News Archives: November, 2019
Money fund assets skyrocketed in the latest week, reaching their highest level since August 2009, after a mysterious plunge last week. Assets had suffered just their second decline over the past 13 weeks the previous week, but they've resumed their winning streak this week with their 28th gain out of the past 32 weeks. ICI's latest "Money Market Fund Assets" report shows that MMF totals have increased by $529 billion, or 17.4%, year-to-date in 2019. Over the past 52 weeks, ICI's money fund asset series has increased by $633 billion, or 21.5%, with Retail MMFs rising by $226 billion (20.2%) and Inst MMFs rising by $407 billion (22.3%).
ICI writes, "Total money market fund assets increased by $50.43 billion to $3.58 trillion for the six-day period ended Tuesday, November 26, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $48.16 billion and prime funds increased by $2.52 billion. Tax-exempt money market funds decreased by $246 million." ICI's weekly series shows Institutional MMFs falling $34.0 billion and Retail MMFs decreasing $11.9 billion. Total Government MMF assets, including Treasury funds, were $2.662 trillion (74.4% of all money funds), while Total Prime MMFs were $775.9 billion (21.7%). Tax Exempt MMFs totaled $138.5 billion, 3.9%.
They explain, "Assets of retail money market funds increased by $3.55 billion to $1.35 trillion. Among retail funds, government money market fund assets increased by $2.29 billion to $761.07 billion, prime money market fund assets increased by $1.49 billion to $458.97 billion, and tax-exempt fund assets decreased by $228 million to $125.48 billion." Retail assets account for over a third of total assets, or 37.6%, and Government Retail assets make up 56.6% of all Retail MMFs.
The release adds, "Assets of institutional money market funds increased by $46.89 billion to $2.23 trillion. Among institutional funds, government money market fund assets increased by $45.87 billion to $1.90 trillion, prime money market fund assets increased by $1.03 billion to $316.88 billion, and tax-exempt fund assets decreased by $19 million to $13.03 billion." Institutional assets accounted for 62.4% of all MMF assets, with Government Institutional assets making up 85.2% of all Institutional MMF totals.
Crane Data's separate Money Fund Intelligence Daily series shows overall money fund assets up $80.7 billion month-to-date (through 11/26) to $3.925 trillion. (We're projecting that this series will break the $4.0 trillion level by the end of this year!) Prime MMF assets are up $41.1B MTD, while Government assets are up $35.9B.
In related news, JPM Securities discusses money fund asset flows in their new "Short-Term Fixed Income 2020 Outlook." Under the headline, "Will MMFs lose steam in 2020?" They write, "Money market funds have had a phenomenal year. Through November 21, total taxable money fund balances grew $536bn (+19%) and now total more than $3.38tn. Even accounting for seasonality, this year's inflows were substantially higher than those of prior years.... In the face of an inverted yield curve and volatile equity markets, MMFs provided a safe haven for investors seeking stability and yield. Perhaps more importantly, MMFs continued to offer better yields relative to bank deposits. So it was not surprising then that flows have been fairly widespread, with significant gains across different types of taxable MMFs.... And along with the increase in AUM, the demand for Treasuries, Agencies, repo and bank CP/CD increased significantly as well."
JPM comments, "Notably, cash continued to pile into MMFs even as the Fed eased interest rates this year, refuting the notion that lower rates would prompt imminent outflows. In fact, we find that MMFs historically have not experienced outflows until 1-2 years after the Fed cut rates.... Intuitively, this may be a reflection of investors' increased risk aversion as they seek more safety to combat the riskier environment that prompted the Fed to cut in the first place. That said, as we are now four months past the first rate cut, and with a Fed that has signaled an intent to remain on hold, it's worth asking: could we see outflows next year?"
They explain, "In part, we suspect MMF balances will depend on how the curve evolves next year. Assuming the Fed cuts one more time next year, our Treasury strategists now expect 2y-, 5y-, and 10y Treasuries to be at 1.50%, 1.55%, and 1.85% by 2Q20 respectively, not too far off from current levels. With Treasuries somewhat range-bound, spreads are likely to play a more dominant role in total returns as opposed to the decline in rates. Yet, with yields relatively flat in the front end, and credit spreads already tight, we see little economic incentive for investors to increase duration risk. As a result, we may continue to see new cash flow into the money markets. Notwithstanding the recent repo turmoil and Fed intervention in the T-bill market, the stability of MMFs may continue to attract incremental cash."
The Outlook adds, "Furthermore, in spite of Fed rate cuts, the relative attractiveness between bank deposits and MMFs continues to favor the latter asset class.... [T]he spread between bank deposits and MMFs remains wide, with MMFs yielding 100-125bp above bank deposits. With a Fed either on hold, or perhaps deploying another 25bp insurance ease in 2Q20, we suspect banks are not going to be increasing their deposit yields anytime soon. While dynamics in the money markets could push MMF yields incrementally lower, particularly with respect to government MMFs, we suspect the spread over deposits will remain large enough for MMFs to continue to attract cash on the margin. All told, we do not foresee outsized flows out of MMFs next year. While the degree to which cash moved into MMFs may abate, the combination of a flat front-end yield curve and low deposit rates should keep balances relatively elevated. This means steady demand for money market instruments."
Finally, on supply, J.P. Morgan says, "Growth in money market supply balances should moderate next year. In aggregate we project total money market supply (excluding Fed ON RRP) will increase $345bn year over year, as Treasury bills will no longer provide a positive source of investable assets next year.... We estimate credit supply (total ex-Treasuries) balances will increase by $243bn, driven by modest increases across a range of credit products in the money markets."
The Investment Company Institute released its monthly "Trends in Mutual Fund Investing - October 2019" and its latest monthly "Month-End Portfolio Holdings of Taxable Money Funds" reports yesterday. Their latest numbers show money fund assets jumping $77.4 billion to $3.518 trillion in October. (Watch for our coverage of ICI's latest Weekly MMF Assets tomorrow.) The monthly increase follows increases of $74.4 billion in September, $87.0 billion in August and $78.2 billion in July. For the 12 months through Oct. 31, 2019, money fund assets have increased by $633.5 billion, or 22.0%. (Crane Data's separate MFI Daily asset series shows money market funds up by another $76.1 billion to $3.920 trillion month-to-date in November through 11/25.)
ICI's release states, "The combined assets of the nation's mutual funds increased by $330.18 billion, or 1.6 percent, to $20.47 trillion in October, according to the Investment Company Institute's official survey of the mutual fund industry. In the survey, mutual fund companies report actual assets, sales, and redemptions to ICI."
It explains, "Bond funds had an inflow of $28.33 billion in October, compared with an inflow of $24.35 billion in September.... Money market funds had an inflow of $74.08 billion in October, compared with an inflow of $70.69 billion in September. In October funds offered primarily to institutions had an inflow of $45.04 billion and funds offered primarily to individuals had an inflow of $29.04 billion."
ICI's latest statistics show that both Taxable and Tax Exempt MMFs gained assets last month. Taxable MMFs increased by $74.1 billion in October to $3.381 trillion. Tax-Exempt MMFs increased $3.3 billion in October to $137.2 billion. Taxable MMF assets increased year-over-year by $630.5 billion (22.9%). Tax-Exempt funds rose by $3.0 billion over the past year (2.2%). Bond fund assets increased by $38.1 billion in October (0.8%) to $4.616 trillion; they've risen by $499.8 billion (12.1%) over the past year.
Money funds represent 17.2% of all mutual fund assets (up from 17.1% the previous month), while bond funds account for 22.6%, according to ICI. The total number of money market funds was 368, one more than the month prior and down from 381 a year ago. Taxable money funds numbered 288 funds, and tax-exempt money funds numbered 80 funds.
ICI's "Month-End Portfolio Holdings" update confirms an increase in Treasury and Agency holdings and another drop in Repo last month. Repurchase Agreements remained in first place among composition segments; they decreased by $34.2 billion, or -2.9%, to $1.139 trillion, or 33.7% of holdings. Repo holdings have risen by $196.1 billion, or 20.8%, over the past year. (See our Nov. 13 News, "Nov. MF Portfolio Holdings: Repo Drops, T-Bills, Agencies Jump, Again.")
Treasury holdings in Taxable money funds increased by $44.4 billion, or 4.7%, to $989.5 billion, or 29.3% of holdings. Treasury securities have increased by $206.0 billion, or 26.3%, over the past 12 months. U.S. Government Agency securities were the third largest segment; they increased $39.0 billion, or 5.6%, to $734.4 billion, or 21.7% of holdings. Agency holdings have risen by $103.7 billion, or 16.4%, over the past 12 months.
Certificates of Deposit (CDs) stood in fourth place; they increased by $20.3 billion, or 7.8%, to $278.8 billion (8.2% of assets). CDs held by money funds have grown by $72.2 billion, or 34.9%, over 12 months. Commercial Paper remained in fifth place, up $5.6 billion, or 2.4%, to $242.6 billion (7.2% of assets). CP has increased by $51.0 billion, or 26.6%, over one year. Notes (including Corporate and Bank) were down $237 million, or -1.9%, to $12.5 billion (0.4% of assets), while Other holdings decreased to $14.9 billion.
The Number of Accounts Outstanding in ICI's series for taxable money funds increased by 423.2 thousand to 36.401 million, while the Number of Funds increased by two from last month to 288. Over the past 12 months, the number of accounts grew by 3.261 million and the number of funds decreased by 9. The Average Maturity of Portfolios was 36 days, three more than in September. Over the past 12 months, WAMs of Taxable money have increased by 4.
In related 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. The most recent cut (with data as of Nov. 22) includes Holdings information from 93 money funds (up 14 from last week), which represent $2.081 trillion (up from $1.810 trillion) of the $3.765 trillion (55.3%) in total money fund assets tracked by Crane Data.
Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $703.7 billion (up from $618.9 billion two weeks ago), or 33.8%, Treasury debt totaling $687.2 billion (up from $606.7 billion) or 33.0%, and Government Agency securities totaling $385.0 billion (up from $345.6 billion), or 18.5%. Certificates of Deposit (CDs) totaled $104.5 billion (up from $89.1 billion), or 5.0%, and Commercial Paper (CP) totaled $99.8 billion (up from $84.4 billion), or 4.8%. A total of $59.4 billion or 2.9%, was listed in the Other category (primarily Time Deposits), and VRDNs accounted for $41.4 billion, or 2.0%.
The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $687.2 billion (33.0% of total holdings), Federal Home Loan Bank with $280.1B (13.5%), Fixed Income Clearing Co with $100.1B (4.8%), BNP Paribas with $67.6 billion (3.2%), Federal Farm Credit Bank with $59.9B (2.9%), RBC with $52.3B (2.5%), JP Morgan with $42.7B (2.1%), Credit Agricole with $39.0B (1.9%), Wells Fargo with $37.1B (1.8%) and Mitsubishi UFJ Financial Group Inc with $36.6B (1.8%).
The Ten Largest Funds tracked in our latest Weekly include: JP Morgan US Govt ($157.8B), Fidelity Inv MM: Govt Port ($138.3B), Goldman Sachs FS Govt ($115.7B), BlackRock Lq FedFund ($114.1B), Federated Govt Oblg ($93.8B), Wells Fargo Govt MM ($85.2B), JP Morgan 100% US Treas MMkt ($74.7B), BlackRock Lq T-Fund ($73.2B), Fidelity Inv MM: MM Port ($72.1B) and Goldman Sachs FS Treas Instruments ($70.7B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)
Earlier this month, PIMCO celebrated the 10th birthday of MINT, or PIMCO Enhanced Short Maturity Active ETF, the oldest and largest actively-managed fixed-income exchange traded fund. Below, we discuss the origin, success and current state of the short-term bond ETF and the ultra-short space with PIMCO MD & Portfolio Manager Jerome Schneider and Product Specialist Ken Chambers. Our Q&A follows. Note: This profile is modified slightly and reprinted from the November issue of our Bond Fund Intelligence publication. Contact us if you'd like to see the full issue, or if you'd like to see our BFI XLS performance spreadsheet, our BFI Indexes and averages, or our most recent Bond Fund Portfolio Holdings data set, which was published Friday.
BFI: Tell us briefly about your history. Schneider: PIMCO is approaching 50 years, and a focus on active bond management and fixed income has been the key to our success. We take into account macro-economic trends and utilize our resources to identify bottom-up opportunities for clients.... In 1987, we created the PIMCO Short Term Fund.... We've been at the forefront of creation of value for clients who want to identify a more neutral risk opportunity [and] take advantage of structural situations in the front end of the yield curve.
Over the past 10 years, we've been adapting and segmenting that short-term opportunity set on two fronts. [We've been] building out our expertise and growing our portfolio management team. We're up to 12 PMs in the front end.... [We've also expanded] in terms of the products we’ve offered and created. [We have] not only separate accounts, as you might figure for institutional clients, but a large set of client friendly and accessible venues which are focused on the front end.
Ten years ago, we launched MINT, which is the PIMCO "enhanced cash" ETF.... It was introduced right after the depths of the financial crisis with the goal of giving clients the ability to differentiate credit risk and structural risk. But it was also [built] to avoid some of the low yields that you might find in traditional savings venues, including money funds and CDs.... We [wanted] to give clients a better risk- reward opportunity.
The other motivation was to create a new distribution framework for actively managed fixed income strategies. That was really the ulterior motive for PIMCO to launch an ETF, which appealed to a broad array of financial advisors.... Today MINT is the largest actively-managed fixed income ETF with over $13 billion.... Seven years ago, we also introduced our Short Asset Investment Fund (SAIF), a very low volatility, ultra-short strategy.
