yield. Camden: It's been a great stretch. High yield returns have been outstanding, just like most risk asset returns have been. Since the crisis, we've seen strong and stable returns in the high yield market with [some] exceptions...for example, the commodity credit cycle of late 2014 thru February 2016. More recently, we saw very strong returns in 2016, a nice return in 2017, and the index is up about 1.6 percent so far YTD. Performance has been strong despite investor concerns regarding tight valuations, market liquidity, and an aging credit cycle.

BFI: Tell us about the fund's objective. Camden: The main objective of the fund is to generate high current income with the potential for capital appreciation. We aim to meet it by primarily investing in non-investment grade securities; those are securities that are rated by ratings agencies such as S&P, Fitch and Moody's below triple-B minus. The fund also invests in some investment grade securities. Often, those are in the financial sector in subordinated bank debt where we see nice risk-return profiles. However, the majority of the fund (95-96%) is invested in non-investment grade fixed rates securities, or "junk bonds."

BFI: Talk about your investment process. Camden: We implement a top-down, bottom-up investment process. The top-down is focused on the macro environment: What's going on with growth, inflation, and monetary policy? Where are interest rates and credit spreads headed? These variables are used as inputs into our portfolio construction process. However, it is bottom-up issuer selection that drives returns in the high yield market.

We're fortunate to have an experienced fixed income research team that works closely with us to identify securities with strong risk return characteristics.... In high yield, it's about accessing a mix of securities that provide a yield similar to, if not higher than, the benchmark index. More importantly, it's about avoiding the blowups.

With our investment process and our strong fundamental research team, we've been able to do so since the inception of the strategy in 1998.... Since inception, the fund's default rate is roughly 9 basis points (0.09%). When you compare that to the market, [the average is] north of 4%.... Furthermore, we haven't had any defaults in the fund since 2005.

BFI: What strategies can/can't you use? Camden: The prospectus is relatively broad, so we have many tools at our disposal to achieve the fund's objective. However, our main area of focus is in U.S. dollar denominated fixed rate instruments in the non-investment grade space. We also invest in floating rate instruments (bank loans), preferreds, and convertible securities. We are a traditional high yield manager.... We don't use derivatives or leverage, and we are prohibited from buying equities.

BFI: How diverse is the high yield market? Do you have issuer limits? Camden: The market has matured over the last 10-15 years or so. If you go back to the turn of the century, high yield was a relatively niche asset class with roughly $250 billion in debt outstanding and about 1,000 issuers. Today, there is about $1.3 trillion of debt outstanding and 2,000 issuers, so it's grown and matured. If you look at the quality spectrum, it's also moved up in quality. This is the result of some downgrades from investment grade but it is also due to an increase in higher quality issuers who are comfortable being classified as a high yield issuer.

We believe the negative stigma of being a junk bond issuer has gone away and today the market has become an important source of funding for many issuers. As a result, there is a nice variety of issuers across all the sub-sectors in the space. The biggest sectors are energy, communications, and consumer cyclical. Also, unlike with money funds and the investment grade space, the financial sector doesn't play as big a role.

We have internal limits. If you look at the regulations for registered investment funds, you'll likely notice that there is a max issuer concentration of 5%. We think that is way too high.... We believe the industry standard in the high yield market is 2% max per issuer. Our limits are much less than that. Typically, the fund owns anywhere from 175 to 200 names, with the average size ranging around 50 basis points or 0.50%. We also have internal sector limits, country limits, etc.

BFI: What are some big issuers? Camden: Sprint, Charter, Dish, and HCA. One of the challenges in the market is that the large issuers, the top 100 issuers, make up about 47-48% of the overall index.... That means the top 10-11% of the issuers represent the bulk of the outstanding debt.... So, when you're trying to access the market and execute trade ideas in smaller issuers, it's often very difficult due to market liquidity.

BFI: Who are the big investors? Camden: It really runs the gamut.... It ranges from retail to high net worth to institutional investors such as pension and insurance funds. Historically, the market had been more retail, but it's evolved, particularly in the post crisis environment where investors are seeking more income in portfolios. The other thing that's important to understand is that with the growth and maturation of the high-yield market, it [is now] carved out as a dedicated asset class in multi-asset class portfolios; therefore, attracts a more diverse investor base.

BFI: How important is the Fed? Camden: The Fed is very important to the financial markets. The Fed controls short-end rates and indirectly financial conditions, investor confidence and risk appetite... So, from that perspective, the Fed is important to the high yield space, because high yield is conducive of risk taking, etc. It's a risk asset.

Beyond the Fed, the metrics we look at on a monthly and/or weekly basis include growth and inflation, as well as the political and regulatory environment. Understanding the macro environment informs our investment decisions and helps with portfolio construction. We want to know: Where are we in the economic cycle? The credit cycle? What industries are going to have favorable tailwinds, and what industries are going to [have] headwinds?

Our top-down, bottom-up investment process is crucial to fund construction and ultimately drives performance. In all risk markets, you need to have a strong forward-looking investment process that identifies changes in economic and market trends; this is especially true in the high yield market given its asymmetric return profile. For example, if you decompose high yield returns over the last 25 years ... all of the return is driven by the yield carry or the coupon; price is negative due to defaults. Thus, avoiding the blow-ups is crucial to having stable and consistent performance.

BFI: Tell us about your team. Camden: At Northern Trust Asset Management, we believe that having a strong team with a diverse set of experience is important for success. On the fund we have three PMs -- myself, Richard Inzunza, and Eric Williams. We've all been working together for over a decade. We're also supported by a fixed income research team led by three team leaders that have extensive fixed income research experience, particularly in the high yield market. Having their insights as well as a detailed, highly informed perspective on the macro environment is vitally important. Our analysts are very good at identifying risks as well as opportunities and, ultimately, they are the ones we rely on to keep us out of trouble.

BFI: What's your outlook going forward? Camden: We're optimistic on high yield at the moment. Our base case on the Fed is much different than the market consensus. We continue to think that this recovery is still relatively fragile.... We think the Fed will have to slow its pace of rate hikes, particularly if the yield curve continues to flatten. We expect the Fed to raise rates in September and one more time next year. Thinking about this environment and what to expect out of high yield, we essentially expect to clip the coupon.

The Association for Financial Professionals, or AFP, hosted a webinar Thursday, entitled, "Investing in a Rising Rate Environment: Highlights from 2018 AFP Liquidity Survey." The session featured AFP's Tom Hunt, Crane Data's Pete Crane, Pacific Life's Lance Doherty, and SSGA's Christine Stokes and reviewed the recent survey, as well as the latest corporate cash investing trends. Hunt explained, "We put the survey into the field back in April and released it in July, and we had over 600 responses.... We thank State Street Global Advisors for underwriting the survey.... Some of the survey highlights: the most important objective in a cash investment policy is, no surprise, safety, with 65% [citing it], followed by liquidity at 31%, and yield at a very distant 4%. Looking at that over time, we see that safety of principal has been the number one objective [for quite some time]." (See the AFP Liquidity Survey here and our July 11 News, "AFP Releases 2018 Liquidity Survey: Bank Deposits, and MMFs, Decrease.")

He said, "Looking at the allocation of investments ... there was a small uptick in prime funds. They actually increased year over year from 2% to 6%.... That's probably the biggest offset, bank deposits have gone down.... In terms of money fund selection, [we asked], 'What are the important drivers are in the selection of a money market fund?' ... Fixed or floating NAV [was the biggest one] followed by ... investment manager for separately managed accounts, followed third by yield. This changes from time to time, but some of these primary drivers are largely [unchanged]."

Hunt continued, "Looking at the question about prime funds, 'What would [make you] come back to them again [or] entice you enough?' Fifty percent will never come back into them, according to this.... Some [23%] will want to see that NAV doesn't really prove to move all that much. Spread is also a determinant in enticing people. Then some of the regulatory things that are going on with the Investors Choice Act, such as the removal of gates and fees ... followed by balances. So, there's a little bit left on the table in terms of appetite for prime funds."

He added, "Looking at a question we asked, 'What would you invest in as an alternative aside from government money market funds?' The number one response historically was separately managed accounts (37%).... Ultrashort funds dropped off a little bit (13%). Likewise, maybe some of those 2a-7 like funds or some of the private money market funds [were another option]. The market still continues to evolve. Asking the question about returning to prime, what would be that basis point spread ... to go back to prime, predominantly 50 basis points or more won't be that bucket. Right now, I think we're at about 30 basis points."

Crane then commented, "First a couple thoughts on the survey in general. The big number that stands out to me is that 75% of short term investments are held in money funds, banks deposits, and Treasuries. Bank deposits are 49% -- almost half of short term investments -- money funds are19%, with a little bit (5%) in Treasuries as well…. I'll focus on what's going on with money market funds and bank deposits in general. [M]oney funds are slowly gaining market share back after a decade. Bank deposits are still going up, but they're really peaking and their growth is slowing, and 'alt-cash' [is] sort of a mixed bag. T-bills have had this bump up and had been looking very attractive."

He stated, "With money market funds, the average yields currently for big investors are around Fed funds, from 1.75% to over 2%. In April, when this survey was going on, you were talking about rates at 1.5% to 1.8%. This gradual climb in rates we've been seeing really has been changing the environment in general. A lot of the money fund managers and purveyors talk about the new trends being 'money in motion,' ... with cash it's really 'money in slow motion.' Cash shifts very slowly in the aggregate.... What cash investors tend to do, in my experience writing about this for 25 years, is pay down bills from unattractive buckets, which now are lower-yielding bank deposits ... and add to new, higher yield buckets."

Crane explained, "Money funds are growing by around 7% on average, and bank deposits are growing at 4-5%. Those numbers have been solid. Looking at the prime funds underneath ... the recovery has been persistent.... The ICI showed prime assets breaking over $500 billion [recently], and the SEC and Crane Data's broader collections show assets breaking over $700 billion.... Retail has really been driving a lot of that, though. You're seeing a lot of the high-end, high-net worth investors that have had money in brokerage sweeps.... They've been moving chunks of money and are starting to move."

He told AFP listeners, "Institutions have still been hesitant, but those balances are just slowly growing and there's a critical mass issue. With surveys, I joke that one of the answers to 'When will you invest in prime?' should be 'when everyone else does it.' Certainly, investors are starting to get cover again if they're thinking of going back into prime.... One other thing I'd like to point out on the asset flows in general is the seasonal nature of cash flows in general.... The aggregates with money market funds they get strong in August ... and November and December have been just insanely strong over the last five six years. So, I believe you're about to see the money market asset trends step up."

On yields, Crane said, "The zero-yield environment was brutal on anybody relying on an income stream to pay for things and on retirees in general. We were there so long I'm still in disbelief that rates are rising. In December 2015, money funds were yielding 0.05% on average. A year later they were yielding ten times as much (0.50%). Then they doubled in 2017 to 1.0%, and now we're up to 1.75%. That increase [is] tremendous, but you still talk to people about 2.0% yields and they says, 'Big whip.' Yields are much higher but they're still not psychologically at the levels where they're bringing in big torrents of cash. But the longer we're here, the higher they go, and the bigger those spreads grow, the more chance of cash flows kicking in."

Doherty told the AFP webinar audience, "We have a very conservative risk profile when it comes to cash. The preservation of capital is always number one, and we have a globally holistic credit risk. Obviously being a life insurance company, we invest a lot of money in long-term investments. If my long-term investment people have a position that is reaching our maximum credit exposure, then I take the backseat. They get to invest in it, where short term we do not.... We manage our cash in three buckets; a zero to one month, a one to three months, and then 90 days and longer. We are in all the traditional investments at this time, government money market funds, prime, deposits, CPs, Treasuries, and the last one there is working capital finance investments which I'll describe."

He continued, "How our policies work: anything that we know that we are going to have to pay in one day, or we could get a call any amount of cash whether it be cash collateral for a derivatives or futures position, or we know we have a large life insurance payout the following day, or we have a large real estate deal, that money will always be in a government money market fund. After that, when we know that it's a little longer, more than two days, that's where we'll get into the prime bucket. Or if we're running any short-term arbitrage opportunities, where we actually will issue commercial paper, we'll reinvest into prime money market funds."

Doherty added, "[Also, I'll discuss] a new opportunity that we call working capital finance investments ... we think is a great opportunity, buying a what we call firm receivables.... These are high quality corporate names where most short-term investment opportunities are usually based or finance or government exposure."

SSGA's Stokes stated, "Twenty-four percent of respondents were planning to repatriate the least some of their offshore funds.... The industry is placing repatriation estimates between $1 and $2 trillion. We've already seen some of these large flows across the industry from offshore prime funds. We've heard a variety of things from our clients. Some have already repatriated their cash flows and come into our government and prime strategies before being further deployed into their businesses onshore. We've also seen others who are still formulating their plan, and another subset who need to keep some of that offshore anyway for continued operations.... One interesting thing we've seen is an increase in onshore prime funds [which are] up 17%.... Some of this cash flow can be attributed to repatriation."

On European Money Market Fund Reform, she commented, "The most popular option with clients is the low volatility NAV fund.... This is the option that more closely resembles what your offshore prime fund looks like now. The fund type does have the potential for a liquidity-based fee or redemption gate. But the potential for redemption gates is already an element of UCITS funds. What I think is interesting and probably most helpful to clients' daily use of these funds is the ability to maintain a NAV of 1.00. This comes with guardrails of course -- a fund's shadow mark to market NAV must not deviate from one by more than 20 basis points."

Finally, Stokes added, "The new regulations and rule changes have only made money market funds safer and more resilient against price shocks in the marketplace. Looking at our own offshore prime funds' NAVs, we see no fund vary by more than 4 basis points over the 5-year period that we have been tracking the daily mark-to-market NAVs. This data is in a similar channel to the data observed in the U.S. So hopefully this gives you a little bit better idea of what the LVNAV fund structure is all about. Our European investors understand these nuances and are getting comfortable that the [LVNAV] fund will cause the least disruption for their continued ease of use and value that money market funds provide."

Goldman Sachs Asset Management recently posted two "Liquidity Solutions Viewpoints" video updates on their website. The first features Global Head of Short Duration Strategies John Olivo and is entitled, "Repatriation Brings Cash Home: Corporations Looking for Flexibility," while the second features Head of Liquidity Solutions Dave Fishman and is called, "European Money Market Funds Take a New Path: Reforms Differ from US, More Complex." We quote from both below, and we also review the latest fund manager disclosures on plans for European MMF Reforms. (Note: We'd again like to remind readers of our upcoming European Money Fund Symposium, which is Sept. 20-21 at the London Tower Bridge Hilton.)

On repatriation, Olivo explains, "So repatriation has been a meaningful event in front-end, high-quality, fixed income assets. For many years corporations have been incentivized to hold cash offshore, and since they didn't need liquidity on that cash, they've invested in short duration assets. That all changed starting in December of this past year where tax reforms, and specifically repatriation was enacted. As a result, `we’ve seen corporations start to transfer cash offshore to onshore."

He continues, "We haven't seen meaningful liquidation of assets, but the transfer has occurred. As a result, corporations are starting to rethink how they think about managing their cash on a go forward basis. I would say the net result is that we've seen duration start to shorten, either actively, via selling of bonds, although we haven't seen a tremendous amount of that, or passively where portfolios are starting to age and become shorter in overall duration."

Olivo concludes, "Corporations are looking for greater flexibility in terms of their cash on a go forward basis, since it's no longer trapped offshore. We've seen an impact on markets. Credit spreads have widened, albeit off of very tight levels, despite the fact that corporate fundamentals remain quite strong. U.S. corporations had served as a huge source of demand for front end credit assets. That demand has diminished and as a result you've seen spreads widen. Going forward, we do expect there to be again, shorter overall durations resulting in greater flexibility in the use of cash."

Goldman's Fishman tells us, "Ten years post financial crisis, European Regulators have finally finished new rules governing European money market funds. Unfortunately, the rules are different than the rules that govern U.S. money market funds and are likely to create confusion among customers. [It's] unclear what the utility decline will be for these customers. But what we now have is three different types of money market funds in Europe: a government money market fund, a variable NAV money market fund, and a limited volatility money market fund. This simple product that people use for liquidity is now being made more complex."