When we started this endeavor back in 2009, the ultra-short category was only $38 billion, but [it's] about $269 billion today. So, the growth has been pretty tremendous.... PIMCO has obviously benefited. But more importantly, so have investors. For those investors who are willing to segment and take a step outside that money market space, it's been quite rewarding. The performance of these ultra-shorts, and specifically MINT, has been pretty substantial [compared to] what you would find in a traditional money fund.
BFI: Talk about ETFs vs. funds. Schneider: We are indifferent whether it's a mutual fund, an ETF or a separate account.... We do see an awful lot of retail investors who gravitated to MINT.... But the balance between institutional investors and retail investors in MINT, and really across our ETF universe (which includes our Low Duration ETF, called LDUR, and our longer duration Core Bond fund, BOND) is really more balanced than it's ever been.
BFI: Talk about active vs. passive. Chambers: When you start to think about trying to replicate an index within the fixed income space -- take the Barclays 'Agg' with over 10,000 individual securities -- you have to do some type of sampling. When you create that, you start to create tracking errors because you're looking at specific duration and spread targets that you're trying to mimic.... PIMCO, with an active view, can take a position where ... we can implement some of those forward-looking projections and benefit investors.
Schneider: It is simply performance. A lot of that performance is driven not only by making the right asset selections, but how you manage the portfolio. Part of being an active manager is knowing what bonds to buy and what bonds to avoid. But also when to sell and what bonds to sell. Part of our return profile comes from income, what we earn from holding the bond. But it also comes from capital appreciation.... Whereas the vast majority of our competitors ... are simply buy and hold strategies, looking to outperform proxies like T-bills, you lose a lot of value by not actively optimizing your portfolio. We traditionally are much more active than our other brethren in the ultra-short universe at maximizing that total return aspect.
BFI: What does the portfolio look like? Schneider: I would say from a macro point of view, we're fairly defensive. We have been shedding corporate credit risk for quite some time.... It's been supplemented by a diverse approach that also includes: high quality asset-backed securities, prime quality auto loans, and agency mortgage securities.... We are more defensive in our credit posture than at any time over the past five or six years.
BFI: What is your biggest challenge? Schneider: Actually, our biggest challenge is education.... Our bias is to be more conservative, because PIMCO's ultrashort strategies have an emphasis on principal preservation and liquidity.... A lot of strategies have done well over the past year by embracing a ton of credit risk.... In our mind, it's not really the time to be taking risk. [We want to] educate investors on the differences between various ... solutions and the potential pick-up in return versus risk.... Investors really need to look under the hood to understand some of the schemes out there.... Some are relatively short-sighted.
Chambers: We try to work with distribution partners to understand the need for immediate liquidity versus intermediate liquidity. Many clients and institutions think they have to go to a money market fund because that's where the safety is. If you really don't need that liquidity over the next month or so, you're actually, as an investor, going to be better off in terms of return potential and liquidity by being in some type of ultra-short strategy. We've spent a lot of time talking about a liquidity management framework, a 'tiering' approach.... Oftentimes, clients get stuck in these [cash] allocations for a lot longer than they think. By landing in some type of an ultra-short strategy, you're going to be essentially paid more.
BFI: What are you most thankful for? Schneider: The growth of the ETF space is something that we all need appreciate. There's significant growth in terms of the people who are looking to embrace fixed income ... and ETFs are a digestible way for them to do it. The growth that we've seen too in terms of extra returns over the past 10 years ... is very substantial.... So all that extra return is the gravy on the turkey dinner.... We've been able to give clients proper risk adjusted returns and manage liquidity more actively.
Chambers: We talk a lot about it being 'sensible risk' that you want to add to an asset allocation.... Investors are much better off being in an ultra-short relative to just sitting in a money market fund, not only from the return potential, but for the cumulative return over time.... A lot of investors get stuck in an allocation, not realizing that they're going to stay there for six months or longer, and the return that you give up can be sizable.
BFI: What about your outlook? Schneider: We have often said over the past decade, that the short-term and ultra-short asset class, if you will, is not just simply an afterthought, it's a structural allocation. We think that theme will probably continue in a variety of ways, even though yields remain subdued. There is no doubt that strategies like MINT have outperformed since zero interest rate policies [arrived].... We think that the next 10 years will be [marked] by volatility management. These portfolios should help ease indigestion with risk asset prices, whether in equities, emerging markets or high yield.... We're also considering other strategies, including an ESG version of an ultra-short ETF in the near future.
Chambers: From an ETF perspective, there's a lot of things in play.... Now that [brokerage commissions] have gone away, the ability for clients to actively manage liquidity utilizing an ultra-short like MINT makes a lot of sense. We continue to try to be not only a thought leader within this space, but also in product development.... We're trying to think about what our investors over the next ten years are going to want out of their ultra-short.
Crane Data is making plans for its fourth annual ultra-short bond fund event, Bond Fund Symposium, which will take place in four months (March 23-24, 2020) at the Hyatt Regency Boston. Crane's Bond Fund Symposium offers a concentrated and affordable educational experience, as well as an excellent networking venue, for bond fund and fixed-income professionals. Registrations are now being accepted ($750) and sponsorship opportunities are available. We review the preliminary agenda and details below. We also give an update on our upcoming "basic training" show, Money Fund University, which will be held in Providence, January 23-24, 2020.
Bond Fund Symposium's Day One (3/23) morning agenda includes: Welcome to Bond Fund Symposium, with Peter Crane of Crane Data; Bond Market Strategists: Rates, Risks, Spreads with Mark Cabana of Bank of America Merrill Lynch, Ira Jersey of Bloomberg Intelligence and Alex Roever of J.P. Morgan Securities; Short & Shorter: Ultra-Shorts vs. SMAs III, with Dave Martucci of J.P Morgan A.M. and Jerome Schneider of PIMCO; and ETF & Near-Cash ETF Trends, with Will Goldthwait of State Street Global Advisors and Brian McMullen of Invesco. (Note: The agenda is still a work in progress, so let us know if you're interested in speaking or have any requests.)
The Day One afternoon agenda includes: Senior Portfolio Manager Perspectives with Crane as moderator, James McNerny of J.P. Morgan AM and Dave Rothweiler of UBS Asset Management; Major Issues in Fixed-Income Investing featuring Michael Cloherty as moderator, Matthew Brill of Invesco, Jeff Weaver of Wells Fargo Funds and Peter Yi of Northern Trust AM; and, Index Fund & ESG Issues in the Bond Space with SSGA's Goldthwait and Henry Shilling of Sustainable Research Analysis. Finally, the segment, US Bond Fund Ratings & LGIP Market Update with Greg Fayvelevich of Fitch Ratings and Guyna Johnson of S&P Global Ratings, will close Monday's session, followed by a reception sponsored by Wells Fargo Securities.
Day Two's agenda includes: State of the Bond Fund Marketplace with Crane and Shelly Antoniewicz of the Investment Company Institute; Regulatory Update: Liquidity & Disclosures with Stephen Cohen of Dechert LLP and Jamie Gershkow of Stradley Ronon Stevens & Young; Government Bond Market & Fund Discussion with Sue Hill of Federated Investors; Municipal Bond Market Overview with Kristian Lind of Neuberger Berman and J.R. Rieger of The Rieger Report; Money Fund Update & Conservative USBFs with Crane and Kerry Pope of Fidelity Investments; and Bond Fund Tools & Data with Peter Crane.
Portfolio managers, analysts, investors, issuers, service providers, and anyone interested in expanding their knowledge of bond funds and fixed-income investing will benefit from our comprehensive program. A block of rooms has been reserved at the Hyatt Regency. We'd like to thank our sponsors and exhibitors -- Wells Fargo Securities, Fitch Ratings, Fidelity Investments, J.P. Morgan Asset Management, Wells Fargo Asset Management, S&P Global Ratings, DTCC, INTL FCStone, Invesco, Bank of America Merrill Lynch, Northern Trust, Bloomberg Intelligence, Goldman Sachs, Federated, Payden & Rygel, PIMCO and Dechert -- for their support. E-mail us for more details.
Also, our 10th Annual Crane's Money Fund University will be held January 23-24 at the Renaissance Providence Downtown Hotel. Crane's Money Fund University covers the history of money funds, interest rates, regulations (Rule 2a-7), ratings, rankings, money market instruments such as commercial paper, CDs and repo, and portfolio construction and credit analysis. We also include segments on offshore money funds and ultra-short bond funds.
Money Fund University's comprehensive program is good for anyone -- beginners and experienced professionals looking for a refresher -- alike. The agenda is available online and we are still accepting registrations. (We're also willing to "comp" tickets for large Crane Data or sponsor clients, so let us know if you're interested.)
Finally, mark your calendars for our big show, Crane's Money Fund Symposium, which will be held June 24-26, 2020, at the Hyatt Regency Minneapolis. The preliminary agenda will soon be available and we'll soon be taking registrations at: www.moneyfundsymposium.com. We've also set the dates and location for our next European Money Fund Symposium. It is scheduled for Sept. 17-18, 2020, in Paris, France. Let us know if you'd like more details on any of our events, and we hope to see you in Providence, Boston, Minneapolis or Paris in 2020!
In other news, Federated asks, "Why are investors so interested in ultrashorts?" They write, "Why are investors so interested in ultrashorts? I think it allows investors to take a step out on the yield curve. Instead of being in a very short investment, they can extend a little bit, go a little bit further on the yield curve, pick up a little incremental income and a little additional yield. So that provides investors opportunity to maybe take money they don't need for six months or 12 months and get that extra yield, extra income, and help with their, whether it's a project for a government agency or an institution or if an investor's saving money for a house, it allows them to get a little bit extra pick-up."
Federated's Nicholas Tripodes explains, "In addition, on the other side, if an investor is invested in a longer term, intermediate, or a longer term bond fund, and they wanna take a little risk off the table, a little interest rate risk, they can shorten their position. Also, if investors are taking money out of the stock market, or something that earned them a lot of money but they wanna just get a little bit more conservative, it allows them to invest in a ultrashort product to still get a return, but take some risk off the table. So, in general, ultrashort products allow investors to access credit markets, whether it's investment-grade corporates or asset-back securities, along with treasuries, mortgages, and agencies while reducing interest rate risk by keeping that short duration space."
The piece adds, "What types of risks are associated with ultrashorts? The two main risks are interest rate risk and credit risk. So interest rate risk is really the sensitivity to a rise or fall in interest rates. So if you have a rapid rise in interest rates that could have a negative impact on prices. That really is a risk that's associated with all fixed income investing, but ultrashorts have a little bit lower interest rate risk just because they're usually less than a year average life. The other risk is credit risk. So if you're buying a corporate, investment-grade corporate bond, or asset-back securities, there's underlying credit risk associated with that. But we do have a team of analysts that makes recommendations based on our different credit risk assessments."
The Federal Reserve Bank of New York's "Liberty Street Economics" blog published the piece, "Monetary Policy Transmission and the Size of the Money Market Fund Industry." Written by Marco Cipriani, Jeff Gortmaker and Gabriele La Spada, it tells us, "In a recent post, we documented the transmission of monetary policy through money market funds (MMFs). In this post, we complement that analysis by comparing the transmission of monetary policy via MMFs to the transmission via bank deposits and studying the impact of the differential pass-through on the size of the MMF industry. To this purpose, we focus on rates on certificates of deposit (CDs) offered to banks’ retail customers and compare their response to monetary policy with that of retail MMF yields."
The article explains, "[A] chart ... shows the time series of three-month CD rates, MMF net yields, and the effective federal funds rate. Although both CD rates and MMF yields track the federal funds rate, their response to monetary policy changes is starkly different and has become even more so during the last tightening cycle. Between May 2004 and July 2006, the effective fed funds rate increased from 100 to 525 basis points (bps). During the same period, the net yield of retail MMFs increased by roughly the same amount, from 0.5 percent in May 2004 to 5 percent in July 2006.... [T]his corresponds to a pass-through of 99 percent. In contrast, over the same period, rates on three-month retail CDs increased only by half as much, reaching 3 percent in July 2006 -- a pass-through of only 50 percent. The pass-through on one-month CD rates was even lower, just 30 percent."
The NY Fed economists write, "After a long period with policy rates at the zero lower bound, the Federal Reserve started a new tightening cycle in December 2015, which continued until December 2018. Over this period, the effective federal funds rate increased by more than 200 bps. Over the same period, the net yield of retail MMFs increased by roughly the same amount, with a pass-through of 91 percent, confirming the very high elasticity (or beta) to rate hikes observed in the early 2000s. In contrast, rates on retail CDs barely moved. The rate on three-month CDs remained below 10 bps until July 2017, and only increased to 20 bps by the end of the tightening cycle, a pass-through of only 5 percent; the pass-through to the one-month CD rate was similarly low, at only 2 percent."
The post continues, "Given the lower responsiveness of bank CDs to monetary policy tightening, one could expect that, during a tightening cycle, money flows from CDs to MMFs. Indeed ... the size of the MMF industry increased during both tightening episodes, lagging the increase in the spread between retail MMF yields and CD rates by roughly a year. From May 2004 until July 2006, the assets under management (AUM) of retail MMFs increased by 5 percent, followed by a further increase of 16 percent over the next year. Consistent with the fact that rates on bank deposits have become stickier, during the last tightening cycle, the MMF industry increased even more dramatically. AUM of retail MMFs increased from $700 billion in December 2015 to almost $1 trillion in December 2018, a 37 percent hike, and kept increasing during the first half of 2019."
It adds, "A possible explanation for the lower elasticity of bank CD rates during the last tightening cycle is the effect of the 2014 MMF reform by the Securities and Exchange Commission, which went into effect in October 2016. By stripping prime MMFs of some of their liquidity features, the reform has made such investment vehicles a less attractive option for cash investors. The sharp increase in the size of the MMF industry over the last three years belies such an explanation. If anything, as described above, the AUM of retail MMFs have increased even more sharply than in the early 2000s. Indeed, as documented by Cipriani and La Spada (2018), although prime MMFs have become a less attractive liquidity vehicle and have shrunk as a result of the reform, investors have shifted to government MMFs, which were not affected by the amended rules."
Finally, they conclude, "The elasticity of bank CD rates to monetary policy tightening is much lower than that of MMF shares and has become ever lower after the financial crisis. The weaker elasticity of CD rates relative to MMF shares is accompanied by an expansion of the size of the MMF industry during tightening cycles. Such expansion was more pronounced for the last tightening cycle than during the previous one. This evidence casts doubt on the view that the MMF reform is a reason why the beta on CD rates has become so negligible."
In other news, money fund assets plummeted over the past week, their first drop in 5 weeks and just the second decline over the past 12 weeks. Assets have increased in 27 of the past 31 weeks. ICI's latest "Money Market Fund Assets" report shows that MMF totals have increased by $479 billion, or 15.7%, year-to-date in 2019. Over the past 52 weeks, ICI's money fund asset series has increased by $588 billion, or 20.0%, with Retail MMFs rising by $233 billion (21.0%) and Inst MMFs rising by $355 billion (19.4%).
ICI writes, "Total money market fund assets decreased by $45.90 billion to $3.53 trillion for the week ended Wednesday, November 20, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $53.33 billion and prime funds increased by $7.00 billion. Tax-exempt money market funds increased by $432 million." ICI's weekly series shows Institutional MMFs falling $34.0 billion and Retail MMFs decreasing $11.9 billion. Total Government MMF assets, including Treasury funds, were $2.614 trillion (74.1% of all money funds), while Total Prime MMFs were $773.3 billion (21.9%). Tax Exempt MMFs totaled $138.8 billion, 3.9%.
They explain, "Assets of retail money market funds decreased by $11.91 billion to $1.34 trillion. Among retail funds, government money market fund assets decreased by $14.21 billion to $758.78 billion, prime money market fund assets increased by $2.17 billion to $457.48 billion, and tax-exempt fund assets increased by $141 million to $125.70 billion." Retail assets account for over a third of total assets, or 38.1%, and Government Retail assets make up 56.5% of all Retail MMFs.
The release adds, "Assets of institutional money market funds decreased by $33.99 billion to $2.18 trillion. Among institutional funds, government money market fund assets decreased by $39.12 billion to $1.86 trillion, prime money market fund assets increased by $4.83 billion to $315.85 billion, and tax-exempt fund assets increased by $291 million to $13.05 billion." Institutional assets accounted for 61.9% of all MMF assets, with Government Institutional assets making up 84.9% of all Institutional MMF totals.
Crane Data's separate Money Fund Intelligence Daily series shows overall money fund assets up $30.4 billion month-to-date (through 11/20) to $3.875 trillion. Prime MMF assets are up $38.7B MTD, while Government assets are down $12.2B. (Note: Several funds were liquidated Monday, including all of the PNC Money Funds (which merged into Federated MMFs) and two UBS MMFs. These declines totaled $15.6 billion, but most of PNC's $11.3 billion in MMFs shifted into (and reappeared in) Federated MMFs. (The UBS fund assets apparently shifted to bank sweeps, and other UBS funds showed asset declines too.) We're not sure what exactly accounted for the bulk of this week's declines, but normally big outflows are due to tax payments, bond settlements and/or merger closings.
Dreyfus recently filed to change one of its Government money market mutual funds into a new breed of "impact" or socially responsible funds, making it the second fund to date to funnel business through minority and other "diversity" dealers. A Prospectus Supplement for the $4.6 billon Dreyfus Government Securities Cash Management Fund tells us, "The following information supplements the information contained in the section of the fund's prospectus entitled 'Shareholder Guide – General Policies': BNY Mellon Investment Adviser, Inc. generally will seek to place, over time, a majority of the aggregate dollar value of purchases and sales orders for Dreyfus Government Securities Cash Management's portfolio securities with dealers that are owned by minorities, women, disabled persons, veterans and members of other qualified and recognized diversity and inclusion groups, subject to the Adviser's duty to seek the best execution for the fund's orders." (Note: Crane Data will be hosting its European Money Fund Symposium Online, Thursday, Nov. 19 from 10am-12pm Eastern, or 3-5pmGMT.)
A document entitled, "Dreyfus Government Securities Cash Management Fund – Making an IMPACT," states, "The public's expectations of companies to respond to societal challenges and to be responsible for delivering positive contributions to society continues to evolve and grow. In the financial industry, investors may not be solely concerned about avoiding negative impacts but are often proactively seeking investments that can have a direct, positive impact on society. Simply put, "impact investing" seeks to provide investment returns that align with investor values."
It continues, "At Dreyfus Cash Investment Strategies (Dreyfus CIS), a wholly-owned subsidiary of BNY Mellon, we believe everyone can make a positive impact in their own way. For this reason and through taking cues from our own company culture, effective November 1, 2019, the Dreyfus Government Securities Cash Management Fund now seeks to place, over time, a majority of the aggregate dollar value of purchases and sales orders through dealers committed to diversity and inclusion."
Dreyfus explains, "The dealers that will be utilized are firms identified as authorized dealers by the Federal Home Loan Banks (FHLB) Office of Finance and have either been certified by one of the following: a nationally-recognized certifying organization, a national/state/or local government agency; or been self-certified if they meet one or more of the diversity criteria for inclusion." These include: Minority-Owned Business (MOB); Women-Owned Business (WOB); Disabled-Owned Business (DOB); Service-Disabled Veteran-Owned Small Business; and, Other qualified and recognized categories like Small Business Association and LGBTQ+.
The document adds, "Integrating this social element into the Dreyfus Government Securities Cash Management Fund does not change the fund's fundamental investment policy but does provide our investors an opportunity to participate in tackling certain social disparities in a direct and meaningful way." Dreyfus Government Securities Cash Management includes the following share classes: Institutional (DIPXX), Administrative (DAPXX), Investor (DVPXX) and Participant (DGPXX). Finally, they write, "Companies with a strong sense of purpose have the power to improve lives and build a stronger, more productive society. Let us all be part of the solution!"
We originally learned about the filing from the website Citywire, which wrote the brief, "Fund Files: BNY Adds ESG to Money Market Fund." Subtitled, "BNY Mellon adds impact approach to money market fund," it tells us, "BNY Mellon Investment Management has given a Dreyfus money market fund an impact twist, according to a filing with the Securities and Exchange Commission (SEC). The Dreyfus Government Securities Cash Management fund will place the majority of its purchase and sales orders 'with dealers that are owned by minorities, women, disabled persons, veterans and members of other qualified and recognized diversity and inclusion groups,' according to the filing."
It quotes Tracy Hopkins, COO of Dreyfus Cash Investment Strategies, "We live in a time where investors, large and small, are becoming more socially conscious and are looking for additional investment opportunities that can incorporate their values and beliefs into their portfolio. Against this backdrop, we have taken the step to convert the Dreyfus Government Securities Cash Management money market fund to an 'impact' fund that considers diversity and inclusion when placing purchase and sales orders with dealers."
She adds, "While socially conscious or ESG long-term mutual funds have been in existence for some time, there has traditionally not been strong demand from large cash investors due to short investment horizons. However, we are seeing this attitude changing. As such, this was a simple and impactful change that we could make to this fund given its specific investment strategy and it aligns nicely to our firm's commitment to a culture of diversity and inclusion."
Crane Data mentioned the other (so far) "Impact" Money Fund in our July 25 Link of the Day, "WSJ on Goldman 'ESG' Cash Fund," which said, "It appears you don't need to be "environmental" to be an "ESG" fund, at least according to `The Wall Street Jourbal. They write in "Apple, JetBlue Buy Goldman ESG Cash Fund," that, "Apple Inc., JetBlue Airways Corp. and other U.S. corporations are parking cash in a new socially conscious offering managed by Goldman Sachs Group Inc. The $1.5 billion money-market fund helps corporate treasurers steer money to bond brokerages operated by minorities, women and veterans.... The firm repurposed an existing money-market fund, the Goldman Sachs Financial Square Federal Instruments Fund, in December to invest in government debt, especially so-called agency notes issued by the Federal Home Loan Bank and Federal Home Loan Mortgage Corp., with an additional mandate to prioritize buying from bond dealers that are certified as being owned by minorities, women and veterans."
The Federal Home Loan Bank's "Dealer Page says, "The Office of Finance is committed to diversity and inclusion in our authorized dealer group, and actively seeks opportunities to work with dealers that are owned by minorities, women, disabled persons, veterans, and members of the lesbian, gay, bisexual, and transgender (LGBT) community. The Office of Finance promotes diverse dealer opportunities through increased access to debt programs, focused training for dealer sales and trading staff, and co-marketing programs with fixed-income investors." Examples of the FHLB's D&I Dealer Group include: Academy Securities, Blaylock Van, CastleOak Securities, Loop Capital Markets, MFR Securities, Mischler Financial Group and Stern Brothers.
For more on ESG Money Market Funds, see these Crane Data News articles: UBS Asset Mgmt Files to Launch Select ESG Prime Institutional Fund (11/4/19), Aviva Investors Discusses ESG MMFs; Fitch Rates MS ESG (11/6/19), Goldman Adds ESG Screen (11/14/19), BlackRock Launches First Offshore ESG MMF; ICS LEAF in EUR, GBP, USD (7/22/19), SSGA Goes Live with ESG Money Market Fund (7/3/19) and Cap Advisors Group Demystifies ESG Investing; Weekly Portfolio Holdings (6/19/19).
On Monday, PNC, the 25th largest manager of money market mutual fund assets with $11.3 billion, merged its assets into Federated, the 5th largest MMF manager (with $299.6 billion as of 10/31/19 before the merger). A press release entitled, "Federated Investors, Inc. Completes Acquisition of Certain Investment-Related Assets from PNC Bank, N.A.," tells us, "Federated Investors ... announced the acquisition of certain components of the PNC Capital Advisors LLC (PCA) investment management business. The transaction involved the reorganization of 18 PNC equity, fixed-income and liquidity mutual funds into 16 corresponding Federated mutual funds and the transition of a five-person Cleveland-based international equity portfolio management team from PCA to Federated. The acquisition also included a portion of PCA's separate account and separately managed account businesses."
It explains, "The reorganization of $14.0 billion in assets comprised approximately $11.3 billion in liquidity assets, $2.3 billion in equity assets and $450 million in fixed-income assets. Each mutual fund reorganization was approved by PNC fund shareholders.... Federated will pay PCA an estimated total purchase price of approximately $56 million for the acquisition."
Federated President & CEO J. Christopher Donahue comments, "This transaction builds upon Federated's long-term relationship with PNC and provides the shareholders of the funds and other PNC customers access to Federated's diverse range of investment strategies, proven performance and extensive customer service capabilities. Federated continues to seek alliance and acquisition opportunities in the U.S. and throughout the world."
Federated's initial press release announcing the deal in May, "Federated Investors, Inc. to Acquire Certain Investment-Management-Related Assets from The PNC Financial Services Group," explains, "The proposed transaction includes the reorganization of PNC's family of liquidity, equity and fixed-income mutual funds into corresponding Federated mutual funds, the acquisition of a portion of PNC's separate account and separately managed account business, and the transition of a six-person international equity management team from PNC to Federated."
It continues, "Post-closing, PCA will manage approximately $21 billion of custom liquidity and fixed-income solutions to address the needs of PNC's corporate and institutional clients, including corporations, healthcare organizations, insurance companies, unions, higher education, government entities and endowment, and foundations. The employees of PNC's liquidity and taxable fixed-income teams will remain with PCA, focused on managing separate accounts."
The release adds, "The Liquidity Product transitions include: PNC Government Money Market Fund ($13.0B) will merge into Federated Government Obligations Fund, PNC Treasury Money Market Fund ($1.8B) will merge into Federated U.S. Treasury Cash Reserves Fund, and PNC Treasury Plus Money Market Fund ($424M) will merge into Federated Treasury Obligations Fund."
A statement on PNC's website says, "On November 5, 2019, shareholders of each PNC Fund approved an Agreement and Plan of Reorganization pursuant to which a Federated fund would acquire the assets of the corresponding PNC Fund as shown in the mapping schedule below. The Reorganizations took place after close of business November 15, 2019. For information on a specific Federated fund, please click the link found below."
While this is the latest example of consolidation in the money fund space, it has been relatively slow over the past 2 years. In the June 2019 issue of our Money Fund Intelligence we wrote about "Consolidation's Slow March Resumes in Cash Space." MFI explained, "`The Federated/PNC deal will become the largest money fund merger since BofA funds were merged into BlackRock in April 2016, and one of the only deals ever among the 25 largest managers." Federated's Deborah Cunningham commented then, "We've done over 60 roll ups and acquisitions over the course the last 10 years or so, so it's not something that's new to us."