In related news, a press release entitled, "Federated Investors Announces Post-reform Structures of European Money Market Funds," tells us, "Federated Investors, one of the largest investment managers in the United States -- and its subsidiaries in London, Frankfurt and Dublin -- ... announced the proposed changes to its European money market mutual funds in preparation for the 21 January 2019 compliance requirement of new regulations. These changes will affect the structure, composition, valuation, liquidity requirement and information reporting of money market funds domiciled, managed or marketed in the European Union."

Federated says, "Based on discussions with clients and an examination of the effects of restructuring, Federated determined the implementation date of the changes should closely coincide with the compliance requirement date to allow clients time to prepare their systems. The company announced 11 January 2019 as the implementation date."

The release explains, "Federated intends to implement the following structure for its mutual funds:" Federated Short-Term Sterling Prime Fund will convert from a Short Term CNAV fund to a Low Volatility MMF (LVNAV) fund; Federated Sterling Cash Plus Fund will continue to be a Standard VNAV fund; Federated Short-Term U.S. Prime Fund will convert to a Short Term CNAV to a Low Volatility MMF (LVNAV) fund; Federated Short-Term U.S. Government Securities Fund and Federated Short-Term U.S. Treasury Securities Fund will remain Public Debt CNAV funds.

For more on fund managers' European Money Market Fund Reform plans, see our August 17 News, "BlackRock Details European Money Fund Reform Plans; Love the LVNAV," our August 14 News, "SEC Shows Private Liquidity Funds Up in Q4; HSBC's European MF Plans," our July 17 News, "Morgan Stanley European MMF Reform Plans; Offshore Port Composition," our March 16 News, "JPMAM European MMFs Plan for Nov 2018 Conversion; MF Assets Plunge, and our Nov. 16, 2017 News, "JP Morgan To Offer All European Fund Options; ICI MMF Holdings Update."

Finally, in other news, the Investment Company Institute's latest weekly "Money Market Fund Assets" report shows money fund assets inched up to reach their highest levels since 2010 after dipping last week. Prime assets continued to rise. Money fund assets are entering one of the strongest seasonal periods of the year, so we expect flows to continue higher in coming weeks. They're now up $26 billion, or 0.9%, YTD, and they've increased by $129 billion, or 4.7%, over 52 weeks.

ICI writes, "Total money market fund assets increased by $3.74 billion to $2.86 trillion for the week ended Wednesday, August 22, the Investment Company Institute reported today. Among taxable money market funds, government funds decreased by $3.97 billion and prime funds increased by $7.49 billion. Tax-exempt money market funds increased by $225 million." Total Government MMF assets, which include Treasury funds too, stand at $2.213 trillion (77.3% of all money funds), while Total Prime MMFs stand at $521.3 billion (18.2%). Tax Exempt MMFs total $129.8 billion, or 4.5%.

They explain, "Assets of retail money market funds increased by $6.35 billion to $1.05 trillion. Among retail funds, government money market fund assets increased by $3.01 billion to $630.94 billion, prime money market fund assets increased by $2.73 billion to $297.99 billion, and tax-exempt fund assets increased by $607 million to $122.20 billion." Retail assets account for over a third of total assets, or 36.7%, and Government Retail assets make up 60.0% of all Retail MMFs.

ICI's release adds, "Assets of institutional money market funds decreased by $2.61 billion to $1.81 trillion. Among institutional funds, government money market fund assets decreased by $6.98 billion to $1.58 trillion, prime money market fund assets increased by $4.75 billion to $223.33 billion, and tax-exempt fund assets decreased by $382 million to $7.63 billion." Institutional assets account for 63.3% of all MMF assets, with Government Inst assets making up 87.3% of all Institutional MMFs.

Northern Trust Asset Management posted a video entitled, "Cash is Back" featuring Director of Short Duration Fixed Income Peter Yi. He explains, "Over the last 10 years, investors have become conditioned to believe cash investments such as money market funds were simply a return of principal rather than a return on principal. Quite simply, they viewed cash as a very expensive insurance policy for principal safety and daily liquidity. But times are changing." We review Yi's video, as well as an update from Capital Advisors Group and our latest Weekly Money Fund Portfolio Holdings below.

Yi says, "In the last two and a half years, the Federal Reserve has slowly increased short-term interest rates seven times, bringing the federal funds target range to 1.75% to 2.00. As we move further away from an extraordinary monetary policy era defined by near zero short-term interest rates, new considerations are emerging as the yields on money market instruments increase. Interestingly, the yields on three-month Treasury bills are now greater than our forecast for a 2.0% dividend yield of the S&P 500."

He continues, "With the U.S. government expected to maintain an elevated supply of Treasury bill issuance, money market rates are well supported at these higher rates. And with inflation continuing at only a modest pace, returns on money market funds are now better positioned to preserve purchasing power in a more meaningful way. In fact, the $2.9 trillion money market industry increased assets in 2017 to a level not seen in 7 years."

Yi also tells us, "We think risk assets will continue to perform well in the near term, which makes the trade-off for higher cash allocations less favorable. However, cash investments such as `money market funds play a critical role in an overall asset allocation and now provide a much higher level of income potential. Cash allocations can vary from investor to investor depending on factors such as risk profile, but having some level of cash can allow investors to be opportunistic in the marketplace. Not only are the liquidity benefits of money market funds valued in every market cycle, but it also adds stability during periods of market volatility. So after years of earning near zero yields on your cash allocations, investors are once again starting to view cash as a real income-producing asset class."

In other news, Capital Advisors also recently published a paper entitled, "Comprehensive Cash Investment Strategies: Comparing Three Major Types of Investment Vehicles." Author Lance Pan tells us, "We are closing in on the 10th anniversary of the peak of the global financial crisis marked by the Lehman Brothers bankruptcy and runs on money market funds. Old-timers still remember the exotic species which invaded the previously tranquil meadows of the world of cash such as auction rate securities, extendable asset-backed commercial paper, structured investment vehicles, and collateralized debt obligations, to name just a few. To say that a lot has changed in the corporate cash world is a great understatement."

He explains, "Our current environment appears much healthier, but it is not without new challenges. We endured an extraordinarily long period of low interest rates that just ended in 2015. The Eurozone debt crisis that sowed the seeds of EU skepticism faded largely into the background, although complications from Brexit remain challenging. The conversion of prime institutional funds to a market-based net asset value (NAV) regime saw the orderly transition of institutional assets to government funds, while similar changes on the European front are just starting. Tougher capital and liquidity requirements and bank resolution reforms in major developed markets made banks more resilient to systemic shocks, although recent regulatory relaxation in the US has slowed this momentum."

Pan also says, "Adding to these external factors is the need to find a transitional and/or permanent home for cash infusion from repatriated offshore profits, windfalls from corporate tax relief, and bank deposits that pay stubbornly low interest. With relatively benign market conditions and baseline short-term interest rates hovering around 2%, return on investments is again a notable goal for many organizations in addition to return of investments and liquidity mandates.... With the reset button pressed on so many cash management vehicles and strategies, this is an appropriate time to reintroduce our readers to the comprehensive approach we discussed a few years ago. We discuss these common cash vehicles in a general fashion to allow investors to make their own decisions based on their unique needs and circumstances."

He writes, "In our opinion, the types of instruments suitable for corporate cash management invariably fall into three categories: deposits, asset pools and direct purchases.... Deposits may include insured and uninsured bank balances. They can be transactional (demand deposit) accounts or time and savings accounts that are issued by U.S. banks, foreign banks, U.S. branches of foreign banks (Yankee deposits) or foreign branches of U.S. banks (offshore deposits)."

Pan continues, "Asset Pools refer to commingled investments where investors have prorated ownership in professionally managed cash-like instruments. Money market funds are a subset of mutual funds which have a goal of achieving a stable net asset value and providing daily liquidity (which is more challenging for institutional prime funds post reform). Other short-duration asset pools may include ultra-short-term bond mutual funds, local government investment pools, lightly regulated private investment pools (3c-7 funds) and exchange-traded funds."

The paper concludes, "The evolving landscape of treasury cash investments may cause anxiety among practitioners looking for ways to house their liquidity portfolios and earn competitive returns, especially when faced with seemingly dwindled selections and influx of cash. We hope our framework of these three types of cash vehicles will facilitate further dialogue internally and with investment managers on the feasibility of each option."

Finally, 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 August 17) includes Holdings information from 60 money funds (down 3 from August 17), representing $1.037 trillion (down from $1.137 billion on August 17) of the $2.990 (34.7%) in total money fund assets tracked by Crane Data. (For our latest monthly Money Fund Portfolio Holdings numbers, see our August 10 News, "August Money Fund Portfolio Holdings: Treasuries, CP, CD Show Jumps.")

Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $358.6 billion (down from $401.9 billion on August 17), or 34.6%, Treasury debt totaling $290.4 billion (down from $340.0 billion) or 28.0%, and Government Agency securities totaling $242.9 billion (down from $248.2 billion), or 23.4%. Certificates of Deposit (CDs) totaled $46.9 billion (up from $42.4 billion), or 4.5%, and Commercial Paper (CP) totaled $45.0 billion (down from $45.5 billion), or 4.3%. A total of $26.8 billion or 2.6%, was listed in VRDNs and the Other category (primarily Time Deposits), accounted for $26.4 billion, or 2.5%.

The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $290.4 billion (28.0% of total holdings), Federal Home Loan Bank with $179.9B (17.4%), BNP Paribas with $51.4 billion (5.0%), RBC with $36.7B (3.5%), Federal Farm Credit Bank with $34.5B (3.3%), Credit Agricole with $24.2B (2.3%), Wells Fargo with $21.6B (2.1%), Natixis with $20.2B (1.9%), Nomura with $19.7B (1.9%), and Mitsubishi UFJ Financial Group Inc with $19.1B (1.8%).

The Ten Largest Funds tracked in our latest Weekly Holdings update include: JP Morgan US Govt ($141.7B), Fidelity Inv MM: Govt Port ($110.3B), Wells Fargo Govt MMkt ($72.9B), Dreyfus Govt Cash Mgmt ($68.2B), Morgan Stanley Inst Liq Govt ($53.6B), State Street Inst US Govt ($44.3B), JP Morgan Prime MM ($42.9B), JP Morgan 100% US Trs MMkt ($39.5B), Fidelity Inv MM: MMkt Port ($37.9B), and First American Govt Oblg ($36.6B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)

This month, Money Fund Intelligence interviews Joe D'Angelo, Managing Director of PGIM Fixed Income, who runs the money market desk, and Chris Nicholson, Vice President of Fixed-Income Product Management at PGIM Investments, the distributor of the PGIM funds. PGIM's funds formerly carried the Prudential moniker, but they changed earlier this summer to synch the fund names with that of their advisor. Our discussion follows. (Note: This article is reprinted from the August issue of our Money Fund Intelligence newsletter. Contact us at inquiry@cranedata.com to request the full issue.)

MFI: How long have you been running cash? D'Angelo: We were running cash before I started here, which was 30 years ago.... PGIM Fixed Income evolved from three internal fixed income groups focused on mutual funds, separate accounts, and proprietary accounts. These three separate groups were each managing money independently in the infant stages of money markets, going back to the early '80s or even late '70's.... Ultimately, all fixed income asset management was brought together. At that time, in roughly 2000, the firm had about $130 billion in assets under management. Now, PGIM Fixed Income is up to 600-plus clients with over $700 billion under management (as of June 2018). I grew up on the issuance side of Prudential, coming here in the late '80s to work under the Treasurer. We were a prominent direct issuer of commercial paper. I moved from the direct issuer desk to securities lending, then jumped to investments around 2000."

Nicholson: I've worked in various roles in financial services for the last 15 years [and] came over to Prudential, or PGIM now, in November of 2014.... I head up the fixed income product management efforts on the mutual fund side of things.

MFI: Tell us about the recent rebranding? Nicholson: This actually goes back a few years. In January 2016, the asset management organization was Prudential Investment Management, and we changed the name to PGIM.... At that time, our affiliated managers had some brand recognition, but the name change united all of Prudential's investment businesses under a single name to be used globally.... In April 2017, we changed the name of the retail distributor to PGIM Investments from Prudential Investments. We already were operating as PGIM Investments outside of the U.S. with our UCITS platform.

In January, we announced the renaming of all mutual fund and closed-end fund names, and that became effective June 11 of this year. All funds were updated to reflect PGIM and no longer Prudential in the name.... Renaming the funds more closely aligned them to the firm [and] helped to accelerate the brand-awareness around PGIM, now the global investment management business of Prudential Financial.

From a high-level perspective, we're constantly reviewing the structure of our investment vehicles, including the money market fund lineup. That includes looking at things like industry trends, client needs, and new regulation. Back in 2016, after a thorough analysis of all those factors, we felt that changing the retail money market fund over to a government money market fund was really in the best interests of fund shareholders.

D'Angelo: Basically, there's about $75 billion under management across our three money market segments, run by me and my team. We have government and agency-only type mandates, 2a-7 and 2a-7-like mandates, ultrashort, custom, and enhanced cash mandates. The enhanced programs are largely the reinvestment vehicles for securities lending.

Nicholson: We also have a couple billion in ... government 2a-7 mutual funds, and we have another Pru institutional money market fund [which is] $15-16 billion. That's predominantly being used as an internal vehicle for reinvestment of securities lending proceeds. Our "Core" money market fund used to be a 2a-7 fund, but we moved it outside of 2a-7 and [now] call it an ultrashort bond fund. It has similar guidelines as 2a-7 ... but it's an ultrashort. We did that [mainly] because ... the NAIC classification of money market funds [changed following the MMF reforms], thereby requiring pretty substantive capital charges.... Then, we have some other enhanced funds. The latest of which is this ultrashort ETF, and that's maybe another $3-4 billion.

MFI: What's your biggest challenge? D'Angelo: We've been managing money markets for a long time, and two of our senior portfolio managers, Doug Smith and Bob Browne, have been here with me for 25 years-plus. So, we've seen a lot, and lived through a lot, including the turmoil of the financial crisis and subsequent rebuilding of the market. I think where we sit now ... there's some misperceptions.... The SEC tried to change the rules in such a way to that the market wouldn't just crumble again. But by creating this notion of a floating NAV and potential gates and fees ... about $1 trillion moved out of prime money market products. It went into government money market funds, and now there is $2 trillion-plus in these products. So asset managers are competing heavily for the same inventory.

Then, with the prime product now, portfolio managers may be worried about NAVs ultimately floating. So, some may be giving up yield for the sake of liquidity and preservation of capital. Those are good things, don't get me wrong. But it effectively squeezes managers of those products into the same little space, too. Given the post-financial crisis regulations, there is less ability to differentiate products, which can be a challenge. There is also less front-end presence from the broker-dealer community. You don't have the Goldmans and the Morgan Stanleys willing to buy paper.

It's also important to keep an eye on the handful of dominant money market managers left standing post crisis. If there's a sea change in how they look at the market, you don't want to be left in a game of musical chairs holding a CD, for example, that they don't want to buy anymore. So, it's important to know where other managers reside in terms of sectors, names, and maturities. Is it one year, six months, nine months? Since the regulations changed, I like to say, 'Six months is the new one year.'

Going back to 2008-2009, our competitors were other front-end buyers. Now we find a lot of corporate money is being managed internally, and they [have] a different style to asset management. Separately, we see more long-end managers, especially now that rates have gotten off zero, creeping back into the ultrashort world.... It's a totally different set of buyers that you're trying to handicap. The 2a-7 folks are doing one thing. But the ultrashort folks ... they're doing a different thing.

MFI: What are you buying now? D'Angelo: With $700 billion under management, PGIM Fixed Income has a presence across all fixed income markets. We look at all sectors at the front end of the market, supported by experienced research and trading professionals working in a collaborative environment. We don't avoid sectors, and we don't double down on anything. Obviously, we buy banks, everybody in 2a-7 has to buy banks. In the ultrashort world, we favor A2/P2 commercial paper in a lot of mandates outside of 2a-7. We can buy CMBS and other structured products. We can buy investment-grade bonds, and some of our mandates are up to three years average life, or even longer."