Other recent examples of consolidation include Invesco buying Oppenheimer, and TD liquidating its money funds. For more, see these Crane Data News articles: June MFI: Consolidation, Morgan Stanley Ultra Short, Fin-Tech Invasion (6/7/19), Oppenheimer Funds Now Invesco Oppenheimer; Dreyfus Keeping Name (6/3/19), Nov. MFI: Consolidation, Vanguard's Smith, Yields Break 2.0 Percent (11/7/18), and Invesco Buying OppenheimerFunds; DWS ESG, Northern's RAVI Advertise (10/22/18).
In other news, Bloomberg writes that the, "Fed's Money-Market Fix May Be Affecting Where People Park Cash." They explain, "While the Federal Reserve has said short-term interest rates are back under control following September's upheaval, its solution may be having knock-on effects for money-market investors."
They state, "The amount of cash that was parked at the central bank's facility for overnight reverse-repurchase agreements on Monday spiked to $27 billion. `That's the most since the end of the first half of 2019, when money-market funds and other counterparties pushed usage up to $44 billion. And although usage typically picks up around the 18th day of the month, this month's increase is noticeably bigger."
Bloomberg adds, "The uptick suggests that the central bank's recent endeavors to control short-term interest rates -- such as Treasury-bill buying and repurchase-agreement offerings -- may be displacing some investors. Money-market funds and others with cash to invest on a short-term basis typically put it to work by buying T-bills or lending in the repo market. But with the central bank now active on both of those fronts, the Fed’s reverse repo operations may be an attractive alternative."
Last week, the SEC posted its latest quarterly "Private Funds Statistics report, which summarizes Form PF reporting and includes some data on "Liquidity Funds." The publication shows that overall Liquidity fund assets were down in the latest reported quarter to $573 billion (from $584 billion in Q4). 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."
The SEC's "Introduction" explains, "This report provides a summary of recent private fund industry statistics and trends, reflecting data collected through Form PF and Form ADV filings. Form PF information provided in this report is aggregated, rounded, and/or masked to avoid potential disclosure of proprietary information of individual Form PF filers. This report reflects data from Second Calendar Quarter 2017 through First Calendar Quarter 2019 as reported by Form PF filers." (Note: Crane Data believes many of the liquidity funds are securities lending reinvestment pools and other short-term investment funds; these are not the "3c-7" private liquidity funds being marketed by Federated, JPMorgan and some others.)
The tables in the SEC's "Private Funds Statistics: First Calendar Quarter 2019 the most recent data available, now show 117 Liquidity Funds (including "Section 3 Liquidity Funds," which are Liquidity Funds from advisers with over $1 billion total in cash), down 2 from the last quarter and up 2 from a year ago. (There are 72 Liquidity Funds and 45 Section 3 Liquidity Funds.) The SEC receives Form PF reports from 39 Liquidity Fund advisers and 22 Section 3 Liquidity Fund advisers, or 61 advisers in total, down 2 from last quarter (down 1 from a year ago).
The SEC's table on "Aggregate Private Fund Net Asset Value" shows total Liquidity Fund assets at $573 billion, down $11 billion from Q4'18 and down $3 billion from a year ago (Q1'18). Of this total, $288 billion is in normal Liquidity Funds while $285 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 $581 billion, down $8 billion from Q4'18 and up $1 billion from a year ago (Q1'18). Of this total, $292 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 $84 billion is held by Private Funds (29.6%), $60 billion is held by Unknown Non-U.S. Investors (20.9%), $57 billion is held by Other (20.0%), $19 billion is held by SEC-Registered Investment Companies (6.6%), $10 billion is held by Insurance Companies (3.5%), $4 billion is held by Non-U.S. Individuals (1.3%) and $1 billion is held by Nonprofits (0.5%).
The tables also show that 77.9% 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 $510 billion). The Portfolio Characteristics show that these funds are very close to money market funds. WAMs average a short 30.8 days (36.5 days when weighted by assets), WALs are a short 55.4 days (64.1 days when asset-weighted), and 7-Day Gross Yields average 2.3% (2.3% asset-weighted). Daily Liquid Assets average about 50.2% (45.7% asset-weighted) while Weekly Liquid Assets average about 63.9% (57.5% asset-weighted). Overall, these portfolios appear shorter with a much heavier Treasury exposure than money market funds in general; almost half of them (46.7%) are fully compliant with Rule 2a-7.
In other news, rates on brokerage sweep accounts, bank accounts and money market funds continue inching lower in the third week following the Federal Reserve's most recent rate cut. (See our Oct. 31 Link of the Day, "Fed Cuts Rates a Third Time.") Our latest Brokerage Sweep Intelligence publication, with data as of Friday, Nov. 15, shows Schwab, RW Baird and UBS cutting rates over the past week. Raymond James and Wells Fargo cut rates the prior week.
RW Baird dropped rates for its 100K balance tier by 12 basis points to 0.33%. Schwab cut rates on its lower tiers; the 100K balance now pays 0.06%, down two basis points from the previous week. TD Ameritrade cut rates only on its 100K tier; it dropped 1 bp to 0.01%. Finally, UBS cut rates on all tiers; its 100K balance dropped by 5 bps to 0.05%. Two weeks ago, Raymond James trimmed rates across the board with its 100K tier balance down to 0.08%. Wells Fargo cut its 100K balance to 0.07%.
Our Crane Brokerage Sweep Index inched down to 0.15% from 0.17% in the week ended November 15 (for balances of $100K). E*Trade and TD Ameritrade currently have the lowest rate for balances at this level (0.01%). Meanwhile, Fidelity continues to have the highest sweep rate (0.82%). (Fidelity also have a higher-yielding money fund option for new accounts.) UBS, Merrill and Morgan Stanley are all paying 0.05%. Schwab is paying 0.06%, Wells Fargo is paying 0.07% and Raymond James is paying 0.08%. Ameriprise is paying 0.10%, and RW Baird is paying 0.33% for balances of $100K.
Money market fund yields are also inched lower over the past week. Our Money Fund Intelligence Daily shows the Crane Money Fund Average 7-day yield falling by 0.02% to 1.40% in the week through 11/15. Our Crane 100 MF Index also dropped 0.02% to 1.52% over the past week. Treasury Inst, Government Inst and Prime Inst average yields were all down 2 bps too, to 1.43%, 1.47% and 1.61%, respectively. Treasury Retail MFs currently yield 1.15%, (down 0.01%), Government Retail MFs yield 1.18% (down 0.05%) and Prime Retail MFs yield 1.44% (down 0.03%). Tax-exempt MF 7-day yields fell to 0.73%, unchanged from the previous week.
In related sweep news, UBS will be removing two money market fund options from its sweep lineup. A Prospectus Supplement filing for UBS Select Government Capital Fund [and] UBS Select Treasury Capital Fund tells us, "The purpose of this supplement is to update certain information in the prior prospectus supplements dated September 10, 2019 and October 3, 2019, which related to the planned liquidation of UBS Select Government Capital Fund and UBS Select Treasury Capital Fund (the 'Liquidating Funds'). In particular, UBS Financial Services Inc. has determined that November 18, 2019, will be the effective date of changes to its sweep options and, accordingly, the liquidation date will be on or about the same date. Additional information regarding the liquidation of the Liquidating Funds is outlined in the prospectus supplement dated September 10, 2019."
A filing for UBS Liquid Assets Government Fund adds, "At a meeting held on September 9, 2019, the Board of Trustees of UBS Series Funds approved certain changes to the eligibility requirements of the UBS Liquid Assets Government Fund.... The fund offers its shares primarily to "eligible benefit plans," which include: qualified plans with a pooled structure and 403(b) plans, including, in the case of both such plans, accounts opened by participants therein. You must be a client of UBS Financial Services Inc. to purchase fund shares. The fund is offered as a sweep fund for the automatic investment of free credit balances in your securities account."
Crane Data's latest MFI International shows assets in "offshore" European money market mutual funds rising in US Dollars but falling in Euro and Sterling in the month through October 11. These U.S.-style funds, domiciled in Ireland or Luxemburg and denominated in US Dollars, Sterling and Euro, decreased by $7.1 billion to $849.2 billion over the past month (10/14 through 11/14), but they're still up by $3.3 billion year-to-date. Offshore USD money funds are up $10.3 billion over a month and $22.4 billion YTD. Euro funds are down E5.6 billion over the month, and YTD they're also down E5.6 billion. GBP funds have fallen by L9.2 billion through November 14, but they're up by L12.6 billion YTD. U.S. Dollar (USD) money funds (190) account for over half ($476.3 billion, or 56.1%) of our "European" money fund total, while Euro (EUR) money funds (88) total E93.5 billion (12.2%) and Pound Sterling (GBP) funds (123) total L222.1 billion (31.7%). We summarize our latest "offshore" money fund statistics and our Money Fund Intelligence International Portfolio Holdings (which went out to subscribers Friday), below.
Offshore USD MMFs yield 1.64% (7-Day) on average (as of 11/14/19), down from 2.29% on 12/31/18, but up from 1.19% at the end of 2017. EUR MMFs yield -0.56 on average, compared to -0.49% at year-end 2018 and -0.55% on 12/29/17. Meanwhile, GBP MMFs yielded 0.63%, one less than 0.64% on 12/31/18 but up from 0.24% at the end of 2017. (See our latest MFI International for more on the "offshore" money fund marketplace. Note that these funds are only available to qualified, non-U.S. investors.)
Crane's MFII Portfolio Holdings, with data (as of 10/31/19), show that European-domiciled US Dollar MMFs, on average, consist of 29% in Commercial Paper (CP), 21% in Certificates of Deposit (CDs), 21% in Repo, 17% in Treasury securities, 10% in Other securities (primarily Time Deposits) and 2% in Government Agency securities. USD funds have on average 35.6% of their portfolios maturing Overnight, 10.5% maturing in 2-7 Days, 13.1% maturing in 8-30 Days, 8.2% maturing in 31-60 Days, 9.6% maturing in 61-90 Days, 17.5% maturing in 91-180 Days and 5.6% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (30.1%), France (14.7%), Canada (10.2%), Japan (9.8%), Germany (6.9%), the United Kingdom (6.3%), the Netherlands (4.5%), Sweden (3.6%), Australia (3.0%), China (1.9%), Switzerland (1.8%), Belgium (1.7%), Singapore (1.5%) and Norway (1.4%).
The 10 Largest Issuers to "offshore" USD money funds include: the US Treasury with $92.7 billion (17.4% of total assets), BNP Paribas with $20.6B (3.9%), Mitsubishi UFJ Financial Group Inc with $14.5B (2.7%), Barclays PLC with $13.7B (2.6%), Bank of Nova Scotia with $13.4B (2.5%), Credit Agricole with $12.5B (2.3%), Toronto-Dominion Bank with $12.1B (2.3%), Wells Fargo with $11.9B (2.2%), Fixed Income Clearing Co with $11.6B (2.2%) and Natixis with $11.2B (2.1%).
Euro MMFs tracked by Crane Data contain, on average 44% in CP, 23% in Other (primarily Time Deposits), 22% in CDs, 9% in Repo, 2% in Treasuries and 0% in Agency securities. EUR funds have on average 22.4% of their portfolios maturing Overnight, 9.7% maturing in 2-7 Days, 16.9% maturing in 8-30 Days, 11.0% maturing in 31-60 Days, 19.2% maturing in 61-90 Days, 17.3% maturing in 91-180 Days and 3.6% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (31.4%), United States (12.1%), Japan (11.6%), Sweden (7.6%), the U.K. (7.0%), Germany (6.9%), the Netherlands (4.9%), Switzerland (3.8%), Belgium (3.0%), Canada (3.0%), China (2.5%), Finland (1.7%) and Qatar (1.0%).
The 10 Largest Issuers to "offshore" EUR money funds include: Credit Agricole with E7.9B (8.3%), BNP Paribas with E4.8B (5.0%), Mizuho Corporate Bank Ltd with E3.5B (3.7%), Nordea Bank with E3.4B (3.6%), Societe Generale E3.2B (3.3%), Republic of France with E3.0B (3.2%), Citi with E3.0B (3.1%), Procter & Gamble Co with E2.9B (3.0%), BPCE SA with E2.9B (3.0%) and Mitsubishi UFJ Financial Group Inc with E2.8B (3.0%).
The GBP funds tracked by MFI International contain, on average (as of 10/31/19): 36% in CDs, 25% in Other (Time Deposits), 21% in CP, 13% in Repo, 5% in Treasury and 0% in Agency. Sterling funds have on average 23.5% of their portfolios maturing Overnight, 11.9% maturing in 2-7 Days, 12.5% maturing in 8-30 Days, 10.3% maturing in 31-60 Days, 16.1% maturing in 61-90 Days, 20.2% maturing in 91-180 Days and 5.5% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: the United Kingdom (18.5%), France (17.0%), Japan (16.1%), Canada (9.4%), Germany (6.3%), Netherlands (5.2%), Australia (4.2%), Sweden (3.8%), United States (3.7%), Switzerland (2.7%), Singapore (2.7%) and Abu Dhabi (2.5%).
The 10 Largest Issuers to "offshore" GBP money funds include: the UK Treasury with L18.6B (10.6%), Sumitomo Mitsui Banking Co with L7.6B (4.3%), Mizuho Corporate Bank Ltd with L7.0B (4.0%), BPCE SA Paribas with L6.8B (3.9%), Credit Agricole with L6.5B (3.7%), BNP Paribas with L6.4B (3.6%), DZ Bank AG with L5.7B (3.2%), Mitsubishi UFJ Financial Group Inc with L5.6B (3.2%), Sumitomo Mitsui Trust Bank with L5.0B (2.9%) and Toronto-Dominion Bank with L4.7B (2.6%).