MFI: Is there flexibility in Govt funds? D'Angelo: Less than we would like. Given new money market regulations, the government universe has become fairly 'plain vanilla' and is highly competitive. Asset managers are tripping over each other to buy Home Loan paper. At PGIM Fixed Income, we're very conservative with respect to our posture and position towards repos. We do overnight repos when available and also try to find value in bills and agencies.

MFI: Any concerns with any sectors? D'Angelo: Knock on wood, no sectors or issuers in our space have had a credit issue for some time. From a broader perspective, evaluating overall macro and market trends may be more critical at this time. If you're investing in our world, you may be happy because rates are finally off zero. From that perspective, everyone's kind of pleasantly surprised how quickly rates have risen. The other trend that we see is the spread advantage of LIBOR versus the cost to borrow money via securities lending. That's been a positive for securities lending income.

MFI: Does PGIM offer other ultrashorts? Nicholson: In April, we launched PGIM Ultra Short Bond ETF (PULS), an actively managed ultrashort ETF. It's our first entry in the ETF space.... Now that we've moved away from zero and front-end rates are moving up ... that area of the market has been getting a lot of flows.... Broadly speaking from an ETF perspective, we want to be vehicle-agnostic. We want to offer our best investment strategies ... in whatever vehicle our clients want. We've seen that ETFs are certainly a space that is going to continue to grow, and we want to be a part of that.

MFI: What about your outlook? D'Angelo: With respect to products, sectors, and spreads, we get a taste of everything in ultrashort mandates and securities lending mandates. We're also carefully watching forward-looking liquidity. So far, it's been good.

On Friday, ignites published the article, "Rising Rates Give Brokerage Sweep Programs a Run for Their Money," which discusses the yawning rate differential between FDIC-insured sweeps and money market mutual funds. Author Beagan Wilcox writes, "The fatter margins that bank deposits offer pushed many large brokerages to dump money funds as sweep vehicles in favor of bank products. The prolonged period of near-zero interest rates ushered in by the financial crisis only accelerated the trend away from money funds as the default sweep account choice. But as interest rates rise, money funds are regaining appeal, and the amount brokerages must pay out on deposits to retain customers using them is inching up."

The article tells us, "The average bank deposit sweep rate for clients with $100,000 in cash was 22 basis points in July, compared to 11 bps at the beginning of this year and 6 bps in July 2017, according to Crane Data. [Brokerages and banks] have been reluctantly dragging those rates higher and they wouldn't be doing that unless investors were complaining, or they were concerned about regulatory backlash,' says Peter Crane, president and CEO of Crane Data."

It explains, "The gap between yields on bank sweep accounts and those on money funds was grist for a recent piece in The Wall Street Journal, which noted that brokers 'talk constantly these days about acting in your best interest.' But 'pushing you into sweep accounts that are far more lucrative for them than for you seems inconsistent with that noble goal'"

The ignites piece also states, "Morgan Stanley and Schwab are among the firms that have taken steps in the past year to move more client sweep assets out of money funds and into bank deposits.... Earlier this year, Schwab announced plans to eliminate money funds from its sweep options 'over a period of years.' Crane Data first reported the news." (See our August 6 News, "Journal's Zweig Targets Sweeps (Again); Schneider Video on Front End.")

Finally, it adds, "In a July 25 earnings call, Raymond James chief financial officer Jeffrey Julien noted that 'clients are voting with their feet' and opting for alternative cash investments with competitive rates as opposed to sweep funds. Still, he said, 'money market funds aren't really viewed as competition now,' pointing to 2016 reforms and costs associated with them. Julien also called the spreads on cash -- 150 bps in the case of the St. Petersburg-based broker-dealer -- 'somewhat unprecedented.' Those spreads are likely to decline somewhat, but remain higher than the prior 70 bps level, he said. In some cases, brokers are reaching out to customers who they think are more rate-sensitive and offering money fund alternatives, says Fanger."

In related "sweeps" news, BlackRock writes on "How to rev up your idle cash" in a recent blog. Author Martin Small tells us, "Not all cash is created equal: think about those dollars parked in your brokerage account.... Leaving cash in your brokerage account is akin to burning fuel without getting anywhere. It's not productive for you or your long-term investment goals.... Cash is basically a zero-expected return asset class. But the reality is that there's always going to be some cash in your brokerage account. Cash generally comes from deposits you make, proceeds from selling your investments and dividends. And some investors simply prefer having some portion of a portfolio in the safety and surety of cash."

He continues, "Retail brokers look to help you avoid idle cash. They typically place it in some form of interest-bearing program. Pay attention to what your broker does with your cash. When you open a brokerage account, there is usually some default position, or action, for your cash. Some brokers place your cash into money market funds, often their proprietary, in-house funds. This allows the broker to earn fees from your idle cash. Some brokers 'sweep' your cash from the brokerage into a bank, typically a bank they also own (an 'affiliated' bank). These deposits are often insured by the FDIC."

Small explains, "The bank pays you some interest rate on your 'sweep' deposits, and invests your cash into higher-yielding investments (usually bonds). The bank earns a 'spread' on the difference between the rate it pays you on your cash deposits, and the rate it earns on the investments makes using your cash. This is called 'net interest margin' or 'NIM' in industry jargon.... The bank sweep deposit interest rate in one of my accounts, with one of the top three retail brokers, was 0.22% (22 basis points) as of July 31, 2018. Although I tend not to leave idle cash in my account, that means the bank could take my deposits, buy one-year U.S. government bonds and pocket the annualized difference between 2.4% and 0.2%."

He adds, "Earning revenue from your cash is one of the ways brokers make money, even when accounts are otherwise 'free.' There isn't anything inappropriate about this, but you can do a little work and find a better deal. For example, consider the management fee rate on the default-setting money market fund. Is the fee rate competitive? There are ultra-short duration, cash-focused ETFs, like iShares Ultra Short-Term Bond ETF (ICSH), or money market funds that may offer a much lower fee than the broker's affiliated default option."

The blog states, "You can also look at how much the broker's affiliated bank is paying you for the privilege of using your cash deposits. There are ample one-year, FDIC-insured certificates of deposit (CDs) that pay rates of 2.5% available if you wish to maintain more exposure to cash. There are also high-yield savings accounts that pay annual rates of over 1% and permit more frequent, monthly withdrawals versus a locked-up, fixed-term CD. I keep an allocation to cash in case of emergency, and that money isn't in my brokerage account. It's in CDs and a high yield savings account."

Finally, it says, "Small amounts add up to large sums over long periods -- the old penny saved is a penny earned. Idling your cash is a missed opportunity, and spending a few moments maximizing the value of that cash can getting you moving instead of going nowhere."

The Securities and Exchange Commission released its latest "Money Market Fund Statistics" summary Friday. It shows that total money fund assets rose by $15.2 billion in July to $3.114 trillion. Prime MMFs showed a big jump, breaking above the $700 billion level for the first time since Sept. 2016 (a month before the SEC's Money Fund Reforms went live). But Govt and Tax Exempt funds declined. Gross yields rose for Prime and Government Funds in the latest month, but plunged for Tax Exempts. The SEC's Division of Investment Management summarizes monthly Form N-MFP data and includes asset totals and averages for yields, liquidity levels, WAMs, WALs, holdings, and other money market fund trends. We review their latest numbers below.

Overall assets increased $15.2 billion in July, after decreasing by $51.8 billion in June, increasing by $45.6 billion in May, and increasing by $31.0 billion in April. Total MMFs decreased $48.2 billion in March, increased $40.7 billion in February and decreased by $44.3 billion in January. Over the 12 months through 7/31/18, total MMF assets increased $196.7 billion, or 6.7%. (Note that the SEC's series includes a number of private and internal money funds not reported to ICI or others, though Crane Data tracks most of these.)

Of the $3.114 trillion in assets, $701.4 billion was in Prime funds, which increased by $24.3 billion in July. Prime MMFs decreased by $8.9 billion in June, increased by $0.7 billion in May, and increased by $22.1 billion in April. Prime funds represented 22.5% of total assets at the end of July. They've increased by $76.5 billion, or 12.2%, over the past 12 months. But they've decreased by $533.0 billion over the past 2 years. (Over $1.1 trillion shifted from Prime to Government money market funds in the year leading up to October 2016's Money Fund Reforms.)

Government & Treasury funds totaled $2.278 trillion, or 73.2% of assets. They were down $39.4 billion in June, but up $38.1 billion in May and $10.0 billion in April. Govt MMFs were down $41.7 billion in March, but up $44.9 billion in February. Govt & Treas MMFs are up $121.0 billion over 12 months, or 5.6%. Tax Exempt Funds decreased $4.6B to $134.5 billion, or 4.3% of all assets. The number of money funds was 382 in July, up 1 from last month.

Yields on Taxable MMFs moved higher again in July, their 10th month in a row of increases. The Weighted Average Gross 7-Day Yield for Prime Funds on July 31 was 2.18%, up 2 basis points from the previous month and up 0.91% from July 2017. Gross yields increased to 1.96% for Government/Treasury funds, up 0.02% from the previous month, and up 90 bps from July 2017. Tax Exempt Weighted Average Gross Yields fell 43 bps in July to 1.10%; they've increased by 22 bps since 7/31/17.

The Weighted Average Net Prime Yield was 2.00%, up 0.02% from the previous month and up 0.95% since 7/31/17. The Weighted Average Prime Expense Ratio was 0.18% in July (the same as the previous three months). Prime expense ratios are down by 4 bps over the past year. (Note: These averages are asset-weighted.)

WALs and WAMs were lower for most categories in July. The average Weighted Average Life, or WAL, was 57.9 days (down 0.5 days from last month) for Prime funds, 85.5 days (down 2.2 days) for Government/Treasury funds, and 22.8 days (down 1.1 days) for Tax Exempt funds. The Weighted Average Maturity, or WAM, was 30.0 days (up 0.9 days from the previous month) for Prime funds, 28.9 days (down 2.5 days) for Govt/Treasury funds, and 19.3 days (down 1.8 days) for Tax-Exempt funds. Total Daily Liquidity for Prime funds was 30.9% in July (up 1.1% from previous month). Total Weekly Liquidity was 49.5% (up 0.8%) for Prime MMFs.

In the SEC's "Prime MMF Holdings of Bank Related Securities by Country" table, Canada topped the list with $86.0 billion, followed by the US with $66.1 billion, Japan with $65.7B, France with $60.5B, and Sweden with $44.1B. The U.K. ($41.4B), the Netherlands ($36.3B), Germany ($35.0B), Australia/New Zealand ($28.9B), and Switzerland ($19.9B) rounded out the top 10 countries.

The gainers among Prime MMF bank related securities for the month included: The Netherlands (up $17.4B), France (up $12.5B), the U.K. (up $9.4B), Japan (up $6.2B), Germany (up $2.4B), Switzerland (up $2.2B), and Other (up $1.8B). The biggest drops came from Australia/New Zealand (down $6.7B), Canada (down $5.8B), Norway (down $3.8B), Singapore (down $873M), the U.S. (down $138M), and Sweden (down $99M). For `Prime MMF Holdings of Bank-Related Securities by Major Region, Europe had $255.8B (up $41.7B from last month), while the Eurozone subset had $140.1B (up $33.2B). The Americas had $152.7 billion (down $6.0B), while Asia Pacific had $110.0 billion (down $0.1B).

Of the $707.1 billion in Prime MMF Portfolios as of July 31, $244.0B (34.5%) was in CDs (up from $230.1B), $156.5B (22.2%) was in Government securities (including direct and repo) (down from $159.0B), $108.4B (15.3%) was held in Non-Financial CP and Other Short Term Securities (up from $94.6B), $153.9B (21.8%) was in Financial Company CP (up from $143.8), and $44.4B (6.3%) was in ABCP (up from $41.9B).

The Proportion of Non-Government Securities in All Taxable Funds was 18.3% at month-end. All MMF Repo with the Federal Reserve fell to $9.0B in July from $88.8B the previous month. Finally, the "Trend in Longer Maturity Securities in Prime MMFs" tables shows 34.7% were in maturities of 60 days and over (down from 37.4%), while 7.5% were in maturities of 180 days and over (up from 7.6%).

BlackRock, the 2nd largest manager of money market funds in Europe, is the latest to disclose changes and plans for its fund lineup in preparation for European Money Market Fund Reforms. They posted several documents on a new "European Money Market Fund Regulatory Reform Centre," including a "European Money Market Fund Reform Product Details brief and a "European Money Market Fund Reform Frequently Asked Questions publication. The former says, "As we prepare for the implementation of European Money Market Fund (MMF) Reform, we reflect on all we have learned - from both regulators and our clients – about the future of the MMF landscape and its impact on our products. Whilst several details of the EU MMF Reform remain outstanding and must be addressed before plans can be finalised, we believe it is important that we are as transparent as possible about our intended future plans and wish to reinforce our long-standing commitment to satisfying your cash management needs." (Note: Register soon for Crane Data's upcoming European Money Fund Symposium, which is Sept. 20-21 at the London Tower Bridge Hilton.)

BlackRock writes, "Under the new regulations, the biggest change will be the offering of new product types. The final regulatory text of the European MMF Reform importantly preserves Constant Net Asset Value (CNAV) for public debt MMFs, while introducing a new type of fund, the Low-Volatility NAV (LVNAV) MMF. LVNAV will replicate the stable NAV and intraday liquidity utility of CNAV MMFs, which is intended to have greater sensitivity to market pricing, and additional safeguards and controls built into the fund structure."

They explain, "Our goal is to continue offering our clients the breadth and depth of product options that their varying MMF needs may require. Importantly, based on client feedback to date, we currently plan to migrate our existing range of CNAV Prime Institutional Liquidity MMFs to the new LVNAV structure.... Whilst acknowledging many clients' preference for LVNAV, the `negative interest rate environment in euros makes the CNAV and LVNAV structures dependent on continued regulatory approval of the Reverse Distribution Mechanisms. Regulatory discussions in this regard are ongoing and we will accordingly inform clients of any required adjustments to our product line-up in the coming months."

BlackRock adds, "It is our intention to transition to the new rules during Q4 2018, in advance of the 21 January 2019 date at which compliance with the European MMF Regulation for existing funds is mandatory. We believe this early transition will allow for a more seamless conversion with lower risk of disruption to shareholders, and reduce the risk of complications at year-end, when liquidity pressures may increase.

BlackRock's FAQ tells us, "European money market fund reform has been prominent in the minds of cash investors and managers alike for years now. It is only recently, however, that the conversation has pivoted from 'what if' scenarios to 'how and when' scenarios. BlackRock Global Cash Management has been working tirelessly to absorb the new regulations and make decisions about the future of our platform such that it is best positioned to meet the needs of our diverse clients, and to ensure a smooth transition to the new regulatory regime."

The update asks, "Will you offer intraday settlement for both LVNAV and ST VNAV MMF structures?" It answers, "Yes, it is our intention to offer intraday settlement, as we do today, for our short-term money market funds.... [S]ettlement frequency is likely to be higher for the LVNAV MMFs."

Next, they state, "We will have migrated our funds to the new structures on Monday 14 January 2019. Our operational processes will be ready and tested in fourth quarter 2018 and we feel confident that this time frame provides the best solution for our clients.... We anticipate that our existing prime CNAV funds will migrate to LVNAV MMFs as a 'default' option but clients will have the option to move into ST VNAV MMFs in the ICS plc fund range if preferred. Our public debt CNAV funds will retain their CNAV structure."

BlackRock asks, "Will the Reverse Distribution Mechanism still exist for negative-yielding currencies?" They answer, "It is our intention to continue offering the utility of LVNAV MMFs and public debt CNAV funds in negative-yielding currencies. Whilst acknowledging many client's preference for LVNAV, the negative interest rate environment in euro makes the CNAV and LVNAV structures dependent on continued regulatory approval of the Reverse Distribution Mechanism. Regulatory discussions in this regard are ongoing and we will inform clients accordingly of any required adjustments to our product line-up in the coming months. We fully intend to continue offering intraday liquidity to euro clients through all CNAV, LVNAV and ST VNAV structures."