In related news, ICI released its monthly "Money Market Fund Holdings" summary, which reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds. (For more, see our Nov. 13 News, "Nov. MF Portfolio Holdings: Repo Drops, T-Bills, Agencies Jump, Again.")
The MMF Holdings release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in October, prime money market funds held 27.2 percent of their portfolios in daily liquid assets and 41.2 percent in weekly liquid assets, while government money market funds held 61.2 percent of their portfolios in daily liquid assets and 78.5 percent in weekly liquid assets." Prime DLA increased from 25.5% in September, and Prime WLA decreased from 42.6% the previous month. Govt MMFs' DLA decreased from 61.7% in September and Govt WLA decreased from 80.6% from the previous month.
ICI explains, "At the end of October, prime funds had a weighted average maturity (WAM) of 41 days and a weighted average life (WAL) of 78 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 35 days and a WAL of 99 days." Prime WAMs increased by three days from the previous month and WALs increased by four days. Govt WAMs increased by three days day and WALs increased by one from the previous month.
Regarding Holdings By Region of Issuer, ICI's release tells us, "Prime money market funds' holdings attributable to the Americas declined from $347.07 billion in September to $332.05 billion in October. Government money market funds' holdings attributable to the Americas rose from $2.147.84 billion in September to $2,157.99 billion in October."
The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $332.1 billion, or 44.0%; Asia and Pacific at $159.3 billion, or 21.1%; Europe at $257.6 billion, or 34.1%; and, Other (including Supranational) at $5.8 billion, or 0.8%. The Government Money Market Funds by Region of Issuer table shows Americas at $2.158 trillion, or 81.2%; Asia and Pacific at $138.2 billion, or 5.2%; Europe at $346.6 billion, or 13.0%, and Other (Including Supranational) at $15.4 billion, or 0.6%."
The November issue of our Bond Fund Intelligence, which was sent out to subscribers Friday morning, features the lead story, "Bond Fund Inflows Stay Hot; ETF Flows on Record Pace," which looks at the continued strong inflows into bond funds, and "PIMCO's MINT Turns 10: Schneider & Chambers Talk," which interviews PIMCO's Jerome Schneider and Ken Chambers. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show bond fund yields were down while returns rebounded in October. We excerpt from the new issue below. (Contact us if you'd like to see our Bond Fund Intelligence and BFI XLS spreadsheet, or our Bond Fund Portfolio Holdings data.)
Our lead "Bond Fund Inflows" article says, "Bond fund inflows continued at a feverish pace in the latest month. While fund flows in 2019 aren't quite as strong as those in 2017 and the first half of 2018, they are close. Bond ETFs have gotten even hotter, though, and it looks like they'll have a record year of inflows."
It continues, "ICI's most recent weekly 'Combined Estimated Long-Term Fund Flows and ETF Net Issuance,' with data as of Nov. 6, says, 'Bond funds had estimated inflows of $12.67 billion for the week, compared to estimated inflows of $11.28 billion during the previous week. Taxable bond funds saw estimated inflows of $10.48 billion, and municipal bond funds had estimated inflows of $2.18 billion.' Over the past 5 weeks, bond funds and bond ETFs have seen inflows of $50.6 billion."
Our "PIMCO MINT" article comments, "This weekend, PIMCO will celebrate the 10th birthday of MINT, or PIMCO Enhanced Short Maturity Active ETF, the oldest and largest actively-managed fixed-income exchange traded fund. We discuss the origin and current state of the short-term bond ETF and marketplace with PIMCO MD & Portfolio Manager Jerome Schneider and Product Specialist Ken Chambers. Our Q&A follows."
BFI says, "Tell us briefly about your history." Schneider answers, "PIMCO is approaching 50 years, and a focus on active bond management and fixed income has been the key to our success. We take into account macro-economic trends and utilize our resources to identify bottom-up opportunities for clients.... In 1987, we created the PIMCO Short Term Fund.... We've been at the forefront of creation of value for clients who want to identify a more neutral risk opportunity [and] take advantage of structural situations in the front end of the yield curve."
He continues, "Over the past 10 years, we've been adapting and segmenting that short-term opportunity set on two fronts. [We've been] building out our expertise and growing our portfolio management team. We're up to 12 PMs in the front end.... [We've also expanded] in terms of the products we've offered and created. [We have] not only separate accounts, as you might figure for institutional clients, but a large set of client friendly and accessible venues which are focused on the front end."
Our Bond Fund News includes the brief, "Yields Down, Returns Up in October," which says, "Bond fund yields fell and returns rebounded last month. Our BFI Total Index returned 0.21% over 1-month and 7.55% over 12 months. The BFI 100 returned 0.24% in Oct. and 8.56% over 1 year. Our BFI Conservative Ultra-Short Index returned 0.22% over 1-mo and 2.80% over 1-yr; Ultra-Shorts averaged 0.19% in Oct. and 2.98% over 12 mos. Short-Term returned 0.29% and 5.07%, and Intm-Term gained 0.30% last month and rose 9.81% over 1-year. BFI's Long-Term Index returned 0.24% in Oct. and 13.26% for 1-yr; our High Yield Index returned 0.14% in Oct. and 6.69% over 1-year.
In another News brief, we quote a Barron’s piece, 'Bond Funds Are Feeling the Pain. There's an Exception at Pimco." It says, "The recent fixed-income selloff means large bond funds have posted losses in November. That might surprise investors who have seen healthy gains from bonds for most of the year."
A third News update covers BlackRock's blog, "Reaching for yield? Be aware of what lies beneath." They explains, "Three quarters into 2019, stock and bond performance seems to be telling a story of relative calm. Scratch the surface, however, and underlying market movements complicate the narrative. In particular, a trend toward quality suggests that investors are more concerned than they first appear."
BFI features a sidebar entitled "BlackRock's Fink on ETFs." This article says, "BlackRock CEO Laurence Fink discussed bond ETFs on the company's latest earnings call. He comments, 'Demand remains exceptionally strong for fixed-income ETFs, where iShares is the market leader. We captured $24 billion of net inflows in the quarter and a record $87 billion already year-to-date as client demand for fixed-income exposures accelerated.... Fixed-income ETFs have also been utilized by more and more fixed-income investors for active purposes, using ETFs as a mechanism to get active returns.... Fixed-income ETFs are a technology that is accelerating and will definitely modernize the global bond market.'"
Finally, another sidebar, "Study Hits Morningstar," tells us, "MarketWatch's article, 'Bond mutual funds may hold risker holdings than reported, NBER study finds,' explains, 'A new report by the U.S. National Bureau of Economic Research found that about 30% of all bond mutual funds contain riskier holdings than what is being reflected by Morningstar.... The report warns that investors may have 'overly safe' assessments of their exposure to fixed-income mutual funds, due to a 'large information chasm' that has developed in recent years between how Morningstar ranks bond funds for riskiness and their actual asset holdings."
We learned from the article, "Goldman Sachs adds ESG criteria to money market fund," published by website Expert Investor, that Goldman would be joining J.P. Morgan Asset Management in implementing an ESG "screen" to some of its funds. Goldman posted a notice on its website, entitled, "ESG Enhancements to the Euro Liquid Reserves Fund," which explains, "Effective 11 November 2019, Goldman Sachs Asset Management ('GSAM') will apply new Environmental, Social, and Governance ('ESG') enhancements to the Goldman Sachs Euro Liquid Reserves Fund." Goldman won't be adding 'ESG' to the name though. (See also our Nov. 6 News, "Aviva Investors Discusses ESG MMFs; Fitch Rates MS ESG" and our Nov. 4 News, "UBS Asset Mgmt Files to Launch Select ESG Prime Institutional Fund.")
Goldman's posting continues, "The ESG enhancements will focus on a combination of activity and product-based exclusions and a dedicated engagement strategy focused on diversity and inclusion. This complements the investment objectives of capital preservation and provision of daily liquidity. GSAM Liquidity Solutions is committed to being a leader in ESG dedicated money market funds and we plan to evolve our approach and expand our ESG product range in the near term. Based on extensive analysis and the stringent credit quality requirements of our AAA-rated money market funds, we do not anticipate a material impact to the Fund’s investment strategy or liquidity profile."
Expert Investor adds, "Over the coming months, GSAM is planning to roll out a similar approach to two or three similar funds, and in other currencies, a spokesperson said. The list of excluded activities, themes and thresholds will evolve over time, and ESG rating provider MSCI will deliver the constituent information."
Another article, "GSAM integrates ESG to Euro money market fund," posted on Investment Europe website, comments, "Goldman Sachs Asset Management (GSAM) has announced the first of its European money market funds to apply ESG enhancements. The fund will continue to operate as a Low Volatility NAV money market fund under the European regulation which became effective during Q1 of this year."
In other international money fund news, Fitch Ratings' Alastair Sewell recently spoke on Bloomberg Radio on "Chinese Money Market Funds. Sewell comments, "Yu'e Bao is a major money market fund. It's one of the very few money market funds in the world with more than $100 billion in assets. We count only 10 of those funds which have achieved that milestone.... This fund ... is the only Chinese money market fund with more than 100 billion in assets under management."
He continues, "This fund has decreased in size rather dramatically. It peaked at 1.7 trillion Chinese yuan in March of 2018 before shrinking to approximately 1 trillion Chinese yuan in March of this year. That shrinkage means that this fund was, for a time, the largest money market fund in the world but has now lost its crown to funds managed by J.P. Morgan Asset Management and Fidelity Investments."
Sewell adds, "The Chinese money market fund segment has been vibrant. It's grown ... dramatically. The industry only really started back in 2003. If you look at the U.S., money market funds first appeared back in the 1970s. So over here in China, you saw a massive expansion in the assets under management in the Chinese money market funds.... Right now there are somewhere in the order of 350 money market funds active in China. They look a little bit different to the money market funds people will have seen in the U.S. and Europe, and they certainly have quite a different risk profile to the funds that we typically see."
He also tells Bloomberg, "Let me just remind you these are money market funds, so these are low-risk vehicles which invest in short-term securities issued by banks, corporates, and governments. Yet in China, the money market funds are able to use leverage of up to 20 percent, and that's just not something you would see in a money market fund in the US or Europe. These funds are structurally different to the risk profile of funds in the U.S. and Europe."
Sewell explains, "These money market funds ... will invest in a diverse array of securities, but like money market funds everywhere they will be concentrated on the banking sector.... There is an emergence of credit stress in the Chinese market, and there's an emergence of credit issues among some of these smaller banks. [If] money market funds hold them, [this] would feed through to the portfolio quality and the risk profile of the money market fund.... The regulation in China has tightened over the last few years. It's been rapid, there have been four rounds of regulatory reforms addressing Chinese money market funds in almost as many years, compared with the one round in Europe and the one round in the US recently."
Finally, Wells Fargo Money Market Funds published its latest "Portfolio Manager Commentary," which tells us, "The annual year-end funding rite is upon the money markets. As of October 30, 2019, the percent of commercial paper outstanding that matures after the end of the year is 39.5%, an amount that is higher compared with the past several years at about the same time. While the pressure on issuers to extend over year-end for regulatory requirements remains the same, this year we are in a decreasing (or perhaps static) yield environment as opposed to the past several year-ends where rates were expected to rise. In years past, investors waited to extend over year-end as rates were expected to rise, thus favoring shorter maturities that reset more frequently."
They write, As the Fed informed us, even though the mid-cycle adjustment is over, the risk is for lower, not higher, rates. Consequently, investors have tended to buy longer-dated securities to lock in higher yields, a pattern that is evident in the Fed maturity chart that tracks weekly statistics on commercial paper maturing after year-end."
Wells' update also comments, "Yields in the municipal money market sector began to normalize following a mini spike in short-term rates during the volatile month of September. After reaching a multi-month high of 1.58% on September 25, the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Index fell for five straight weeks to close out the month at 1.12%, or 67% of 1-week LIBOR. Demand for overnight and weekly variable-rate demand notes (VRDNs) and tender option bonds (TOBs) strengthened throughout the month as municipal money market funds were the recipients of approximately $1.5 billion of inflows during the month, according to Crane Data. The drop in short-term municipal rates effectively priced in the Fed's rate cut from September 18, just on a one month lag. The potential impacts from the FOMC's October 30 rate cut should become apparent next month."
Finally, they add, "We are quickly progressing toward the end of the year.... [The impeachment investigation] has the potential for affecting volatility in risk assets.... While not necessarily good news for [stock and bond] holders, it's not unusual to see a knock-on effect from such volatility in the form of increased flows into the money markets as a sort of perceived refuge from market gyrations. Time will tell how this all plays out, but based on these as well as seasonal factors, money markets seem poised to hit new highs in total assets under management. Stay tuned!"
Crane Data released its November Money Fund Portfolio Holdings Tuesday, and our most recent collection, with data as of Oct. 31, 2019, shows jumps in Treasuries and Agencies with another big drop in Repo. Money market securities held by Taxable U.S. money funds (tracked by Crane Data) increased by $75.8 billion to $3.765 trillion last month, after increasing $92.6 billion in September, $93.0 billion in August and $102.1 billion in July. Repo continues to be the largest portfolio segment, followed by Treasury securities, then Agencies. CP remained fourth ahead of CDs, Other/Time Deposits and VRDNs. Below, we review our latest Money Fund Portfolio Holdings statistics. (Visit our Content center to download the latest files, or contact us to see our latest Portfolio Holdings reports.)
Among taxable money funds, Repurchase Agreements (repo) fell by $24.7 billion (-2.0%) to $1.192 trillion, or 31.6% of holdings, after decreasing $76.8 billion in September, but increasing $20.5 billion in August and $72.2 billion in July. Treasury securities rose $30.2 billion (2.9%) to $1.071 trillion, or 28.4% of holdings, after increasing $134.7 billion in September and $89.8 billion in August but decreasing $3.7 billion in July. Government Agency Debt rose by $39.4 billion (5.3%) to $785.0 billion, or 20.8% of holdings, after increasing $39.2 billion in September, decreasing $9.9 billion in August and increasing $18.2 billion in July. Repo, Treasuries and Agencies totaled $3.003 trillion, representing a massive 80.8% of all taxable holdings.
Money funds' holdings of CP, CD and Other (mainly Time Deposits) securities rose in October. Commercial Paper (CP) increased $13.9 billion (4.2%) to $343.9 billion, or 9.1% of holdings, after increasing $7.4 billion in September, decreasing $15 billion in August and increasing $8.9 billion in July. Certificates of Deposit (CDs) rose by $12.6 billion (5.0%) to $262.6 billion, or 7.0% of taxable assets, after decreasing $7.5 billion in September, increasing $4.5 billion in August and decreasing $0.6 billion in July. Other holdings, primarily Time Deposits, increased $5.0 billion (5.0%) to $104.3 billion, or 2.8% of holdings, after decreasing $4.6 billion in September, increasing $3.4 billion in August and $8.1 billion in July. VRDNs dropped to $6.8 billion, or 0.2% of assets. (Note: This total is VRDNs for taxable funds only. We will publish Tax Exempt MMF holdings separately late Wednesday.)
Prime money fund assets tracked by Crane Data increased $29 billion to $1.079 trillion, or 28.7% of taxable money funds' $3.765 trillion total. Among Prime money funds, CDs represent 24.3% (up from 23.8% a month ago), while Commercial Paper accounted for 31.9% (up from 31.5%). The CP totals are comprised of: Financial Company CP, which makes up 20.6% of total holdings, Asset-Backed CP, which accounts for 6.6%, and Non-Financial Company CP, which makes up 4.7%. Prime funds also hold 6.5% in US Govt Agency Debt, 9.5% in US Treasury Debt, 6.9% in US Treasury Repo, 1.3% in Other Instruments, 6.0% in Non-Negotiable Time Deposits, 4.9% in Other Repo, 6.0% in US Government Agency Repo and 0.5% in VRDNs.
Government money fund portfolios totaled $1.833 trillion (48.7% of all MMF assets), up $35.0 billion from $1.798 trillion in September, while Treasury money fund assets totaled another $853 billion (22.7%), up from $842 billion the prior month. Government money fund portfolios were made up of 39.0% US Govt Agency Debt, 21.7% US Government Agency Repo, 19.5% US Treasury debt and 19.5% in US Treasury Repo. Treasury money funds were comprised of 71.5% US Treasury debt, 28.4% in US Treasury Repo, and 0.0% in Government agency repo, Other Instrument, and Investment Company shares. Government and Treasury funds combined now total $2.686 trillion, or 71.3% of all taxable money fund assets.
European-affiliated holdings (including repo) rose by $68.0 billion in October to $711.5 billion; their share of holdings rose to 18.9% from last month's 17.4%. Eurozone-affiliated holdings rose to $488.0 billion from last month's $428.7 billion; they account for 13.0% of overall taxable money fund holdings. Asia & Pacific related holdings rose by $26.7 billion to $351.8 billion (9.3% of the total). Americas related holdings fell $19 billion to $2.699 trillion and now represent 71.7% of holdings.
The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (down $75.9 billion, or -10.1%, to $673.5 billion, or 17.9% of assets); US Government Agency Repurchase Agreements (up $47.4 billion, or 11.4%, to $462.9 billion, or 12.3% of total holdings), and Other Repurchase Agreements (up $3.8 billion, or 7.5%, from last month to $55.2 billion, or 1.5% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (up $8.2 billion to $221.9 billion, or 5.9% of assets), Asset Backed Commercial Paper (up $1.5 billion to $71.0 billion, or 1.9%), and Non-Financial Company Commercial Paper (up $4.1 billion to $51.0 billion, or 1.4%).
The 20 largest Issuers to taxable money market funds as of Oct. 31, 2019, include: the US Treasury ($1,071.1 billion, or 28.4%), Federal Home Loan Bank ($582.9B, 15.5%), Fixed Income Clearing Co ($165.8B, 4.4%), BNP Paribas ($132.7B, 3.5%), RBC ($109.0B, 2.9%), Federal Home Loan Mortgage Co ($86.2B, 2.3%), Federal Farm Credit Bank ($83.4B, 2.2%), JP Morgan ($83.2B, 2.2%), Wells Fargo ($81.9B, 2.2%), Mitsubishi UFJ Financial Group Inc ($77.8B, 2.1%), Credit Agricole ($72.8B, 1.9%), Barclays ($65.8B, 1.7%), Sumitomo Mitsui Banking Co ($58.0B, 1.5%), Societe Generale ($57.0B, 1.5%), Bank of America ($49.0B, 1.3%), Toronto-Dominion Bank ($46.0B, 1.2%), Natixis ($44.5B, 1.2%), Bank of Montreal ($44.0B, 1.2%), Bank of Nova Scotia ($42.8B, 1.1%) and Canadian Imperial Bank of Commerce ($37.0B, 1.0%).
In the repo space, the 10 largest Repo counterparties (dealers) with the amount of repo outstanding and market share (among the money funds we track) include: Fixed Income Clearing Co ($165.8B, 13.9%), BNP Paribas ($121.2B, 10.2%), RBC ($81.6B, 6.8%), JP Morgan ($69.3B, 5.8%), Wells Fargo ($66.4B, 5.6%), Barclays PLC ($54.9B, 4.6%), Credit Agricole ($52.6B, 4.4%), Mitsubishi UFJ Financial Group Inc ($50.1B, 4.2%), Societe Generale ($45.6B, 3.8%) and Bank of America ($41.9B, 3.5%). Fed Repo positions among MMFs on 10/31/19 include: Vanguard Fed MMkt ($16.0B), Goldman Sachs FS Treas Sol ($2.1B), Franklin IFT US Govt MM ($0.8B), Vanguard Market Liquidity Fund ($0.8B) and Vanguard Prime MMkt Fund ($0.3B).
The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: Toronto-Dominion Bank $31.8B, 5.2%), Mitsubishi UFJ Financial Group Inc ($27.7B, 4.5%), RBC ($27.4B, 4.5%), Bank of Nova Scotia ($25.9B, 4.2%), Credit Suisse ($23.1B, 3.8%), Sumitomo Mitsui Banking Co ($22.1B, 3.6%), Credit Agricole ($20.3B, 3.3%), Federated ($17.6B, 2.9%), Canadian Imperial Bank of Commerce ($17.4B, 2.8%) and Bank of Montreal ($16.9B).
The 10 largest CD issuers include: Mitsubishi UFJ Financial Group Inc ($19.8B, 7.6%), Sumitomo Mitsui Banking Co ($16.9B, 6.5%), Wells Fargo ($14.7B, 5.6%), Bank of Montreal ($14.7B, 5.6%), Toronto-Dominion Bank ($14.5B, 5.5%), Mizuho Corporate Bank Ltd ($12.9B, 4.9%), Sumitomo Mitsui Trust Bank ($11.1B, 4.3%), Svenska Handelsbanken ($9.9B, 3.8%), Bank of Nova Scotia ($9.5B, 3.6%) and Landesbank Baden-Wurttemberg ($9.1B, 3.5%).
The 10 largest CP issuers (we include affiliated ABCP programs) include: RBC ($21.9B, 7.5%), Credit Suisse ($16.5B, 5.6%), Toronto-Dominion Bank ($15.8B, 5.4%), Bank of Nova Scotia ($14.0B, 4.8%), JP Morgan ($13.7B, 4.7%), Societe Generale ($9.5B, 3.3%), Toyota ($9.4B, 3.2%), National Australia Bank Ltd ($8.7B, 3.0%), DBS Bank Ltd ($8.4B, 2.9%) and Credit Agricole ($8.3B, 2.9%.
The largest increases among Issuers include: Federal Home Loan Bank (up $31.4B to $582.9B), US Treasury (up $30.3B to $1,071.1B), Credit Agricole (up $26.0B to $72.8B), Societe Generale (up $13.4B to $57.0B), Barclays PLC (up $13.0B to $65.8B), Natixis (up $11.9B to $44.5B), Federal Home Loan Mortgage Co (up $9.2B to $86.2B), Mizuho Corporate Bank Ltd (up $8.5B to $36.0B), Mitsubishi UFJ Financial Group Inc (up $7.9B to $77.8B) and Credit Suisse (up $6.5B to $30.3B).
The largest decreases among Issuers of money market securities (including Repo) in Oct. were shown by: Fixed Income Clearing Co (down $35.7B to $165.8B), RBC (down $30.1B to $109.0B), JP Morgan (down $22.7B to $83.2B), HSBC (down $10.8B to $33.0B), Goldman Sachs (down $7.5B to $18.3B), Bank of Nova Scotia (down $5.9B to $42.8B), BNP Paribas (down $4.4B to $132.7B), Citi (down $4.2B to $36.5B), Deutsche Bank AG (down $3.6B to $15.0B) and Daiwa Securities Group Inc (down $3.1B to $11.6B).
The United States remained the largest segment of country-affiliations; it represents 63.8% of holdings, or $2.403 trillion. France (8.7%, $328.5B) was number two, and Canada (7.9%, $296.1B) was third. Japan (7.2%, $270.9B) occupied fourth place. The United Kingdom (3.5%, $130.7B) remained in fifth place. Germany (2.0%, $75.3B) was in sixth place, followed by The Netherlands (1.9%, $72.6B), Australia (1.5%, $55.1B), Sweden (1.1%, $42.5B) and Switzerland (1.0%, $37.2B). (Note: Crane Data attributes Treasury and Government repo to the dealer's parent country of origin, though money funds themselves "look-through" and consider these U.S. government securities. All money market securities must be U.S. dollar-denominated.)
As of Oct. 31, 2019, Taxable money funds held 36.4% (down from 41.6%) of their assets in securities maturing Overnight, and another 14.8% maturing in 2-7 days (up from 13.6% last month). Thus, 51.2% in total matures in 1-7 days. Another 17.0% matures in 8-30 days, while 10.0% matures in 31-60 days. Note that over three-quarters, or 78.2% of securities, mature in 60 days or less (down slightly from last month), the dividing line for use of amortized cost accounting under SEC regulations. The next bucket, 61-90 days, holds 8.0% of taxable securities, while 10.8% matures in 91-180 days, and just 3.2% matures beyond 181 days.
We learned from Dechert LLP Partner Brenden Carroll that the U.S. Securities & Exchange Commission recently published a "Risk Alert" entitled, "Top Compliance Topics Observed in Examinations of Investment Companies and Observations from Money Market Fund and Target Date Fund Initiatives." It tells us, "The Office of Compliance Inspections and Examinations ('OCIE') is issuing this Risk Alert to provide investment companies, investors, and other market participants with information on the most often cited deficiencies and weaknesses that the staff has observed in recent examinations of registered investment companies ('funds'). In addition, this Risk Alert includes observations by the staff from national examination initiatives focusing on money market funds and target date funds."
The SEC writes, "As part of OCIE's assessment of market-wide risks and matters of importance to retail investors and investors saving for retirement, the staff recently conducted national examination initiatives focusing on MMFs and TDFs. The staff's observations from each of these examination initiatives are described below.... OCIE staff examined MMFs for compliance with the amendments to the rules governing MMFs that became effective in October 2016. These amendments made significant changes to the manner in which MMFs operate and the matters for which fund boards have oversight responsibility. The staff examined more than 70 MMFs as part of the MMF Initiative across a wide range of fund categories, including Government, Prime, and Tax Exempt funds, as well as MMFs that were also designated as Retail MMFs, which are required to limit their beneficial owners to natural persons."
They tell us, "In general, OCIE staff observed that the MMFs examined appeared to be in substantial compliance with the amended MMF rules. However, as discussed below, the staff also observed instances of deficiencies or weaknesses related to MMFs' portfolio management practices, compliance programs, and disclosures.... Some MMFs did not: Include in their credit files one or more of the factors required to be considered when determining whether a security presents minimal credit risks and is an eligible security, as defined under Rule 2a-7; Adequately document the periodic updating of their credit files to support the eligible security determination and; Maintain records that adequately support their determination that investments in repurchase agreements with non-government entities were fully collateralized by cash or government securities (for Government MMFs).... Some MMFs provided stress test results to their boards that did not include the required summary of significant assumptions used in the stress tests."
The Alert continues, "Some MMFs had not adopted and implemented compliance policies and procedures reasonably designed to address certain requirements under Rule 2a-7 and other areas. For example, some funds did not have policies and procedures that addressed: Periodic board oversight of the MMFs' written guidelines and procedures under which the adviser, when delegated by the MMFs' board, analyzes credit risks and makes minimal credit risk determinations; Periodic board oversight of certain MMF information, including the MMFs' net asset value deviation methods and the amount of the deviation; Limiting investors in Retail MMFs to natural persons; Testing for issuer diversification to ensure that no more than 5% of the funds' assets were invested in any one issuer (other than government securities); Incorporating all required elements for considering, imposing and lifting liquidity fees and/or gates if the funds' weekly liquid assets were less than 30% of their assets; Filing accurate and timely information with the Commission, such as Form N-MFP; Providing that the master fund shall make the fee and gate determinations in master/feeder fund arrangements."