They tell us, "The daily mark-to-market (MTM) NAV will be available on the website at blackrock.com/cash. We will also disclose the difference between the constant and MTM NAV for LVNAV and CNAV MMFs on the website.... Please refer to BlackRock's 'Classification of Money Market Funds" for information on funds' "cash and cash equivalent status."

When asked, "Will BlackRock be able to manage LVNAV MMFs to the 20 basis point (bp) threshold?" They tell us, "Yes, we anticipate that we should be able to manage to the 20bp threshold in all but the most stressed of market environments, thus maintaining a constant NAV of 1.00."

Finally, when asked, "Will you impose liquidity fees and redemption gates?" BlackRock comments, "We would not anticipate implementing liquidity fees or redemption gates except in extraordinary circumstances or systemic shock. There are no prescribed liquidity fee or redemption gate provisions outlined in the regulation for ST VNAV or standard VNAV MMFs, though they retain the powers available under UCITS. However, there are prescribed scenarios for public debt CNAV and LVNAV MMFs under which liquidity fees and/or redemption gates may be implemented subject to certain liquidity thresholds being breached."

The Q&A adds, "The prescribed scenarios are as follows: If weekly maturing assets of the fund fall below 30% of total assets AND daily net redemptions exceed 10% of total assets on a single working day, the Board has the discretion to implement liquidity fees and/or redemption gates or take no action; If the weekly maturing assets of the fund fall below 10% of total assets, the Board is obliged to decide whether to implement liquidity fees and/or redemption gates."

For more on European Money Market Fund Reform plans from money fund managers, see our August 14 News, "SEC Shows Private Liquidity Funds Up in Q4; HSBC's European MF Plans," our July 17 News, "Morgan Stanley European MMF Reform Plans; Offshore Port Composition," our March 16 News, "JPMAM European MMFs Plan for Nov 2018 Conversion; MF Assets Plunge, and our Nov. 16, 2017 News, "JP Morgan To Offer All European Fund Options; ICI MMF Holdings Update."

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 just slightly year-to-date in 2018. Through 8/14/18, MFII assets are down $40 billion to $791 billion, but much of this is due to dollar appreciation. U.S. Dollar (USD) money funds (158) account for about half ($420 billion, or 53.1%) of the total, while Euro (EUR) money funds (98) total E81 billion and Pound Sterling (GBP) funds (110) total L209 billion. `USD funds are down a mere $5 billion, YTD, defying predictions of large repatriation-related outflows. Euro funds, however, are feeling the pain of pending European MMF reforms; they're down E17 billion YTD. GBP funds are down L10B. We review out latest MFI International statistics and "offshore" MF Portfolio Holdings, below. (Note: We hope to see you next month in London for our 6th annual European Money Fund Symposium, Sept. 20-21 at the London Tower Bridge Hilton.)

USD MMFs yield 1.85% (7-Day) on average (as of 8/14/18), up from 1.19% at the end of 2017 and 0.56% at the end of 2016. EUR MMFs yield -0.47 on average, up from -0.55% on 12/29/17 and -0.49% on 12/30/16, while GBP MMFs yield 0.50%, 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 7/31/18), shows that European-domiciled US Dollar MMFs, on average, consist of 28% in Commercial Paper (CP), 20% in Certificates of Deposit (CDs), 17% in Treasury securities, 17% in Repurchase Agreements (Repo), 16% in Other securities (primarily Time Deposits), and 2% in Government Agency securities. USD funds have on average 32.5% of their portfolios maturing Overnight, 10.5% maturing in 2-7 Days, 23.3% maturing in 8-30 Days, 11.5% maturing in 31-60 Days, 10.1% maturing in 61-90 Days, 9.7% maturing in 91-180 Days, and 2.3% maturing beyond 181 Days. USD holdings are affiliated with the following countries: US (26.1%), France (16.5%), Japan (9.6%), Canada (9.0%), United Kingdom (6.4%), Sweden (6.2%), The Netherlands (5.9%), Germany (5.6%), Australia (3.6%), China (2.7%), Singapore (2.0%), and Switzerland (1.6%).

The 10 Largest Issuers to "offshore" USD money funds include: the US Treasury with $81.2 billion (17.1% of total assets), BNP Paribas with $23.5B (4.9%), Credit Agricole with $19.4B (4.1%), Wells Fargo with $12.9B (2.7%), Mitsubishi UFJ Financial Group Inc with $12.0B (2.5%), Barclays PLC with $11.0B (2.3%), Societe Generale with $10.4B (2.2%), Toronto-Dominion Bank with $10.1B (2.1%), Mizuho Corporate Bank Ltd with $9.6B (2.0%), and ING Bank with $9.6B (2.0%).

Euro MMFs tracked by Crane Data contain, on average 47% in CP, 26% in CDs, 21% in Other (primarily Time Deposits), 5% in Repo, 1% in Agency securities, and 0% in Treasuries. EUR funds have on average 20.8% of their portfolios maturing Overnight, 7.9% maturing in 2-7 Days, 16.6% maturing in 8-30 Days, 23.1% maturing in 31-60 Days, 13.4% maturing in 61-90 Days, 16.6% maturing in 91-180 Days and 1.5% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (27.9%), Japan (16.1%), the US (10.4%), the Netherlands (7.5%), Sweden (6.8%), Germany (6.4%), Switzerland (4.8%), Canada (4.0%), China (3.6%), and Belgium (3.4%).

The 10 Largest Issuers to "offshore" EUR money funds include: Credit Agricole with E4.4B (5.5%), BNP Paribas with E4.3B (5.4%), Mitsubishi UFJ Financial Group Inc with E3.1B (3.9%), Svenska Handelsbanken with E2.8B (3.5%), ING Bank with E2.7B (3.4%), Mizuho Corporate Bank Ltd with E2.6B (3.2%), Credit Mutuel with E2.6B (3.2%), Procter & Gamble Co with E2.4B (3.0%), Toronto-Dominion Bank with E2.4B (2.9%), and Norinchukin Bank with E2.3B (2.9%).

The GBP funds tracked by MFI International contain, on average (as of 7/31/18): 43% in CDs, 27% in Other (Time Deposits), 17% in CP, 9% in Repo, 3% in Treasury, and 1% in Agency. Sterling funds have on average 22.1% of their portfolios maturing Overnight, 11.4% maturing in 2-7 Days, 18.5% maturing in 8-30 Days, 18.7% maturing in 31-60 Days, 13.9% maturing in 61-90 Days, 11.4% maturing in 91-180 Days, and 3.9% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: France (18.1%), Japan (15.8%), United Kingdom (14.4%), The Netherlands (9.7%), Canada (7.2%), Australia (5.8%), United States (5.3%), Sweden (4.4%), Germany (4.0%), and Singapore (3.7%).

The 10 Largest Issuers to "offshore" GBP money funds include: UK Treasury with L11.2B (7.0%), Credit Agricole with L6.3B (4.0%), BPCE SA with L6.2B (3.9%), Toronto-Dominion Bank with L6.1B (3.8%), Mizuho Corporate Bank Ltd with E6.0B (3.8%), BNP Paribas with L5.6B (3.5%), Sumitomo Mitsui Banking Co with L5.5B (3.5%), Rabobank with E5.3B (3.3%), Sumitomo Mitsui Trust Bank with L5.2B (3.3%), and ING Bank with L5.1B (3.2%).

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 August 10) includes Holdings information from 63 money funds (down 6 from 69 on July 27), representing $1.137 trillion (down from $1.254 billion on July 27) of the $2.985 (38.1%) in total money fund assets tracked by Crane Data. (For our latest monthly Money Fund Portfolio Holdings numbers, see our August 10 News, "August Money Fund Portfolio Holdings: Treasuries, CP, CD Show Jumps.")

Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $401.9 billion (down from $468.4 billion on July 27), or 35.3%, Treasury debt totaling $340.0 billion (down from $351.3 billion) or 29.9%, and Government Agency securities totaling $248.2 billion (down from $269.1 billion), or 21.8%. Commercial Paper (CP) totaled $45.5 billion (down from $53.9 billion), or 4.0%, and Certificates of Deposit (CDs) totaled $42.4 billion (down from $46.4 billion), or 3.7%. A total of $31.4 billion or 2.8%, was listed in the Other category (primarily Time Deposits), and VRDNs accounted for $28.1 billion, or 2.5%.

The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $340.0 billion (29.9% of total holdings), Federal Home Loan Bank with $195.1B (17.2%), BNP Paribas with $61.1 billion (5.4%), Federal Farm Credit Bank with $35.1B (3.1%), RBC with $34.6B (3.0%), Wells Fargo with $23.7B (2.1%), Nomura with $22.0B (1.9%), Credit Agricole with $21.8B (1.9%), Natixis with $21.6B (1.9%), and ING Bank with $19.3B (1.7%).

The Ten Largest Funds tracked in our latest Weekly Holdings update include: JP Morgan US Govt ($140.8B), Fidelity Inv MM: Govt Port ($110.4B), Goldman Sachs FS Govt ($96.0B), Wells Fargo Govt MMkt ($72.2B), Dreyfus Govt Cash Mgmt ($68.8B), Morgan Stanley Inst Liq Govt ($54.5B), Goldman Sachs FS Trs Instruments ($52.8B), JP Morgan Prime MM ($42.1B), JP Morgan 100% US Trs MMkt ($39.4B), and Fidelity Inv MM: MMkt Port ($38.1B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)

The August issue of our Bond Fund Intelligence, which was sent out to subscribers Tuesday, features the lead story, "Bond Fund Inflows Continue as ETFs Now 1/8th of Market," which reviews how bond funds keep attracting assets even as returns weaken, and the profile, "Northern High Yield Fund's Camden Avoids the Blowups," which interview Brad Camden of Northern Trust Asset Management. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund yields and returns moved higher last month. 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 details soon on our 3rd annual Bond Fund Symposium conference, which will be March 25-26, 2019 in Philadelphia.)

Our lead BFI story says, "Investors continue pouring money into bond funds, even as rates grind their way higher. While ETFs keep getting the lion's share of new money, the flows show no signs of stopping. Bond fund assets and ETFs combined have seen inflows for 19 straight months now. We look at the most recent flows and asset totals below."

It tells us, "ICI's latest 'Combined Estimated Long-Term Fund Flows and ETF Net Issuance,' with data as of Aug. 1, 2018, says, 'Bond funds had estimated inflows of $5.86 billion for the week, compared to estimated inflows of $4.42 billion during the previous week. Taxable bond funds saw estimated inflows of $5.69 billion, and municipal bond funds had estimated inflows of $164 million.' Over the past 5 weeks through 8/1/18, bond funds and bond ETFs have seen inflows of $31.0 billion."

Our lead BFI piece adds, "The latest 'Trends in Mutual Fund Investing - June 2018' shows bond fund assets increasing $8.2 billion to $4.112 trillion. Over the 12 months through 6/30/18, bond fund assets have increased by $225.7 billion, or 5.8%. The number of bond funds remained unchanged last month at 2,124. This was down 41 from a year ago."

Our "profile" on article reads, "This month, Bond Fund Intelligence speaks with Brad Camden, Director of Fixed Income Strategy at Northern Trust Asset Management. Camden oversees the $3.7 billion Northern High Yield Fixed Income Fund, among others, and gives us an update on the high yield bond fund market. With high yield, he says, 'It's all about avoiding the blowups.' Our discussion follows."

BFI asks, "Give us a little history." Camden tells us, "Northern Trust Asset Management has been managing bond funds for decades. The Northern High Yield Fixed Income Fund (NHFIX) was launched in 1998. This year will mark its 20th anniversary, during which time we're most proud of its strong, consistent performance, including largely avoiding problem investments. Overall, the high yield fund is part of our broader fixed income management capabilities. We have about $5 billion of assets under management in dedicated high yield strategies."

He adds, "I joined Northern Trust Asset Management in 2002, and I joined fixed income in 2005. I've been part of the high yield fund and strategy team in a variety of capacities since 2005, and I was named a co-PM in 2016."

BFI also says, "It's been a good run for high yield." Camden responds, "It's been a great stretch. High yield returns have been outstanding, just like most risk asset returns have been. Since the crisis, we've seen strong and stable returns in the high yield market with [some] exceptions ... for example, the commodity credit cycle of late 2014 thru February 2016. More recently, we saw very strong returns in 2016, a nice return in 2017, and the index is up about 1.6 percent so far YTD. Performance has been strong despite investor concerns regarding tight valuations, market liquidity, and an aging credit cycle." (Watch for more excerpts from this article later this month, or see the latest issue of BFI.)

A Bond Fund News brief, entitled, "Yields and Returns Up Again in July," tells us, "Bond fund yields and returns moved higher last month across all categories. The BFI Total Index averaged a 1-month return of 0.32% and the 12-month gain was 0.63%. The BFI 100 returned 0.28% in July and 0.49% over 1 year. The BFI Conservative Ultra-Short Index returned 0.27% over 1 month and 1.48% over 1-year; the BFI Ultra-Short Index averaged 0.28% in July and 1.25% over 12 mos. Our BFI Short-Term Index returned 0.17% and 0.44%, and our BFI Intm-Term Index returned 0.11% and -0.39% for the month and year. BFI's Long-Term Index returned 0.24% in July and -0.50% for 1 year; BFI's High Yield Index returned 0.83% in July and 2.27% over a year."

Another brief, "New AB Short Duration Income Fund," explains, "Citywire says, 'AllianceBernstein is launching a new short duration bond fund, Securities and Exchange Commission (SEC) filings show. The new fund, called the AB Short Duration Income fund, will devote at least 65% of its assets to US and foreign government-backed securities, and up to 35% of its assets to junk bonds, according to a prospectus. Scott DiMaggio, Gershon Distenfeld, Douglas Peebles and Matthew S. Sheridan will comanage the fund. Class A shares of the fund will carry a 0.65% expense ratio."

A third News brief comments, "PGIM Launches Junk Bond ETF," says, "ETF.com published, 'New Junk Bond ETF Planned,' which tells us, 'A recent filing from Prudential Investment Management outlines plans for the insurance giant's next ETF. The PGIM Active High Yield Bond ETF is slated to list on the NYSE Arca, and will be actively managed. The fund will target junk bonds issued by both corporations and governments.... PGIM has gotten its feet wet with the launch of the PGIM Ultra Short Bond ETF (PULS) in April. The fund now has $35 million in assets under management. The high-yield -debt space is a popular target for actively managed ETFs, with 12 funds competing in that category.' (See the PGIM 'profile' in our August Money Fund Intelligence too.)"

Finally, a sidebar on the new "Vanguard Global Credit Bond Fund," explains, "A press release entitled, 'Vanguard Continues To Expand Active Fixed Income Offerings With Proposed Global Credit Bond Fund,' tells us, 'Vanguard ... filed a preliminary registration statement with the Securities and Exchange Commission for Vanguard Global Credit Bond Fund. The new actively managed fund, expected to launch in November 2018, will provide investors with diversified, predominately investment-grade exposure to the U.S. and international credit markets.'"

The SEC released it latest quarterly "Private Funds Statistics" report recently, which summarizes Form PF reporting and includes some data on "Liquidity Funds." The publication shows a jump in overall Liquidity fund assets in the latest quarter to $579 billion. A previous press release, entitled, "SEC Staff Supplements Quarterly Private Funds Statistics" tells us, "The U.S. Securities and Exchange Commission staff ... published a suite of new data and analyses of private fund statistics and trends. The Private Funds Statistics ... offers investors and other market participants valuable insights by aggregating data reported by private fund advisers on Form ADV and Form PF. New analyses include ... characteristics of private liquidity funds." We review the latest SEC report below, and we also give an update on HSBC's latest European MMF Reform plans.

The SEC's "Introduction" explains, "This report provides a summary of recent private fund industry statistics and trends, reflecting data collected through Form PF and Form ADV filings. Form PF information provided in this report is aggregated, rounded, and/or masked to avoid potential disclosure of proprietary information of individual Form PF filers. This report reflects data from First Calendar Quarter 2016 through Fourth Calendar Quarter 2017 as reported by Form PF filers." (Note: Crane Data believes the liquidity funds are primarily securities lending reinvestment pools and other short-term investment funds; these are not the new breed of "3c-7" private liquidity funds being marketed by Federated, JPMorgan and a few others.)

The tables in the SEC's "Private Funds Statistics: Fourth Calendar Quarter 2017," the most recent data available, now show 118 Liquidity Funds (including "Section 3 Liquidity Funds," which are Liquidity Funds from advisors with over $1 billion total in cash), up 3 funds from the prior quarter and up 5 from a year ago. (There are 70 Liquidity Funds and 48 Section 3 Liquidity Funds.) The SEC receives Form PF reports from 39 Liquidity Fund advisers and 25 Section 3 Liquidity Fund advisers, or 64 advisers in total, three more than last quarter (and one more than a year ago).

The SEC's table on "Aggregate Private Fund Net Asset Value" shows total Liquidity Fund assets at $579 billion, up $21 billion from Q3'17 and up $14 billion from a year ago (Q4'16). Of this total, $291 billion is in normal Liquidity Funds while $288 billion is in Section 3 (large manager) Liquidity Funds. The SEC's table on "Aggregate Private Fund Gross Asset Value" shows total Liquidity Fund assets at $580 billion, up $19 billion from Q3'17 and up $13 billion from a year ago (Q4'16). Of this total, $291 billion is in normal Liquidity Funds while $289 billion is in Section 3 (large manager) Liquidity Funds.

A table on "Beneficial Ownership for Section 3 Liquidity Funds" shows $96 billion is held by Private Funds, $55 billion is held by Other, $53 billion is held by Unknown Non-U.S. Investors, $23 billion is held by SEC-Registered Investment Companies, $9 billion is held by Insurance Companies, $5 billion is held by Pension Plans, and $4 billion is held by Non-U.S. Individuals. State/Muni Govt Pension Plans held $1 billion, while Non-Profits held $2 billion.

The tables also show that 80.5% of Section 3 Liquidity Funds have a liquidation period of one day, $273 billion of these funds may suspend redemptions, and $237 billion of these funds may have gates (out of a total of $289 billion). The Portfolio Characteristics show that these funds are very close to money market funds. WAMs average a short 32 days (36 days when weighted by assets), WALs are a short 55 days (65 days when asset-weighted), and 7-Day Gross Yields average about 1.15% (1.30% asset-weighted).

Daily Liquid Assets average about 45% (48% asset-weighted) while Weekly Liquid Assets average about 60% (61% asset-weighted). Overall, these portfolios appear shorter with a much heavier Treasury exposure than money market funds in general; almost half of them (45.8%) are fully compliant with Rule 2a-7. (See also our March 15, 2017 News, "CAG's Pan on Pros and Cons of Private Liquidity Funds, SEC Paper, Stats.")

In other news, HSBC Global Asset Management announced its "European Money Market Fund Reform Transition Plan Announcement" a few months ago, but we just learned of it recently. It says, "After five years of discussion, design and preparation the new Money Market regulation was passed by the European Union in July 2017. This document provides an outline of the changes to the HSBC Global Liquidity Funds range, conversion timeline and anticipated next steps." The document explains, "This resulted in the formation of three new fund structures: Low Volatility Net Asset Value – LVNAV, Public Debt Constant Net Asset Value – CNAV, and Variable Net Asset Value – VNAV."

HSBC explains, "HSBC Global Asset Management has continually been committed to providing thought leadership and engaging with clients, industry bodies, regulators and governments across the globe on the reforms. Our responses to date have been designed to be fully compliant well ahead of the mandatory deadline date of 21 January 2019, and to keep our clients informed of our plans. Below is an outline of the changes to the fund range, conversion timeline and anticipated next steps."

Their "Funds Conversion" table tells us, "HSBC Global Liquidity Funds (GLF) will convert its existing CNAV prime funds to the LVNAV prime fund structure (see table below) and intends to launch CNAV public debt funds, initially focused on US Treasury." HSBC will convert existing USD, EUR, GBP, CAD, and AUD CNAV Prime funds to LVNAV Prime Funds, and plans to launch a USD Treasury CNAV Public Debt Fund in 2018. They also list several, "Potential Additional Funds Subject to Client Demand, including, USD Government, EUR, and GBP CNAV Public Debt Funds, USD, EUR, GBP, CAD, and AUD VNAV Prime Funds, and USD, EUR, and GBP VNAV Ultra Short Debt Funds. (They note that separately managed accounts are already available.)

The update continues, "During the month of November 2018, well in advance of the 21 January 2019 compliance deadline and year-end, HSBC Global Liquidity Funds is planning to transition its full spectrum of CNAV Prime Funds denominated in USD, EUR, GBP, CAD and AUD to the new Low Volatility NAV Prime Funds. Prior to November, clients will be required to vote on the changes which will be communicated by HSBC Global Asset Management well ahead of time."

It adds, "Following questions raised by the European Commission earlier in the year, the EUR Money Market CNAV fund industry continues to engage with the regulators on the question of share cancellation (or 'Reverse Distribution Mechanism'). HSBC Global Asset Management remains highly involved with regulators and industry bodies and is fully committed to provide the best solutions for our clients. We will keep you informed should anything change as a result of the share cancellation debate. We will keep you up to date with our plans as we progress through the implementation project as we understand the importance of giving you sufficient time to implement any changes on your side."

According to a new SEC filing, DWS, formerly Deutsche, will convert an existing fund into the first ESG money market mutual fund, one whose investments are guided by environmental, social and governance criteria. A new Prospectus Supplement for the DWS Variable NAV Money Fund says, "The following changes are effective on or about October 1, 2018: DWS Variable NAV Money Fund is renamed DWS ESG Liquidity Fund. All references in the fund's prospectus to DWS Variable NAV Money Fund are superseded with DWS ESG Liquidity Fund. The following information replaces the existing similar disclosure contained in the 'Principal Investment Strategy' section of the summary section of the fund’s prospectus.... The fund is a money market fund that is managed in accordance with federal regulations which govern the quality, maturity, diversity and liquidity of instruments in which a money market fund may invest. The fund does not seek to maintain a stable share price.... Under normal circumstances, the fund invests at least 80% of total assets, determined at the time of purchase, in securities that meet the Advisor’s sustainability criteria."

It continues, "The fund may invest without limit in US treasury securities under adverse market conditions. The fund invests in high quality, short-term, US dollar denominated money market instruments, including obligations of US and foreign banks, corporate obligations, US government securities, municipal securities, repurchase agreements and asset-backed securities, paying a fixed, variable or floating interest rate. The fund reserves freedom of action to concentrate in obligations issued by domestic banks and US branches of foreign banks provided such US branch is subject to the same regulations as a domestic bank. The fund buys US government debt obligations, money market instruments and other debt obligations that the Advisor determines present minimal credit risks."

DWS explains, "In addition to considering financial information, the security selection process also evaluates a company based on Environmental, Social and Corporate Governance (ESG) criteria. With the exception of municipal securities, a company's performance across certain ESG criteria is summarized in a proprietary ESG rating which is calculated by an affiliate of the Advisor on the basis of data obtained from various ESG data providers."

They write, "Only companies with an ESG rating above a minimum threshold determined by the Advisor are considered for investment by the fund. The proprietary ESG rating is derived from multiple factors: Level of involvement in controversial sectors and weapons; Adherence to corporate governance principles; ESG performance relative to a peer group of companies; and Efforts to meet the United Nations' Sustainable Development Goals."

DWS also says, "ESG ratings for municipal securities are calculated by the Advisor by applying a combination of positive and negative screens. From the investable universe of municipal securities, positive screens will automatically include green bonds that meet minimum standards and negative screens will exclude municipal securities with exposure to weapons, issues where more than 10% of the business is attributable to nuclear power or more than 25% of the business is derived from coal, and issues related to gambling, lottery, the production or sale of tobacco, and other sectors deemed controversial by the Advisor. The remainder of the investable universe of municipal securities are then scored on key performance indicators in each of three pillars: environmental, social and corporate governance. Only municipal securities with a cumulative score across all three pillars above a minimum threshold determined by the Advisor are considered for investment by the fund."

The filing adds, "Based on the financial and ESG information described above and working in consultation with portfolio management, a credit team screens potential securities and develops a list of those that the fund may buy. Portfolio management, looking for attractive yield and weighing considerations such as credit quality, economic outlooks and possible interest rate movements, then decides which securities on this list to buy. Portfolio management may adjust the fund's exposure to interest rate risk, typically seeking to take advantage of possible rises in interest rates and to preserve yield when interest rates appear likely to fall."

It states, "The fund is a money market fund that is managed in accordance with federal regulations which govern the quality, maturity, diversity and liquidity of instruments in which a money market fund may invest. The fund follows policies designed to preserve capital: Fund securities are denominated in US dollars and, at the time of purchase, have remaining maturities of 397 days (about 13 months) or less, or have certain maturity shortening features (such as interest rate resets and demand features) that have the effect of reducing their maturities to 397 days or less. The fund maintains a dollar-weighted average maturity of (i) 60 days or less and (ii) 120 days or less determined without regard to interest rate resets. The fund maintains certain minimum liquidity standards.... The fund does not seek to maintain a stable share price. As a result, the fund's share price will fluctuate and reflect the effects of unrealized appreciation and depreciation and realized losses and gains."

On its "Management process," DWS comments, "Based on the financial and ESG information described above and working in consultation with portfolio management, a credit team screens potential securities and develops a list of those that the fund may buy.... The ESG performance of a company is evaluated independently from financial information based on a variety of indicators. These factors may include, but are not limited to, the following fields of interest: Environment: Conservation of flora and fauna; Protection of natural resources, atmosphere and inshore waters; Limitation of land degradation and climate change; and Avoidance of encroachment on ecosystems and loss of biodiversity. Social: Human rights; Prohibition of child labor and forced labor; Non-discrimination; Workplace health and safety; and Fair workplace and appropriate remuneration. Corporate Governance: International Corporate Governance Network (ICGN) Corporate Governance Principles; and United Nations Global Compact Anti-Corruption Principles."

Finally, it says, "The following disclosure is added under the 'Other Policies' heading of the 'Fund Details' section of the fund's prospectus. The Board will provide shareholders with at least 60 days' notice prior to making any changes to the fund's 80% investment policy as described herein. The following disclosure is added under the 'Main Risks' section within the summary section and the 'Fund Details' section of the fund's prospectus. ESG investing risk. Investing primarily in investments that meet ESG criteria carries the risk that the fund may forgo otherwise attractive investment opportunities or increase or decrease its exposure to certain types of companies and, therefore, may underperform funds that do not consider ESG factors."

Note that while Crane Data believes this is the first ESG money market fund, we do recall a couple of "socially-responsible" funds that existed briefly back in the 1990's. Calvert used to have a money fund, and the "E-Fund", run by Citizen's Trust and Sophia Collier, had a moment atop the highest-yielding charts in the mid-1990's. (See this 1995 NY Times article.) For more on ESG investing, see Forbes' "The Remarkable Rise Of ESG"."

Crane Data released its August Money Fund Portfolio Holdings Thursday, and our most recent collection of taxable money market securities, with data as of July 31, 2018, shows increases across all composition segments with big jumps in Treasuries, CP and CDs. Money market securities held by Taxable U.S. money funds (tracked by Crane Data) increased by $90.0 billion to $2.961 trillion last month, after decreasing by $53.8 billion in June, but increasing by $16.7 billion in May and $46.4 billion in April. Repo continued to be the largest portfolio segment, followed by Treasury securities, then Agencies. CP remained fourth ahead of CDs, Other/Time Deposits and VRDNs. Below, we review our latest Money Fund Portfolio Holdings statistics. (Visit our Content center to download the latest files, or contact us to see our latest Portfolio Holdings reports.)

Among taxable money funds, Repurchase Agreements (repo) rose $8.0 billion (0.8%) to $960.8 billion, or 32.5% of holdings, after falling $31.4 billion in June but jumping $67.1 billion in May. Treasury securities rose $42.4 billion (5.5%) to $815.4 billion, or 27.5% of holdings, after falling $6.3 billion in June and falling $50.9 billion in May. Government Agency Debt rose by $0.9 billion (0.1%) to $675.1 billion, or 22.8% of all holdings, after falling $9.3 billion in June, but rising by $5.5 billion in May. Repo, Treasuries and Agencies total $2.451 trillion, representing a massive 82.8% of all taxable holdings.

Money funds' holdings of CP, CD, and Other (mainly Time Deposits) securities all rose strongly in July. Commercial Paper (CP) was up $22.5 billion (10.5%) to $236.5 billion, or 8.0% of holdings, after falling $10.0 billion in June and rising $13.2 billion in May. Certificates of Deposits (CDs) rose by $12.0 billion (7.1%) to $181.4 billion, or 6.1% of taxable assets (after rising $1.6 billion in June but dropping by $1.2 billion in May). Other holdings, primarily Time Deposits, rose by $4.1 billion (5.1%) to $83.3 billion, or 2.8% of holdings. VRDNs were relatively flat, falling $0.0B (-0.4%) to $8.3 billion, or 0.3% of assets.

Prime money fund assets tracked by Crane Data jumped to $687 billion (up from $651 billion last month), or 23.2% (up from 22.7%) of taxable money fund total taxable holdings of $2.961 trillion. Among Prime money funds, CDs represent over a quarter of holdings at 26.4% (up from 26.0% a month ago), while Commercial Paper accounted for 34.5% (up from 33.0%). The CP totals are comprised of: Financial Company CP, which makes up 21.3% of total holdings, Asset-Backed CP, which accounts for 6.5%, and Non-Financial Company CP, which makes up 6.7%. Prime funds also hold 5.7% in US Govt Agency/ Debt, 9.1% in US Treasury Debt, 2.9% in US Treasury Repo, 1.4% in Other Instruments, 8.6% in Non-Negotiable Time Deposits, 5.1% in Other Repo, 3.9% in US Government Agency Repo, and 1.0% in VRDNs.

Government money fund portfolios totaled $1.568 trillion (53.0% of all MMF assets), up from $1.539 trillion in June, while Treasury money fund assets totaled another $706 billion (23.8%), up from $681 billion the prior month. Government money fund portfolios were made up of 40.6% US Govt Agency Debt, 20.4% US Government Agency Repo, 17.1% US Treasury debt, and 21.6% in US Treasury Repo. Treasury money funds were comprised of 68.8% US Treasury debt, 30.8% in US Treasury Repo, and 0.5% in Government agency repo, Other Instrument, and Investment Company shares. Government and Treasury funds combined now total $2.274 trillion, or 77.0% of all taxable money fund assets.

European-affiliated holdings rose $140.0 billion in July to $681.0 billion among all taxable funds (and including repos); their share of holdings rose to 23.0% from 18.8% the previous month. Eurozone-affiliated holdings rose $102.9 billion to $440.2 billion in July; they account for 14.9% of overall taxable money fund holdings. Asia & Pacific related holdings increased by $8.8 billion to $253.6 billion (8.6% of the total). Americas related holdings fell $59.6 billion to $2.024 trillion and now represent 68.4% of holdings.

The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (down $14.8 billion, or -2.5%, to $576.2 billion, or 19.5% of assets); US Government Agency Repurchase Agreements (up $18.8 billion, or 5.7%, to $346.8 billion, or 11.7% of total holdings), and Other Repurchase Agreements (up $4.1 billion from last month to $37.8 billion, or 1.3% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (up $6.6 billion to $146.1 billion, or 4.9% of assets), Asset Backed Commercial Paper (up $2.3 billion to $44.5 billion, or 1.5%), and Non-Financial Company Commercial Paper (up $13.6 billion to $45.9 billion, or 1.5%).