Finally, the SEC adds, "The staff observed certain instances in which MMFs did not post on their websites all information required under Rule 2a-7 and/or posted inaccurate information on their websites. The staff also observed certain instances in which MMFs did not include all required legends in their advertising materials."
Earlier this week, J.P. Morgan distributed its "Mid-Week US Short Duration Update," which asks, "Will money funds lose steam in 2020?" They explain, "By all accounts, money market funds have had a phenomenal year. Year to date, total taxable money fund balances grew $504bn (+18%).... Even accounting for seasonality, this year's inflows were substantially higher than those of prior years.... In the face of an inverted yield curve and volatile equity markets, MMFs provided a 'safe haven' for investors seeking stability and yield. Perhaps more importantly, MMFs continued to offer better yields relative to bank deposits. So it was not surprising then that flows have been fairly widespread, with significant gains across different types of taxable MMFs. And along with it, the demand for Treasuries, Agencies, repo and bank CP/CD increased significantly as well."
JPM continues, "Notably, cash continued to pile into MMFs even as the Fed eased interest rates this year, refuting the notion that lower rates would prompt imminent outflows. In fact, we find that MMFs historically have not experienced outflows until 1-2 years after the Fed cut rates. That said, as we are now four months past the first rate cut and with a Fed that has signaled an intent to remain on hold, this lends itself to the question: could we see outflows next year?"
They comment, "In part, we suspect MMF balances will depend on how the curve evolves next year. With the Fed on hold, our Treasury strategists now expect the 2y, 5y, and 10y Treasuries to be at 1.65%, 1.65%, and 1.80% by 2Q20 respectively, not too far off from current levels.... [W]e see little economic incentive for investors to increase duration risk. As a result, we may continue to see new cash flow into the money markets. Notwithstanding the recent repo turmoil and Fed intervention in the T-bill market, the stability of MMFs may continue to attract incremental cash."
The Mid-Week update adds, "Furthermore, in spite of Fed rate cuts, the relative attractiveness between bank deposits and MMFs continue to favor the latter asset class.... [T]he spread between bank deposits and MMFs remains wide, with MMFs yielding 100-125bp above bank deposits.... All told, we do not foresee outsized flows out of MMFs next year. While the degree to which cash moved into MMFs may abate, the combination of a flat front-end yield curve and low deposit rates should keep balances relatively elevated. This means steady demand for money market instruments."
In other news, Crane Data's latest monthly Money Fund Portfolio Holdings statistics will be published Tuesday, Nov. 12 (money funds are closed for Veteran's Day), and we'll be writing our normal monthly update on the Oct. 31 data for Wednesday's News. But we also generate a separate and broader Portfolio Holdings data set based on the SEC's Form N-MFP filings, and we posted these to the website Friday. (We continue to merge the two series, and the N-MFP version is now available via Holding file listings to Money Fund Wisdom subscribers.) Our new N-MFP summary, with data as of Oct. 31, 2019, includes holdings information from 1,099 money funds, representing assets of $3.968 trillion (up from $3.885 trillion last month). We review the latest N-MFP data below.
Our latest Form N-MFP Summary for All Funds (taxable and tax-exempt) shows Repurchase Agreement (Repo) holdings in money market funds totaling $1,204 billion (down from $1,231 billion), or 30.4% of all assets. Treasury holdings total $1,081 billion (up from $1,048 billion), or 27.3%, and Government Agency securities totaled $804.0 billion (up from $763.9 billion), or 20.3%. Holdings of Treasuries, Government agencies and Repo (the vast majority of which is backed by Treasuries and agencies) combined total $3.090 trillion, or 77.9% of all holdings.
Commercial paper (CP) totals $356.0 billion (up from $344.8 billion), or 9.0%, and Certificates of Deposit (CDs) total $267.1 billion (up from $254.1 billion), or 6.7%. The Other category (primarily Time Deposits) totals $154.3 billion (up from $145.2 billion), or 3.9%, and VRDNs account for $100.8 billion (up from $98.0 billion last month), or 2.5%.
Broken out into the SEC's more detailed categories, the CP totals were comprised of: $236.4 billion, or 6.0%, in Financial Company Commercial Paper; $61.4 billion or 1.5%, in Asset Backed Commercial Paper; and, $58.2 billion, or 1.5%, in Non-Financial Company Commercial Paper. The Repo totals were made up of: U.S. Treasury Repo ($727.8B, or 18.3%), U.S. Govt Agency Repo ($421.3B, or 10.6%) and Other Repo ($55.1B, or 1.4%).
The N-MFP Holdings summary for the 214 Prime Money Market Funds shows: CP holdings of $350.4 billion (up from $339.0 billion), or 31.7%; CD holdings of $267.1 billion (up from $254.1 billion), or 24.2%; Repo holdings of $196.6 billion (up from $189.0 billion), or 17.8%; Other (primarily Time Deposits) holdings of $105.9 billion (up from $99.4 billion), or 9.6%; Treasury holdings of $107.1 billion (down from $116.9 billion), or 9.7%; Government Agency holdings of $71.4 billion (up from $70.4 billion), or 6.5%; and VRDN holdings of $5.7 billion (down from $5.6 billion), or 0.5%.
The SEC's more detailed categories show CP in Prime MMFs made up of: $236.4 billion (up from $226.7 billion), or 21.4% in Financial Company Commercial Paper; $61.4 billion (down from $62.1 billion) or, 5.6% in Asset Backed Commercial Paper; and $52.7 billion (up from $50.1 billion), or 4.8% in Non-Financial Company Commercial Paper. The Repo totals include: U.S. Treasury Repo ($76.7 billion, or 6.9%), U.S. Govt Agency Repo ($65.1 billion, or 5.9%), and Other Repo ($54.8 billion, or 5.0%).
Crane Data's latest Money Fund Market Share rankings show assets were up again for the majority of U.S. money fund complexes in October. Money fund assets increased by $84.8 billion, or 2.2%, last month to $3.871 trillion. Assets have climbed by $250.3 billion, or 6.9%, over the past 3 months, and they've increased by $780.4 billion, or 25.2%, over the past 12 months through Oct. 31, 2019. The biggest increases among the 25 largest managers last month were seen by Fidelity, JP Morgan, BlackRock, Vanguard, Federated, Goldman Sachs and Schwab, which increased assets by $27.7 billion, $10.6B, $8.3B, $7.9B, $7.7B, $7.6B and $7.3B, respectively. Declines in assets among the largest complexes in October were seen by Invesco, Wells Fargo and Dreyfus, which decreased by $4.0B, $2.1B and $1.2B. Our domestic U.S. "Family" rankings are available in our MFI XLS product, our global rankings are available in our MFI International product. The combined "Family & Global Rankings" are available to Money Fund Wisdom subscribers. We review the latest market share totals below, and we also look at money fund yields in October.
Over the past year through Oct. 31, 2019, Fidelity (up $151.7B, or 24.1%), American Funds (up $112.6B, or 677.0%; this was inflated by the addition earlier this year of the $108 billion American Funds Central Cash Fund), Federated (up $89.0B, or 42.2%), Vanguard (up $74.8B, or 22.9%), Schwab (up $63.0B, or 48.8%), JPMorgan (up $59.6B, or 21.2%) and BlackRock (up $46.5B, or 16.3%) were the largest gainers. These complexes were followed by SSGA (up $36.8B, or 45.8%), Morgan Stanley (up $28.3B, or 29.2%), Wells Fargo (up $20.2B, or 18.9%) and Goldman Sachs (up $17.7B, or 8.8%). Fidelity, Federated, JP Morgan, BlackRock and SSgA had the largest money fund asset increases over the past 3 months, rising by $69.5B, $28.9B, $23.1B, $21.7B and $21.1B, respectively. Decliners over 3 months included: Invesco (down $13.5B, or -16.3%), PNC (down $3.8B, or -24.0%), DFA (down $2.7B, or -13.4%) and PGIM (down $2.3B, or -12.3%).
Our latest domestic U.S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $780.8 billion, or 20.2% of all assets. That was up $27.7 billion in October, up $69.5 billion over 3 mos., and up $151.7B over 12 months. Vanguard ranked second with $401.3 billion, or 10.4% market share (up $7.9B, up $21.1B and up $74.8B for the past 1-month, 3-mos. and 12-mos., respectively). JPMorgan was third with $341.5 billion, or 8.8% market share (up $10.6B, up $23.1B and up $59.6B). BlackRock ranked fourth with $331.7 billion, or 8.6% of assets (up $8.3B, up $21.7B and up $46.5B for the past 1-month, 3-mos. and 12-mos.), while Federated remained in fifth with $299.6 billion, or 7.7% of assets (up $7.7B, up $28.9B and up $89.0B).
Goldman Sachs remained in sixth place with $220.2 billion, or 5.7% of assets (up $7.6 billion, up $11.8B and up $17.7B), while Schwab was in seventh place with $192.3 billion, or 5.0% (up $7.3B, up $19.8B and up $63.0B). Dreyfus ($165.7B, or 4.3%) was in eighth place (down $1.2B, up $3.8B and up $3.4B), followed by American Funds ($129.2B, or 3.3%, unchanged, up $304M and up $112.6B). Wells Fargo dropped to 10th place ($126.5B, or 3.3%; down $2.1B, up $4.4B and up $20.2B).
The 11th through 20th-largest U.S. money fund managers (in order) include: Morgan Stanley ($125.2B, or 3.2%), Northern ($123.4, or 3.2%), SSGA ($117.1B, or 3.0%), First American ($72.8B, or 1.9%), UBS ($72.0B, or 1.9%), Invesco ($67.7B, or 1.7%), T Rowe Price ($40.2B, or 1.0%), DWS ($27.0B, or 0.7%), Western ($22.9B, or 0.6%) and Franklin ($20.4B, or 0.5%). Crane Data currently tracks 67 U.S. MMF managers, the same as last month.
When European and "offshore" money fund assets -- those domiciled in places like Ireland, Luxembourg and the Cayman Islands -- are included, the top 10 managers match the U.S. list, except JPMorgan and BlackRock move ahead of Vanguard, Goldman moves ahead of Federated, and Morgan Stanley, SSGA and Northern move ahead of Wells Fargo and American Funds. 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 ($791.4 billion), J.P. Morgan ($502.2B), BlackRock ($492.3B), Vanguard ($401.3B) and Goldman Sachs ($340.7B). Federated ($309.3B) was sixth, Schwab ($192.3B) was in seventh, followed by Dreyfus/BNY Mellon ($184.0B), Morgan Stanley ($158.1B) and Northern ($149.1B) which round out the top 10. These totals include "offshore" U.S. Dollar money funds, as well as Euro and Pound Sterling (GBP) funds converted into U.S. dollar totals.
The November issue of our Money Fund Intelligence and MFI XLS, with data as of 10/31/19, shows lower yields in October across all of our taxable Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 755), fell 12 basis points to 1.53% for the 7-Day Yield (annualized, net) Average, and the 30-Day Yield decreased by 16 bps to 1.57%. The MFA's Gross 7-Day Yield decreased by 12 bps to 1.94%, while the Gross 30-Day Yield fell 16 bps to 1.98%.
Our Crane 100 Money Fund Index shows an average 7-Day (Net) Yield of 1.67% (down 14 bps) and an average 30-Day Yield that decreased to 1.71%. The Crane 100 shows a Gross 7-Day Yield of 1.93% (down 14 bps), and a Gross 30-Day Yield of 1.98%. Our Prime Institutional MF Index (7-day) yielded 1.75% (down by 11 bps) as of October 31, while the Crane Govt Inst Index was 1.61% (down 11 bps) and the Treasury Inst Index was 1.54% (down 17 bps). Thus, the spread between Prime funds and Treasury funds is 21 basis points, while the spread between Prime funds and Govt funds is 14 basis points. The Crane Prime Retail Index yielded 1.58% (down 11 bps), while the Govt Retail Index was 1.35% (down 9 bps) and the Treasury Retail Index was 1.28% (down 17 bps). The Crane Tax Exempt MF Index yield rose in September to 0.81% (down 31 bps).
Gross 7-Day Yields for these indexes in October were: Prime Inst 2.07% (down 11 bps), Govt Inst 1.91% (down 11 bps), Treasury Inst 1.85% (down 17 bps), Prime Retail 2.08 (down 11 bps), Govt Retail 1.93% (down 9 bps) and Treasury Retail 1.85% (down 17 bps). The Crane Tax Exempt Index decreased 31 basis points to 1.26%. The Crane 100 MF Index returned on average 0.15% over 1-month, 0.48% over 3-months, 1.76% YTD, 2.13% over the past 1-year, 1.41% over 3-years (annualized), 0.89% over 5-years, and 0.46% over 10-years. The total number of funds, including taxable and tax-exempt, increased by one to 937. There are currently 755 taxable, the same as the previous month, and 182 tax-exempt money funds (down three from last month). (Contact us if you'd like to see our latest MFI XLS, Crane Indexes or Market Share report.)
The November issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Thursday morning, features the articles: "Portal Wars: Fund Managers Add to Competition in Space," which reviews the latest in online money market portals; "J.P. Morgan A.M. Enters Portal Market w/Morgan Money," which discusses JPMAM's recent changes and initiatives; and, "Reversal of Fortunes: Yields Plunge in '19 After '18 Jump," which discusses the recent decline in yields. We've also updated our Money Fund Wisdom database with Oct. 31 statistics, and sent out our MFI XLS spreadsheet Thursday a.m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our November Money Fund Portfolio Holdings are scheduled to ship on Tuesday, Nov. 12, and our Nov. Bond Fund Intelligence is scheduled to go out Thursday, Nov. 14.