The 20 largest Issuers to taxable money market funds as of July 31, 2018, include: the US Treasury ($815.4 billion, or 27.5%), Federal Home Loan Bank ($541.7B, 18.3%), BNP Paribas ($147.6B, 5.0%), RBC ($87.3B, 3.0%), Federal Farm Credit Bank $75.4B, 2.5%), Wells Fargo $68.9B, 2.3%), Credit Agricole ($62.7B, 2.1%), Barclays PLC ($57.4B, 1.9%), Mitsubishi UFJ Financial Group Inc ($51.2B, 1.7%), HSBC ($48.6B, 1.6%), JP Morgan ($45.9B, 1.5%), Sumito Mitsui Banking Co ($45.4B, 1.5%), Fixed Income Clearing Co ($44.3B, 1.5%), Societe Generale ($42.2B, 1.4%), Natixis ($42.0B, 1.4%), Nomura ($39.1B, 1.3%), Bank of America ($36.8B, 1.2%), ING Bank ($36.3B, 1.2%), Federal Home Loan Mortgage Co ($35.8B, 1.2%), and Bank of Montreal ($35.8B, 1.2%).

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 ($136.5B, 14.2%), RBC ($66.7B, 6.9%), Wells Fargo ($55.8B, 5.8%), Credit Agricole ($47.3B, 4.9%), Barclays PLC ($46.8B, 4.9%), Fixed Income Clearing Co ($44.3B, 4.6%), HSBC ($40.2B, 4.2%), Nomura ($39.1B, 4.1%), Societe General ($36.5B, 3.8%), and JP Morgan ($36.3B, 3.8%).

The 10 largest Fed Repo positions among MMFs on 7/31/18 include: JP Morgan US Govt ($2.0B in Fed Repo), Northern Trust Trs MMkt ($0.9B), BlackRock Cash Treas ($0.6B), Dreyfus Inst Pref Govt ($0.4B), Northern Inst Govt ($0.4B), Columbia Short-Term Cash Fund ($1.0B), Franklin IFT US Govt MM ($1.7B), Northern Inst Govt Select ($0.8B), State Street Inst US Govt ($0.7B), and Morgan Stanley Inst Liq Govt Sec ($0.6B).

The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: RBC ($20.7B, 4.9%), Toronto-Dominion Bank ($17.1B, 4.1%), Mitsubishi UFJ Financial Group Inc. ($16.7B, 4.0%), Credit Agricole ($15.4B, 3.7%), Swedbank AB ($14.8B, 3.5%), Sumitomo Mitsui Banking Co ($14.2B, 3.4%), Canadian Imperial Bank of Commerce ($13.6B, 3.2%), Wells Fargo ($13.1B, 3.1%), Sumitomo Mitsui Trust Bank ($12.8B, 3.1%), and Bank of Montreal ($12.3, 2.9%).

The 10 largest CD issuers include: Wells Fargo ($13.0B, 7.2%), Bank of Montreal ($11.6B, 6.4%), RBC ($11.0, 6.1%), Mitsubishi UFJ Financial Group Inc ($10.3B, 5.7%), Svenska Handelsbanken ($10.0B, 5.5%), Sumitomo Mitsui Trust Bank ($9.6B, 5.3%), Swedbank AB ($8.3B, 4.6%), Sumitomo Mitsui Banking Co ($8.2B, 4.6%), Mizuho Corporate Bank Ltd ($7.4B, 4.1%), and Canadian Imperial Bank of Commerce ($7.0B, 3.9%).

The 10 largest CP issuers (we include affiliated ABCP programs) include: Toronto-Dominion Bank ($11.0B, 5.6%), JPMorgan ($9.5B, 4.8%), UBS AG ($7.1B, 3.6%), Commonwealth Bank of Australia ($6.4B, 3.2%), Mitsubishi UFJ Financial Group Inc ($6.3B, 3.2%), Bank Nederlandse Gemeenten ($6.3B, 3.2%), Canadian Imperial Bank of Commerce ($5.8B, 2.9%), Sumitomo Mitsui Banking Co ($5.7B, 2.9%), Australia & New Zealand Banking Group Ltd ($5.7B, 2.9%), and RBC ($5.6B, 2.8%).

The largest increases among Issuers include: the US Treasury (up $42.4B to $815.4B), Credit Agricole (up $38.3B to $62.7B), Barclays PLC (up $20.7B to $57.4B), Credit Suisse (up $16.3B to $27.5B), Deutsche Bank AG (up $14.6B to $21.8B), Natixis (up $14.0B to $42.0B), Mizuho Corporate Bank Ltd (up $10.7B to $28.4B), ING Bank (up $7.9B to $36.3B), Societe Generale (up $6.0B to $42.2B), and Federal Home Loan Mortgage Co (up $5.9B to $35.8B).

The largest decreases among Issuers of money market securities (including Repo) in July were shown by: the Federal Reserve Bank of New York (down $79.6B to $9.0B), RBC (down $8.2B to $87.3B), Federal Home Loan Bank (down $7.4B to $541.7B), Fixed Income Clearing Co (down $6.7B to $44.3B), Bank of Montreal (down $5.8B to $35.8B), Goldman Sachs (down $4.6B to $13.2B), Toronto-Dominion Bank (down $4.0B to $29.7B), National Australia Bank Ltd (down $3.8B to $7.4B), Canadian Imperial Bank of Commerce (down $2.7B to $26.4B), and HSBC (down $2.5B to $48.6B).

The United States remained the largest segment of country-affiliations; it represents 61.1% of holdings, or $1.810 trillion. France (10.4%, $307.1B) remained in the No. 2 spot and Canada (7.2%, $213.9B) remained No. 3. Japan (7.0%, $208.2B) stayed in fourth place, while the United Kingdom (4.7%, $139.1B) remained in fifth place. The Netherlands (2.1%, $63.0B) moved ahead of Germany (2.1%, $62.0B) to reclaim sixth place. Sweden (1.5%, $43.9B) ranked 8th while Switzerland (1.5%, $42.9B) moved back ahead of Australia (1.1%, $32.0B) into 9th place. (Note: Crane Data attributes Treasury and Government repo to the dealer's parent country of origin, though money funds themselves "look-through" and consider these U.S. government securities. All money market securities must be U.S. dollar-denominated.)

As of July 31, 2018, Taxable money funds held 31.2% (down from 31.8%) of their assets in securities maturing Overnight, and another 16.2% maturing in 2-7 days (same as last month). Thus, 47.4% in total matures in 1-7 days. Another 24.2% matures in 8-30 days, while 11.3% matures in 31-60 days. Note that over three-quarters, or 82.8% of securities, mature in 60 days or less (up slightly from last month), the dividing line for use of amortized cost accounting under SEC regulations. The next bucket, 61-90 days, holds 8.4% of taxable securities, while 7.2% matures in 91-180 days, and just 1.6% matures beyond 181 days.

Crane Data's latest monthly Money Fund Portfolio Holdings statistics will be published later today (Thurs.), and we'll be writing our normal monthly update on the July 31 data in Friday's News. But for months we've also been generating a separate and broader Portfolio Holdings data set based on the SEC's Form N-MFP filings. (We continue to merge the two series, and the N-MFP version is now available via Holdings file listings to Money Fund Wisdom subscribers.) Our summary, with data as of July 31, includes holdings information from 1,275 money funds (up from 1,186 on June 30), representing $3.169 trillion (up from $3.076 trillion on June 30).

Our latest Form N-MFP Summary for All Funds (taxable and tax-exempt) shows that Repurchase Agreement (Repo) holdings in money market funds total $983.1 billion (up from $973.6 billion on June 30), or 31.0% of all assets. Treasury holdings total $830.0 billion (up from $788.2 billion) or 26.2%, and Government Agency securities total $704.3 billion (up from $694.6 billion), or 22.2%. Commercial Paper (CP) totals $248.1 billion (up from $225.0 billion), or 7.8%, and Certificates of Deposit (CDs) total $176.3 billion (up from $171.9 billion), or 5.6%. The Other category (primarily Time Deposits) totals $126.2 billion or 4.0%, and VRDNs account for $101.3 billion, or 3.2%.

Broken out into the SEC's more detailed categories, the CP totals were comprised of: $153.9 billion, or 4.9%, in Financial Company Commercial Paper; $43.9 billion or 1.4%, in Asset Backed Commercial Paper; and, $50.3 billion, or 1.6%, in Non-Financial Company Commercial Paper. The Repo totals were made up of: U.S. Treasury Repo ($591.2B, or 18.7%), U.S. Govt Agency Repo ($353.6B, or 11.2%), and Other Repo ($38.4B, or 1.2%).

The N-MFP Holdings summary for the just the 234 Prime Money Market Funds shows: CP holdings of $243.6 billion (up from $220.3 billion June 30), or 34.4%; CD holdings of $176.2B (up from $171.8B) or 24.9%; Other (primarily Time Deposits) holdings of $88.0B (up from $77.7B), or 12.4%; Repo holdings of $84.8B (down from $105.9B), or 12.0%; Treasury holdings of $67.4B (up from $49.4B), or 9.5%; Government Agency holdings of $40.1B or 5.7%; and VRDN holdings of $7.1B, or 1.0%.

The SEC's more detailed categories show CP in Prime MMFs made up of: $153.9 billion, or 21.8%, in Financial Company Commercial Paper; $43.9 billion, or 6.2%, in Asset Backed Commercial Paper; and, $45.8 billion, or 6.5%, in Non-Financial Company Commercial Paper. The Repo totals include: U.S. Treasury Repo ($22.4B, or 3.2%), U.S. Govt Agency Repo ($26.6B, or 3.8%), and Other Repo ($35.8B, or 5.1%).

In other news, law firm Dillon Eustace published a "MMF Regulations Update August 2018," we learned from website mondaq.com. The Irish company writes, "On 10 April 2018 the European Commission adopted a Regulation ... amending and supplementing the MMF Regulation. On 13 July 2018, the Delegated Regulation was published in the Official Journal of the EU ... and will enter into force on 2 August 2018. However, the Delegated Regulation will apply to new and existing money market funds ... from 21 July 2018 with the exception of Article 1 (which contains the amendment to the MMFR set out at (a) below) which will apply from 1 January 2019." (See too our Aug. 3 News, "Stage Set for European Money Fund Symposium; FT on EU MMF Reforms," and our Aug. 23, 2017 News, "Dillon Eustace Reviews European Money Market Reforms; Disclosures.")

Dillon Eustace explains, "The Delegated Regulation imposes additional requirements on managers of MMFs where they are investing in certain categories of assets, as follows: Simple, transparent and standardised ... securitisations and asset-backed commercial papers ...; Assets received under a Reverse Repurchase Agreement; ... [and] Credit Quality Assessment Methodologies."

The brief tells us, "The Central Bank of Ireland ... has published its MMFR Application Forms. The relevant application forms are applicable from 21 July 2018 and will apply to all new funds seeking to be authorised as a MMF and those existing funds transitioning under the MMF Regulation. For all existing MMFs the transitioning deadline for compliance with the MMF Regulation is 21 January 2019. However, the Central Bank have announced that any transitioning MMFs that require prior document review (i.e. UCITS and RAIFs) should file their updated documents by 1 September 2018 to ensure that they are approved by 21 January 2019."

In addition, they write, "On 20 July 2018, ESMA published a letter it had written to the European Commission in relation to reverse distribution mechanism (RDM) or share cancellation under the MMF Regulation. The Letter responds to a January 2018 letter from the European Commission in which it agreed with ESMA's analysis that the practice of share cancellation is not compatible with the MMF Regulation. In its letter, ESMA calls on the Commission to make public the text of an opinion of the Legal Service of the Commission on the compatibility of share cancellation with the MMF Regulation given that it appears the opinion has been shared with some market participants, but not all. ESMA is of the view that the Commission needs to make its interpretation clear to ensure a proper and consistent interpretation and implementation of the MMF Regulation."

The update continues, "For the last number of months the Central Bank has been liaising with MMF managers and administrators, to gather information in relation to the dealing practices used for Irish MMFs, in particular focusing on the use of what is termed 'historic pricing' in such MMFs. It is expected that the Central Bank will clarify its position on the use of such dealing practices shortly given any transitioning MMFs that require prior document review by the Central Bank will need to file updated documents by 1 September 2018."

It comments, "The publication and entry into force of the Delegated Regulation is to be welcomed as it will provide clarity to MMF Managers in relation to the quantitative and qualitative requirements that apply to assets received under reverse repurchase agreements. In addition, the obligations prescribed in relation to credit quality assessment criteria will assist MMF Managers in drafting fund policies as well as the disclosures in the MMF's offering and constitutive documents. The publication of the Central Bank application forms is also helpful as it provides a suitable checklist for new and existing funds under the MMF Regulation."

Finally, Dillon Eustace adds, "The ESMA letter is an important development as it should encourage the Commission to provide its analysis and reasoning behind its stance on RDM and its compatibility with the MMF Regulation. Developments on this issue will continue to be closely monitored by the industry as it is an extremely sensitive matter for many MMF Managers particularly those managing constant NAV Euro denominated MMFs."

Crane Data's latest Money Fund Market Share rankings show assets were higher for the majority of U.S. money fund complexes in July. Money fund assets overall rose by $36.3 billion, or 1.2%, last month to $3.044 trillion, and assets have risen by $40.3 billion, or 1.3%, over the past 3 months. They have increased by $216.0 billion, or 7.6%, over the past 12 months through July 31, 2018. The biggest increases among the 25 largest managers last month were seen by Northern, JP Morgan, Fidelity, UBS, Vanguard and Dreyfus, who increased assets by $10.7 billion, $8.3B, $7.3B, $6.9B, $6.3B and $5.5B, respectively. We review the latest market share totals below, and we also look at money fund yields in July.

Big declines in assets among the largest complexes in July were seen by Goldman Sachs whose MMFs fell by $6.6 billion, or -3.5%, SSgA, whose MMFs fell by $4.7 billion, or -5.2%, Schwab, whose MMFs fell by $4.5 billion, or -3.4%, Morgan Stanley, whose MMFs fell by $4.1 billion, or -3.6%, and Western whose MMFs fell by $1.3 billion, or -5.3%. 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 July 31, 2018, Fidelity (up $56.9B, or 10.6%), Vanguard (up $35.7B, or 13.0%), BlackRock (up $35.5B, or 13.6%), JP Morgan (up $27.3B, or 11.2%), Goldman Sachs (up $22.7B, or 13.9%), Federated (up $16.5B, or 9.2%), and Wells Fargo (up $15.0B, or 16.0%) were the largest gainers. These complexes were followed by UBS (up $13.7B, or 34.9%), Northern (up $12.9B, or 13.3%), DWS (formerly Deutsche, up $8.6B, or 49.4%), and SSgA (up $6.0B, or 7.6%).

Northern, Fidelity, Goldman Sachs, JP Morgan, UBS, and Wells Fargo had the largest money fund asset increases over the past 3 months, rising by $13.8B, $13.3B, $12.3B, $12.3B, $7.5B, and $6.9B respectively. The biggest decliners over 12 months include: Schwab (down $27.2B, or -17.6%), T Rowe Price (down $5.6B, or -14.3%), Western (down $4.9B, or -17.7%), Morgan Stanley (down $3.2B, or -2.8%), and Dreyfus (down $3.1B, or -1.7%). (Note: Both Northern and UBS had large new funds added to our collections in the latest month, so their totals were inflated by $8.0B and $6.1B, respectively.)

Our latest domestic U.S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $594.1 billion, or 19.5% of all assets. It was up $7.3 billion in July, up $13.3 billion over 3 mos., and up $56.9B over 12 months. Vanguard ranked second with $309.4 billion, or 10.2% market share (up $6.3B, down $947M, and up $35.7B). BlackRock was third with $295.7 billion, or 9.7% market share (up $1.6B, down $1.6B, and up $35.5B for the past 1-month, 3-mos. and 12-mos., respectively). JP Morgan ranked fourth with $270.6 billion, or 8.9% of assets (up $8.3B, up $12.3B, and up $27.3B for the past 1-month, 3-mos. and 12-mos., respectively), while Federated moved up to fifth with $195.5 billion, or 6.4% of assets (up $3.1B, up $4.4B, and up $16.5B).

Goldman Sachs dipped down to sixth place with $186.2 billion, or 6.1% of assets (down $6.7B, up $12.3B, and up $22.7B), while Dreyfus held seventh place with $172.6 billion, or 5.7% (up $5.5B, up $4.9B, and down $3.1B). Schwab ($127.8B, or 4.2%) was in eighth place (down $4.5B, down $11.0B and down $27.2B), followed by Morgan Stanley in ninth place ($111.2B, or 3.7%, down $4.1B, down $10.5B, and down $3.2B) and Northern in tenth place ($110.1B, or 3.6%, up $10.7B, up $13.8B, and up $12.9B).

The eleventh through twentieth largest U.S. money fund managers (in order) include: Wells Fargo ($108.3B, or 3.6%), SSgA ($84.9B, or 2.8%), Invesco ($62.0B, or 2.0%), First American ($54.0B, or 1.8%), UBS ($52.8B, or 1.7%), T Rowe Price ($33.6B, or 1.1%), DWS ($26.1B, or 0.9%), DFA ($25.3B, or 0.8%), Franklin ($23.7B, or 0.8%), and Western ($22.9, or 0.8%). The 11th through 20th ranked managers are the same as last month. Crane Data currently tracks 68 U.S. MMF managers, one more than last month. (Pacific Capital was added.)

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, Goldman moves ahead of Federated, and Morgan Stanley and Northern move ahead of Schwab. Our Global Money Fund Manager Rankings include the combined market share assets of our MFI XLS (domestic U.S.) and our MFI International ("offshore") products.

The largest Global money market fund families include: Fidelity ($603.3 billion), BlackRock ($435.4B), J.P. Morgan ($423.0B), Vanguard ($309.4B), and Goldman Sachs ($288.2B). Federated ($203.5B) was sixth and Dreyfus/BNY Mellon ($190.2B) was in seventh, followed by Morgan Stanley ($146.6B), Northern ($136.2B), and Schwab ($127.8B), 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 August issue of our Money Fund Intelligence and MFI XLS, with data as of 7/31/18, shows that yields were up again in July across all of our Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 769), was up 2 bps to 1.57% for the 7-Day Yield (annualized, net) Average, and the 30-Day Yield was up 6 bps to 1.55%. The MFA's Gross 7-Day Yield increased 1 bps to 2.03%, while the Gross 30-Day Yield rose to 1.96%.

Our Crane 100 Money Fund Index shows an average 7-Day (Net) Yield of 1.76% (up 2 bps) and an average 30-Day Yield of 1.75% (up 8 bps). The Crane 100 shows a Gross 7-Day Yield of 2.04% (up 2 bps), and a Gross 30-Day Yield of 1.98% (up 7 bps). For the 12 month return through 7/31/18, our Crane MF Average returned 1.05% and our Crane 100 returned 1.24%. The total number of funds, including taxable and tax-exempt, was up 9 funds to 971. There are currently 769 taxable and 202 tax-exempt money funds.

Our Prime Institutional MF Index (7-day) yielded 1.82% (up 1 bp) as of July 31, while the Crane Govt Inst Index was 1.65% (up 2 bps) and the Treasury Inst Index was 1.63% (up 3 bps). Thus, the spread between Prime funds and Treasury funds is 19 basis points, down 3 bps from last month, while the spread between Prime funds and Govt funds is 17 basis points, down 1 bps from last month. The Crane Prime Retail Index yielded 1.66% (up 1 bp), while the Govt Retail Index yielded 1.29% (unch) and the Treasury Retail Index was 1.35% (up 4 bps). The Crane Tax Exempt MF Index yield plunged in July to 0.59% (down 41 bps).

Gross 7-Day Yields for these indexes in July were: Prime Inst 2.22% (unch), Govt Inst 1.96% (up 2 bps), Treasury Inst 1.95% (up 3 bps), Prime Retail 2.23% (up 1 bps), Govt Retail 1.93% (unch), and Treasury Retail 1.94% (up 4 bps). The Crane Tax Exempt Index decreased 42 basis points to 1.10%. The Crane 100 MF Index returned on average 0.15% over 1-month, 0.42% over 3-months, 0.85% YTD, 1.24% over the past 1-year, 0.62% over 3-years (annualized), 0.38% over 5-years, and 0.30% over 10-years. (Contact us if you'd like to see our latest MFI XLS, Crane Indexes or Market Share report.)

The August issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Tuesday morning, features the articles: "Rising MF Yields Turn Up Heat on Sweeps, Bank Deposits," which discusses the growing spread between money funds and other cash options; "PGIM Still Rocking in Cash: Q&A w/D'Angelo, Nicholson," which profiles the money funds formerly named Prudential; and, "European MMF Reforms Go Live; Ready for Symposium," which reviews the latest on European money fund regulations. We've also updated our Money Fund Wisdom database with July 31, 2018, statistics, and sent out our MFI XLS spreadsheet Tuesday a.m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our August Money Fund Portfolio Holdings are scheduled to ship on Thursday, August 9, and our August Bond Fund Intelligence is scheduled to go out Tuesday, August 14.

MFI's "Rising MF Yields" article says, "Money fund yields have risen from a near record-low average of 0.04% three years ago to 1.75% currently (as measured by our Crane 100 MF Index), while bank deposit rates, and in particular brokerage sweep rates, have lagged dramatically. Brokerage sweep rates have risen from 0.01% to 0.22%, while bank money market deposit rates still average a ridiculously low 0.20% (according to the FDIC's averages). Even the highest-yielding deposits average just 1.26%."

The lead piece continues, "While asset flows into money market funds attracted by these huge yield differentials remain subdued, we suspect this is beginning to change. One reason that investors haven't moved is that the news that money fund yields are back is still slow getting out. But this is changing too. A steady stream of articles pointing out these attractive spreads are appearing."

It adds, "J.P. Morgan Securities comments in a recent 'Short Duration Strategy' piece, "With the Fed on the move and interest rates steadily rising, the topic of deposit betas and outflows has garnered significant attention from the financial community. Indeed, deposit growth at US commercial banks has slowed to 3.0-3.5% on a year-over-year basis, from a high of 5.0-7.0% in 2015 before the Fed embarked on its mission to lift interest rates.... [W]e have seen flows into other liquidity alternatives such as MMFs and short duration bond funds for both retail and institutional investors. More notably, the magnitude of the flows this year has been above and beyond what typically takes place during this time period."

Our PGIM Profile" reads, "This month, Money Fund Intelligence interviews Joe D'Angelo, Managing Director of PGIM Fixed Income, who runs the money market desk, and Chris Nicholson, Vice President of Fixed-Income Product Management at PGIM Investments, the distributor of the PGIM funds. PGIM's funds formerly carried the Prudential moniker, but they changed names earlier this summer to synch the funds with that of their advisor. Our Q&A follows."

MFI asks, "How long have you been running cash?" D'Angelo answers, "We were running cash before I started here, which was 30 years ago.... PGIM Fixed Income evolved from three internal fixed income groups focused on mutual funds, separate accounts, and proprietary accounts. These three separate groups were each managing money independently in the infant stages of money markets, going back to the early '80s or even late '70's.... Ultimately, all fixed income asset management was brought together. At that time, in roughly 2000, the firm had about $130 billion in assets under management. Now, PGIM Fixed Income is up to 600-plus clients with over $700 billion under management as of June 2018."

He continues, "I grew up on the issuance side of Prudential, coming here in the late '80s to work under the Treasurer. We were a prominent direct issuer of commercial paper. I moved from the direct issuer desk to securities lending, then jumped to investments around 2000."

Nicholson adds, "I've worked in various roles in financial services for the last 15 years [and] came over to Prudential, or PGIM now, in November of 2014.... I head up the fixed income product management efforts on the mutual fund side of things." (Watch for more excerpts from our "profile" on www.cranedata.com later this month or ask us to see the full MFI issue.)

MFI's "European Reforms" piece says, "New European Money Market Fund Reforms went into effect July 21. While existing funds don't need to comply until Jan. 31, 2019, discussions and preparations have shifted into high gear. Several of the largest managers of the 'offshore' stable value funds likely to be most-impacted by the changes have announced reform plans, with most expecting investors to stay put and go 'LVNAV.' 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. (​See our July 23 News, "European Money Market Fund Reforms Go Live; Moody's, Fitch Comment.")

Our August MFI XLS, with July 31, 2018, data, shows total assets increased $36.3 billion in July to $3.044 trillion, after decreasing $49.9 billion in June, increasing $53.7 billion in May, and $19.9 billion in April. Our broad Crane Money Fund Average 7-Day Yield rose 2 bps to 1.57% during the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) was up 2 bps to 1.76%.

On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA rose 1 bps to 2.03% and the Crane 100 rose to 2.04%. Charged Expenses averaged 0.46% 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 27 and 28 days, respectively (down two days and one day from last month). (See our Crane Index or craneindexes.xlsx history file for more on our averages.)

Jason Zweig writes again on brokerage sweep accounts in this weekend's Wall Street Journal "Intelligence Investor" column. The article, entitled, "Your Brokers Can Make 10 Times More on Your Cash Than You Do," and subtitled, "It pays to pay attention to what your brokerage is doing with your cash," tells us, "When some investment firms say they will treat your money as if it were their own, they mean it -- all too well. If the Securities and Exchange Commission wants to make good on its promise to compel brokers to act in their customers’ best interest, it should shine a klieg light on how brokers treat investors’ cash. Investors invest, but of course they leave billions in cash in brokerage accounts, too." (See our March 12 News, "WSJ Hits Brokerage Sweep Rates.")

The piece explains, "At Morgan Stanley, $6.3 billion of that cash is in a money-market mutual fund yielding 1.8%. On Aug. 13, the firm will shut that fund and sweep its clients’ idle cash into bank accounts that, after a transition period, could yield much less. As Charles Schwab also did earlier this year, most major brokerages have shoved clients out of money-market funds and into lower yielding bank sweeps, thereby capturing much of the return on customers’ cash for themselves. In a bank sweep, your brokerage automatically rakes together and deposits your spare cash in one or more banks. Banks hand the brokerage a hefty fee, and the brokerage hands you some crumbs. For any given investor, a few dollars from dividends or interest income don’t amount to much. Rolled together with idle cash from thousands of other investors, they can add up to millions."

The WSJ's Zweig says, "Even as short-term interest rates have risen to roughly 1.9% from 1.1% over the past year, brokerage firms have barely budged how much they pay on their customers' cash. These firms often describe cash sweeps as 'a low-cost source of funding.' They're not kidding. You've probably never realized how badly you could be getting stiffed: Sweeps often affect only a few dollars at a time, and the disclosures are hard to find, understand and compare. All this is perfectly legal. Regulations don't require brokers to pay you anything on your cash, says Paul Clark, a partner in banking and securities law at Seward & Kissel in Washington, D.C."

It continues, "Bank sweeps have considerable benefits: federal deposit insurance, instant access to your money, checkwriting, a debit card, online bill payment and the like, all with no fees. A broker's profits on sweeps may subsidize other services -- lowering commissions, for example. What's more, if you just put your money in a bank instead, the bank would also make a fat spread off you -- with even less disclosure of how much profit it is earning. The foregone gains aren't huge. If you hold $10,000 in cash, you could earn about $200 over the next year, at current yields, in a money-market mutual fund. In the average brokerage bank-sweep account, you would make $19, according to Crane Data, a firm in Westboro, Mass., that tracks cash rates."

The Journal states, "Yet brokers talk constantly these days about acting in your best interest. Pushing you into sweep accounts that are far more lucrative for them than for you seems inconsistent with that noble goal. And sweeps are rife with conflicts.... Many brokerage firms sweep your cash into banks their parent company owns. Charles Schwab's brokerage now deposits all its bank-sweep balances at siblings Schwab Bank and Schwab Signature Bank.... At Ameriprise Financial, which has $24 billion in cash from clients, revenue from sweeps was up 56% in the first half of 2018 over the same period last year, Chief Executive James Cracchiolo said in a call with analysts on July 25.... The sweep business is so lucrative that Ameriprise expects to launch its own bank next year, partly to capture the spread for itself, the company’s management confirmed on the July call."

They add, "Brokerage customers at E*Trade Financial Corp. averaged $37.9 billion in sweep deposits in the first half of 2018, according to the company's latest earnings release. The firm lists 29 banks where it may deposit cash sweeps.... Investors with sweep accounts at the brokerage division of LPL Financial Holdings earn 0.16% on a $250,000 balance. LPL, meanwhile, is making roughly 1.85% on its customers' cash, Chief Financial Officer Matthew Audette said on a call with analysts and investors on July 26. Cash sweeps contributed 25% of LPL's total gross profit in the second quarter, nearly as much as LPL's commission and advisory fees combined, according to a financial presentation by the firm. At Raymond James Financial, clients have $41 billion in bank sweep accounts."

Finally, Zweig comments, "Part of the problem is inconsistent and incomplete disclosure. Some brokerages say how much they are taking in fees; some disclose the maximum they could take. Some disclose they will sweep all your cash to banking affiliates; some don't clearly state that their sibling banks get first dibs on your dough. Regulators could do more to make these disclosures informative. The bottom line: Brokerages are getting rich on your money. You have the right to change how they handle your cash, and you should."

For more on brokerage sweep rates and issues, see our latest Brokerage Sweep Intelligence report or see the Crane Data News articles: Morgan Stanley to Sweep More to Banks from MMFs; PI on Stable Value (6/6/18), Schwab Changes Brokerage Cash Sweep, Adds Bank, Cuts Money Funds (2/16/18), Schwab Liquidating MMF, Shifting to FDIC; Brokerage Sweep Rates Jump (1/4/18), Wells Bumps Up Brokerage Sweep Rates, Raises FDIC Insurance Coverage (10/12/17), Signs of Life in FDIC Brokerage Sweeps; StoneCastle on Sweep Platforms (5/9/17), UBS Liquidates Sweeps, Goes Govt; Vanguard Floats Internal Money Fund (6/29/16), and WSJ on Corporate Deposits; Brokerages Raise Rates; TBS Deal on Sweeps (6/27/17). See also, Crane Data's Link of the Day updates: Forbes.com Takes Swipe at Sweeps (3/22/18) and StoneCastle to Enter Sweeps Market, and well as the May 2018 issue of MFI.

In other news, PIMCO posted a video featuring Jerome Schneider called "5 Reasons to Like the Front End of the Yield Curve." He tells us, "With the Federal Reserve looking to increase rates over the foreseeable future, we believe that the front end of the yield curve of the U.S. bond market is a place to possibly consider for several different reasons."

Schneider explains, "First of all, there is a potential for positive absolute return within the front end universe. Where short-term strategies really focus on the front end of the yield curve, their interest rate composition can be ranging from zero to one year. In fact in the current yield curve environment, short-term treasuries can withstand a recalibration to higher rates. That is simply because of where yields are at the front end of the yield curve right now. The composition of higher rates and more importantly, the diversity of portfolio composition across high quality assets in the investment grade, including `treasuries, corporates, and structured products make the potential for absolute returns likely over the foreseeable future."

He continues, "The second element is low volatility.... The third element is simply looking to capture higher rates going forward and specifically looking for higher LIBOR rates or credit-sensitive rates in the short-term space. As a result, we have been having higher allocations in our short-term portfolios that help to embrace those higher rates going forward. For us, higher LIBOR rates ultimately means that we are being paid a higher compensation for potential credit risk."

The PIMCO PM explains, "Next, positive real return is something we need to be considering for portfolio positioning. Over the past ten years or so, investors have really not begun to think about the impact of inflation on returns. Now with CPI increasing over the secular horizon, we need to really be thinking about the potential impacts of inflation. Real return affectively in inflation-adjusted terms is something that short-term portfolio investors simply have not been paying attention to. As we think about increasing inflation, the goal of a portfolio should also be not just normal returns, but positive real returns. With short-term bonds yielding 2% to 2.5% or more positive real returns is something that is potentially in the cards for investors to help shield them from the increasing inflation metrics we see."

He adds, "Finally, the cost of liquidity is an element of composition that we need to be thinking about for portfolio positions. Specifically being opportunistic for short-term portfolios, there is a low cost to liquidity because the bonds that we hold are relatively short-dated. As a result, this is a relatively low-cost place to manage liquidity over the foreseeable future. With monetary policy changing over the next few quarters ... investors need to be more and more cognizant of these changes on the impact of volatility and more importantly, rate increases on their portfolio. [W]e believe that the front end of the yield curve of the U.S. bond market is a place to possibly consider to have a balance between liquidity, capital preservation, and ultimately income."

With less than 2 months to go before the 6th annual Crane's European Money Fund Symposium, which will be held in London, Sept. 20-21, European money fund reforms and issues have suddenly become the biggest topic in the cash world. European regulatory changes went into effect last week (see our July 23 News, "European Money Market Fund Reforms Go Live; Moody'​s, Fitch Comment"), and money market strategists are handicapping the impacts of changes on cash flows, issuers and fund managers. The FT also wrote this week about one of the major remaining questions marks, whether "share-cancelation mechanisms" are indeed banned under the new rules. We review the latest European Money Fund Symposium agenda and show details below, and we also quote from the FT piece. (Note: We'll be accepting registrations for European Money Fund Symposium all month, but if you plan to attend please make hotel reservations for the Hilton London Tower Bridge asap. Our discounted rate and reserved room block expire on Monday!)

European Money Fund Symposium offers European, global and "offshore" money market portfolio managers, investors, issuers, dealers and service providers a concentrated and affordable educational experience, and an excellent and informal networking venue. Last year's European Money Fund Symposium event in Paris attracted 125 attendees, sponsors and speakers -- our largest European event ever. Given the new money fund regulations in Europe and discussions over "repatriation" of offshore assets back to the U.S., we expect our show in London to attract even more interest this year.

EMFS will be held at the Hilton London Tower Bridge Hotel. Hotel rooms must be booked before Monday, August 6 to receive the discounted rate of £295 inclusive of VAT. Registration for our 2018 Crane's European Money Fund Symposium is $1,000 USD (or £750). Visit www.euromfs.com to register, or contact us to request the PDF brochure or for Sponsorship pricing and info.

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

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

The Day Two Agenda includes: "Irish & European Fund Issues" with Pat Rooney of Irish Funds and Rudolph Siebel of BVI; "European Money Fund Reform Roundtable" with Dan Morrissey of William Fry and John Hunt of Sullivan & Worcester LLP; "Money Fund Portals & Distribution in Europe" with Jim Fuell of J.P. Morgan, Ed Baldry of Institutional Cash Distributors, and Sabrina Hartzog of Citibank Online Investments.

The second day's afternoon will include: "Dealer Update and Issuance Outlook," moderated by David Hynes of Northcross Capital LLP and featuring Stewart Cutler of Barclays, Kiernan Davis of BGC Partners, and Marianne Medora of Group BPCE/Natixis; "Ultra-Short Bond Funds & Enhanced Cash" with Abis Soetan of Fitch Ratings, Neil Hutchinson of J.P. Morgan and Peter Yi of Northern Trust; "Strategists Speak: Negative Rates & Reforms" with Vikram Rai of Citi; and "Offshore Money Fund Data & Disclosures" with Peter Crane of Crane Data. We hope to see you in London in September!

In related news, the FT published the article, "FT Brussels rules out share-cancellation mechanism for money market funds." It tells us, "The European Commission has dashed hopes that a so-called share-cancellation mechanism will be allowed under new money market fund rules, putting in question the fate of €100bn invested in the funds. Fund managers had complained that a lack of clarity on the topic was leaving them in limbo and unsure how to prepare ahead of a January 21 deadline, after which they will need to comply with new regulations."

The piece explains, "Fresh rules for Europe's €1.3tn money market fund industry began to be phased in last month after a decade-long effort to restore the reputation of the investments, which had previously been regarded as ultra-safe. Some money market funds have used share-cancellation mechanisms for years, a feature that allows them to retain a stable net asset value. Cancelling shares allows a fund to retain the same value per share even if the value of its assets slip. Investors cherish this predictability and it is a crucial element for the €100bn in euro-denominated funds whose assets are linked to European interest rates."

The Financial Times writes, "The new money market rules, which introduce stress test and liquidity requirements, were drafted by the commission and make no explicit mention of the share-cancellation mechanism. Its use, however, 'would imply the breach of certain provisions of the regulation,' the commission told the Financial Times. It added that it had confirmed with the European Securities and Markets Authority that the share-cancellation mechanism was 'not allowed under the MMF regulation, as clarified in the commission legal service opinion'."

They state, "Last November, Esma told the commission that it wanted to see more legal detail on this element. Brussels later said the mechanism was incompatible with the new regulation. It said on Friday it had shared its legal opinion 'with all stakeholders involved in the MMF industry' but some investors told the Financial Times a lack of detail had created legal ambiguity, leaving them struggling to decode whether share cancellation was allowed."

Finally, the FT quotes, "Regulators should do more work to identify potential flaws with the cancellation mechanism, said Jane Lowe, secretary-general of the Institutional Money Market Funds Association. 'Investors want these products and they’re alarmed they could be taken away,' she said." (For more, see our Feb. 5 News, "EC Letter Bans Reverse Exchanges in New European Money Fund Regs, and our Oct. 2012 News, "World Turned Upside Down: JPM Flex Class For Negative Euro Rates.")

Since the SEC's Money Market Fund Reforms went into effect two years ago, there have only been a handful of Form N-CR filings, which indicate that financial support has been provided to a money fund. While we have yet to see any true money fund bailouts, we have seen a handful of filings to "top-up" money fund NAVs before liquidations and mergers. The latest filing, and first filing of 2018, is from the $265 million MFS U.S. Government Money Market Fund (MCMXX), which provided a small capital contribution to get rid of a "historical net realized loss" before it could no longer be carried forward. We review the brief MFS U.S. Govt MMF SAI Supplement and the N-CR rule below, and we also quote from a new Citi piece on Muni MMFs, the SIFMA Index and VRDNs.

MFS U.S. Government MMF's "Supplement to the Statement of Additional Information says, "The date of this supplement is July 2, 2018. Effective immediately, the following is added to the end of the section entitled "Appendix J – Investment Strategies and Risks": Money Market Fund Material Event. Financial Support Provided to U.S. Government Money Market Fund. On July 2, 2018, MFS, the investment advisor to the MFS U.S. Government Money Market Fund, made a capital contribution to the fund in the amount of $582,494. The fund was required to disclose additional information about this event on Form N-CR and to file this form with the SEC. Any Form N-CR filing submitted by the fund is available on the EDGAR Database on the SEC's website at http://www.sec.gov."

The MFS Form N-CR filing explains, "The capital contribution was made by Massachusetts Financial Services Company to offset historical realized capital losses incurred by the Fund prior to January 1, 2010. Massachusetts Financial Services Company did not receive any Fund shares in exchange for the contribution, and has no claim on the Fund's assets with respect to the contribution."

MFS Spokesperson Dan Flaherty tells us, "The fund was closed since February 2009," but it's recently been reopened (and unlike most of these filings, it is not liquidating or merging). He says it was a "historical net realized loss" that could only be carried forward for up to 8 years.

The SEC's description of the Form N-CR disclosure mandate in its 2014 "Money Market Fund Reforms (see page 374) says, "Today we are adopting, largely as we proposed, a new requirement that money market funds file a current report with us when certain significant events occur. New Form N-CR will require disclosure of certain specified events. Generally, a money market fund will be required to file Form N-CR if a portfolio security defaults, an affiliate provides financial support to the fund, the fund experiences a significant decline in its shadow price, or when liquidity fees or redemption gates are imposed and when they are lifted."

For more on Form N-CR, see our Dec. 24, 2015 News, "Northern on Reforms, Ultra-Short Strategies; First Form N-CR Filings," our May 21, 2015 News, "Dechert Examines Upcoming Form N-CR and Disclosure Requirements," and our April 14, 2016 News, "Money Fund Disclosure Reforms Go Live; Websites Add MNAVs, DLA, WLA."

In other news, a recent Citi Short Duration Strategy brief published Monday and entitled, "SIFMA/VRDNs - The parallax view," tells us, "The SIFMA index last reset at 94bp and is about 48% of 1wk Libor (currently at 196bp) and about 45% of 1m Libor (currently at 208bp). Thus, even on a tax adjusted basis, SIFMA seems extremely rich vs. its taxable counterparts. Humorously, we allude to this distortion in VRDN yields as the 'parallax view' by tax-exempt investors (a parallax error is an optical illusion caused by viewing the object at an oblique angle; this makes the object appear to be at a different position on the scale).... [H]ow do we explain this dislocation in VRDN yields? And, do we expect a correction in the near term? We discuss."

Author Vikram Rai explains, "The number of constituents of the SIFMA index continues to decline ... and clients have often asked us if the index is indeed a true representation of overall VRDN yields. We believe that it is, and while there are instances of paper trading far richer than the index (for instance, CA paper), the SIFMA index remains a somewhat accurate reflection of the average VRDN yield in the market. Also, while it is true that the numbers of index constituents has declined, so has the number of overall VRDN cusips in the market."

Discussing "Rationalizing the current SIFMA reset levels," he tells us, "We must admit that the richness of the SIFMA index ... is hard to justify but we believe the resets are low for two main reasons: Diminishing supply of investible paper: Tax-exempt MMFs face a unique problem, that of diminishing investible paper. VRDO outstandings, currently at $142 billion, have been shrinking.... The same is true for TOB outstandings and the size of this market is currently about $40.4 billion ... down 80% from its peak of $200 billion in 2007. VRDOs and TOBs account for 77% of the short term tax-exempt market."

The Citi piece continues, "On the other hand, demand for this category of paper from the traditional tax-exempt base can be quite sticky. This was one of the reasons why the SIFMA index was stuck in low single digits for a very long time ... i.e. supply was low while demand was somewhat constant. While we had hoped that VRDO net supply would increase this year, the increase has been far below our expectations."

It states, "Seasonality in demand patterns: Tax-exempt MMFs form a very large portion of the demand base for short term tax-exempt paper. If we look at the current supply demand equation, we find that the aggregate AUM for tax-exempt MMFs is about $134 billion and tax-exempt MMFs account for 57% of the overall demand for short-term tax-exempt products. Crossover investors such as prime funds are not equipped to pass on the benefit of tax-exemption to their investors and they become interested in VRDOs only when rates on SIFMA based products are at least in the same territory as comparable taxable rates (for instance, 1wk or even 1m Libor)."

Rai writes, "Thus, their influence has been declining. Accordingly, when tax-exempt MMFs witness inflows, as was the case after tax day, SIFMA tends to richen and vice-versa. And, there can be significant fluctuation in SIFMA resets owing to the fragile supply-demand balance for this section of the market. For instance, tax-exempt MMFs witness outflows around tax season as investors tend to sell their near cash alternatives in order to pay their tax bill and SIFMA tends to reset significantly higher around this period."

Finally, he asks, "Will SIFMA cheapen from here on? Yes, we believe it will. Prime funds have lost 60% of their assets under management ... due to money fund reform and before, they used to step in quickly to buy VRDOs during periods of cheapening and help provide some sort of a cap on SIFMA resets. Since their AUM has diminished, so has their demand and the short term tax-exempt sector is more reliant on demand from tax-exempt money funds. Over the last two weeks, tax-exempt money funds have witnessed about $4.5 billion in redemptions ... and this is reflected in the build-up of dealer inventory.... Thus, we do believe that increased dealer inventory will result in a higher SIFMA reset next Wednesday (August 1, 2018)."

Earlier this week, The Wall Street Journal wrote a front-page article entitled, "Jack Ma's Giant Financial Startup Is Shaking the Chinese Banking System." While it didn't deal directly with the giant Yu'e Bao, it did have a number of mentions of Chinese money market funds. The article states, "It handled more payments last year than Mastercard, controls the world's largest money-market fund and has made loans to tens of millions of people. Its online payments platform completed more than $8 trillion of transactions last year—the equivalent of more than twice Germany's gross domestic product. Ant Financial Services Group, founded by Chinese billionaire Jack Ma, has become the world's biggest financial-technology firm, driving innovations that let people use their phones for buying insurance as easily as groceries, enabling millions to go weeks at a time without using physical cash."

The Journal explains, "That success is also putting a target on the company's back. China, even more than the U.S., is now under pressure to reckon with the disruptive power of a financial-technology giant. China's banks complain Ant siphons away their deposits, causing them to pay higher interest rates, and is a factor leading them to close branches and ATMs. One commentator at a state-owned television channel described Ant's huge money-market fund as 'a vampire sucking blood from banks.'"

They continue, "Chinese authorities, clearly increasingly uncomfortable about Ant's scale, have started to put limits on the activities it can pursue.... Regulators have issued rules requiring large money-market funds to sharply reduce holdings of assets that allow them to pay high interest rates. They have pressured Ant to slow inflows into its giant money fund."

The WSJ piece explains, "Employees came up with the idea of letting customers stash their idle Alipay money in an online money-market fund to earn income. The fund, known as Yu'e Bao, or 'leftover treasure,' allows Alipay users to invest as little as 0.01 yuan ($0.0015) and to transfer cash in and out without fees. More than a million people shifted money into the fund within days of its launch in June 2013, drawn by yields several points above what banks paid on short-term deposits."

It tells us, "Yu'e Bao generated returns by investing in high-yielding products riskier than those banks were allowed to tap. Industrial and Commercial Bank of China, the country's biggest bank by assets, responded to the instant popularity of the money-market fund by sharply reducing the amount Alipay users could withdraw in a single transaction. Other banks also tightened limits."

The article adds, "Yu'e Bao was a blow to banks because it sucked money from savings accounts, said Ma Weihua, then-chairman of Wing Lung Bank, in 2014. Some banks issued commercial paper to Yu'e Bao, incurring higher costs of funding. By then, Jack Ma had stepped down as Alibaba's chief executive (remaining chairman), and in 2014 Alipay rebranded itself as Ant."

Finally, the Journal writes, "In September, Chinese securities regulators said that some large money-market funds were 'systemically significant.' Without naming Yu'e Bao, regulators issued rules requiring large money funds to reduce holdings of their hard-to-sell assets. Ant's asset-management unit announced measures to limit inflows into Yu'e Bao and committed to paring its holdings of longer-term and riskier securities."

For more on Chinese money market funds, see our July 3 News, "Worldwide Money Fund Assets: Chinese MFs Jump Again, US Drops in Q1," our May 4 News, "China's Yu'e Bao Sees Assets Decline; U.S. Money Fund Assets Rebound," our March 28 News, "Worldwide Money Fund Assets: US Jumps in Q4, China Breaks 1.0 Tril," our March 2 News, "Assets Dip at Month-End, Prime Falls Hard; Bloomberg on Chinese MMFs Mar 2 2018," and our Sept. 14, 2017 News, "WSJ Calls Chinese Money Fund Yu'e World's Largest MMF; Still Going." Note too that our upcoming European Money Fund Symposium, which is Sept. 20-21 in London, will feature a session entitled, "`Chinese, Japanese and Australian Money Funds." (To those attending and staying at the Hilton London Tower Bridge, please make hotel reservations soon! Our discounted room block expires on August 6.)

In related news, last night Bloomberg published the piece, "Chinese Investors Pile Into Money Market Funds, Dumping Stocks," which says, "Chinese investors flocked into money-market products at a rate outpacing equities and bonds last quarter, adding to what is already the biggest segment of the nation's mutual fund industry."

They explain, "Mutual funds investing in low-risk, short-term debt instruments grew 5.4 percent last quarter to 7.7 trillion yuan ($1.1 trillion), compared to the 3.7 percent increase in bond funds and a drop of 1.3 percent in equity funds, data compiled by the Asset Management Association of China show."

Bloomberg writes, "After a shadow banking crackdown shrank the pool of investment products in China, money market funds are seen as a safer investment as trade war uncertainties weigh on stocks, while offering returns close to those of bonds. While Chinese equities have rebounded from their lows and corporate notes jumped last month amid a government shift toward easing, analysts say money-market funds will continue to be attractive to retail investors."

The article adds, "China's money-market funds have nearly doubled in size from 2016, making it the world's second-largest market behind the U.S., according to UBS Asset Management. Money-market funds accounted for 61 percent of the nation's mutual funds at the end of June, data from the association showed, with China International Capital Corp. estimating individuals account for more than half of that investment."