MFI's "Portal Wars" article says, "Online money market trading portals, which have quietly become the major distribution channel for Institutional money market funds, are seeing new entrants and major changes for the first time since the 'transparency' battles following the financial crisis. Last year, we saw BlackRock buy Cachematrix and Parthenon Capital invest in ICD Portal. But now we're seeing J.P. Morgan Asset Management enter the space (see our story at right) and Goldman and others branch out and become 'platforms' instead of 'portals'."
It continues, "On a recent podcast, Morgan Stanley Investment Management's Rick Wilkinson comments, 'Let's look at the portal landscape first. That was one of the first technologies that was introduced that really helped the corporate treasurer in their day to day activities. It allowed them to go to one spot to place all of their investments instead of having to go to each of the fund families independently.'"
Our J.P. Morgan A.M. piece reads, "J.P. Morgan Asset Management recently unveiled some major changes in the liquidity space, including launching its own 'portal' and going 'ESG' with its entire fund lineup. The company also released the latest results of its annual corporate investor survey."
A press release entitled, "J.P. Morgan Launches New Liquidity Management Platform, Morgan Money," tells us, "J.P. Morgan Asset Management ... announced the launch of Morgan Money, a new institutional investing platform to replace the firm's existing Global Cash Portal. The platform delivers a real-time dashboard to invest, a single access point for operations, and enhanced risk management controls."
Paula Stibbe, Global Head of Liquidity Sales, comments, "Morgan Money is designed to deliver a seamless customer experience, centered on operational efficiency, end-to-end system integration, and effective controls. The platform was designed for clients, by clients -- embedding their needs and priorities into its core capabilities and functionality."
Our "Yields Plunge" update says, "A year ago, we wrote the story 'Money Fund Yields Break 2.0%; Still Going Higher.' What a difference a year makes. The about-face in short-term yields is unprecedented. The average money fund yield, as measured by our Crane 100, hit 2.01% a year ago on 10/31/18, its first time above 2.0% in 11 years. Yields then peaked at 2.27% in March 2019, and they’re now 1.67% (10/31/19). Yields fell 14 bps in October, and we're still digesting the latest Fed move."
It adds, "Last week, the Federal Reserve Board cut interest rates for the third time in the past three months, lowering its Federal funds target rate range to 1.50-1.75 percent.... As the money markets digest the Fed's 3rd cut, yields on money market funds, bank deposits and brokerage sweeps continue to inch lower."
The latest MFI also includes the News brief, "Money Fund Assets Break $3.5 Tril." It tells us, "ICI's latest 'Money Market Fund Assets' report show totals broke above $3.5 trillion for the first time since September 2009 and have increased by $466.0 billion, or 15.3%, year-to-date. Over the past 52 weeks, ICI's money fund asset series has increased by $629 billion, or 21.8%, with Retail MMFs rising by $249 billion (22.8%) and Inst MMFs rising by $380 billion (21.2%)."
A second News piece, "Local Govts Lobby for Stable NAV," reads, "As we mentioned in our Oct. 3 Link of the Day, 'Stable NAV Bill Filed in House Again,' efforts are again underway to roll back the last round of money market fund reforms and to return the $1.00 NAV for all money funds. Bills have again been filed in the House and Senate, and the lobbying has begun."
Our November MFI XLS, with Oct. 31 data, shows total assets rose by $85.2 billion in October to $3.873 trillion, after rising $80.2 billion in September, $86.9 billion in August and $78.1 billion in July. Our broad Crane Money Fund Average 7-Day Yield fell to 1.53% during the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) was down 14 basis points to 1.67%.
On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA fell 14 basis points to 1.94% and the Crane 100 fell to 1.93%. Charged Expenses averaged 0.41% (unchanged) and 0.27% (unchanged), respectively for the Crane MFA and Crane 100. The average WAM (weighted average maturity) for the Crane MFA and Crane 100 was 33 and 36 days, respectively (up two days for both the Crane MFA and Crane 100). (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
U.K.-based publication Treasury Today hosted a webinar yesterday entitled, "Short-term investments, long-term thinking: how ESG positively impacts value," which featured Aviva Investors' Senior Portfolio Manager Demi Angelaki and Aviva's Global Head of ESG Investment Solutions Marte Borhaug. The two "discuss how the principles of responsible investment can positively impact investment outcomes for short-term investors" and "explore the unique challenges faced by liquidity portfolio managers." The webinar's description explains, "Investors in money market funds and ultra-short duration bond funds have traditionally focused their attention on liquidity, yield and capital preservation. Increasingly however, investors in such strategies are realising the positive impact the integration of environmental, social and corporate governance (ESG) factors can have on investment outcomes."
Treasury Today's introduction continues, "As well as providing an important risk management tool, being a provider of short-term funding presents an opportunity to influence corporate borrowers to act responsibly and in a sustainable manner. It is therefore important to establish a robust framework to embed ESG considerations into the investment process. However, integrating ESG considerations into liquidity strategies possess unique challenges.... We also look at live examples from France, where principles of Socially Responsible Investing (SRI) are government endorsed and integrated into the French short-term investment market."
Borhaug comments, "A lot of people talk about ESG factors as non-financial factors. For us, the way we look at it is, that the factors might be seen as non-financial because they tend not to be the typical financial factors that you see on a corporate balance sheet, but all of these factors will have a direct impact on the bottom line of a company. There's an increasing amount of research that shows that that is the case.... Is ESG investing the same as ethical investing? I think our answer for that is that they are fairly separate."
Angelaki explains, "In the first half of 2019 we have seen ESG money market funds grow by 15 percent. It's not just European funds, but also U.S. dollar denominated funds managed out of the U.S. This shows there is a global trend emerging, with not only new funds launching, but also conversions of existing funds. More and more public sectors organizations are strongly encouraged to choose an ESG variant where there is one when investing. And more and more private sector entities are under increasing pressure to show shareholders, employees ... that they are trying to align investments with their corporate values."
She continues, "In several countries regulators and authorities have already stepped in, calling for greater ESG disclosure.... France ... accounts for about 88 percent of total ESG money market funds…. In 2016, the French government launched the SRI label as a tool to help investors choose sustainable and responsible investments and increase the visibility of SRI products. The label is issued at the end of a strict process led by an independent party, and in order to qualify a money market fund must meet very specific criteria.... In addition to that, the French regulator has the authority to control all funds that are sold as SRI or ESG, whether they have the official label or not, to ensure that active managers really do what it says."
The Aviva PM tells us, "Cash funds need to offer, above all, security of capital and liquidity, with yield being a very important, but slightly secondary consideration. Money market funds are highly regulated products, and because of the very conservative nature of the portfolio a rigorous risk assessment is a factor. As we have seen, ESG rates can cause credit impairment and reputational concern and some of these risks can materialize really quickly. But you can be hit even if you are a holder of a short-term commercial paper, which is a common instrument used in money market funds."
She adds, "For portfolio managers, using an ESG filter in the investment decision process can help not only define if we can invest in a name or not, but also what the investment horizon, the maximum maturity should be or whether we should be underweight on a specific name or not. Ultimately, as portfolio managers and responsible investors, we do want to see an improvement in the companies we invest in.... An important thing to keep in mind is that, although money market funds are a short-term product ... the reality is, most of the time we do roll these over, ending up being longer-term investors."
In other ESG MMF news, a press release entitled, "Fitch Affirms Rating of Morgan Stanley Money Market Fund on ESG Conversion," tells us, "Fitch Ratings has affirmed the 'AAAmmf' rating assigned to the Morgan Stanley Institutional Liquidity Funds ESG Money Market Portfolio following the conversion of its investment strategy to incorporate an environmental, social and governance (ESG) focused mandate."
It explains, "On Oct. 31, 2019, the Morgan Stanley Institutional Liquidity Funds - Money Market Portfolio revised its name to the Morgan Stanley Institutional Liquidity Funds - ESG Money Market Portfolio and modified its investment strategy by adding an ESG focused mandate.... The net assets of the fund will be invested in securities issued or guaranteed by issuers that adhere to Morgan Stanley's ESG investment criteria. The fund's investment process will incorporate ESG considerations into Morgan Stanley's standard portfolio management framework. Morgan Stanley will utilize a proprietary ESG scoring methodology, combined with third-party data, to assign individual issuers with ESG scores."
Fitch adds, "The ESG overlay applied to the issuers during the screening process will exclude corporations that generate revenue in certain sectors, such as tobacco, firearms and coal, among others. After applying these exclusion screens, Morgan Stanley will consider its proprietary ESG scores for the remaining issuers and prioritize issuers with high ESG scores, while taking into account other portfolio construction considerations, such as yield, credit quality, and duration. The ESG tilt of the fund is a neutral factor in Fitch's rating analysis." (See also: SustainableInvest.com on ESG MMFs (11/5/19) and UBS Asset Mgmt Files to Launch Select ESG Prime Institutional Fund (11/4/19).)
Finally, Crane Data published its Weekly Money Fund Portfolio Holdings statistics and summary yesterday. Our weekly holdings track a shifting subset of our monthly Portfolio Holdings collection. The latest cut (with data as of Nov. 1) includes Holdings information from 67 money funds (down 17 from a week ago), which represent $1.485 trillion (up from $1.973 trillion) of the $3.885 trillion (38.2%) in total money fund assets tracked by Crane Data.
Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $507.8 billion (down from $690.7 billion a week ago), or 34.2%, Treasury debt totaling $468.9 billion (down from $621.5 billion) or 31.6%, and Government Agency securities totaling $300.9 billion (down from $365.7 billion), or 20.3%. Certificates of Deposit (CDs) totaled $77.0 billion (down from $96.7 billion), or 5.2%, and Commercial Paper (CP) totaled $74.3 billion (down from $99.0 billion), or 5.0%. A total of $29.2 billion or 2.0%, was listed in the Other category (primarily Time Deposits), and VRDNs accounted for $26.6 billion, or 1.8%.
The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $468.9 billion (31.6% of total holdings), Federal Home Loan Bank with $219.5B (14.8%), Fixed Income Clearing Co with $75.8B (5.1%), BNP Paribas with $57.0 billion (3.8%), Federal Farm Credit Bank with $44.5B (3.0%), RBC with $37.9B (2.5%), Mitsubishi UFJ Financial Group Inc with $30.0B (2.0%), Federal Home Loan Mortgage Co with $28.2B (1.9%), JP Morgan with $26.3B (1.8%) and Wells Fargo with $25.7B (1.7%).
The Ten Largest Funds tracked in our latest Weekly include: JP Morgan US Govt ($150.0), Fidelity Inv MM: Govt Port ($139.8B), Goldman Sachs FS Govt ($107.6B), Wells Fargo Govt MMkt ($85.1B), Fidelity Inv MM: MMkt Port ($71.3B), JP Morgan 100% US Trs MMkt ($68.2B), Morgan Stanley Inst Liq Govt ($66.3B), State Street Inst US Govt ($59.3B), Goldman Sachs FS Trs Instruments ($58.4B) and Dreyfus Govt Cash Mgmt ($58.3B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)
Rates on brokerage sweep accounts, bank accounts and money market funds all moved lower following last Wednesday's Federal Reserve rate cut. (See our Oct. 31 Link of the Day, "Fed Cuts Rates a Third Time.") Our latest Brokerage Sweep Intelligence publication, with data as of Friday, Nov. 1, shows E*Trade, Fidelity, Merrill Lynch and TD Ameritrade all lowering rates. Fidelity, who still pays the highest sweep rate, cut its yield by 12 bps to 0.82%. Merrill Lynch dropped rates on balances over $250K, but their 100K tier remained at 0.10%. TD Ameritrade cut rates on most tiers; their 100K tier dropped 2 bps to 0.02%. E*Trade's 25K tier through 250K (balance) tier fell to 0.01%.
Our Crane Brokerage Sweep Index inched down to 0.18% from 0.19% in the week ended November 1 for balances of $100K. E*Trade currently has the lowest rate for balances at this level (0.01%), but TD Ameritrade is close behind (0.02%). Meanwhile, Fidelity continues to have the highest rate (0.82%). Merrill and Morgan Stanley are both paying 0.05%. Ameriprise, Schwab, UBS and Wells Fargo are paying 0.10%, Raymond James is paying 0.15%, and RW Baird is paying 0.45% for balances of $100K. Fin-tech brokerage firms Robinhood and Wealthfront also dropped rates. Before the Fed cut, Robinhood and Wealthfront both offered rates of 2.07%. Since then, Wealthfront has cut its rate to 1.82%, down 25 bps, while Robinhood's rate has fallen 27 bps to 1.80%.
Money market fund yields are also fell last week. Our Money Fund Intelligence Daily shows the Crane Money Fund Average 7-day yield falling by 0.06% to 1.51% in the latest week (through 11/1). The Crane 100 MF Index also dropped 0.06% to 1.64% over the past week. Treasury Inst, Government Inst and Prime Inst average yields were down 4 bps, 7 bps and 6 bps, respectively, to 1.52%, 1.58% and 1.73%, respectively. Treasury Retail MFs currently yield 1.25%, (down 0.05%), Government Retail MFs yield 1.31% (down 0.05%) and Prime Retail MFs yield 1.55% (down 0.06%). Tax-exempt MF 7-day yields fell to 0.79%, down 0.05% from the previous week. Yields should continue lower in the coming weeks as funds digest the remainder of the latest Fed move.
In other news, Federated Investors filed its latest Form 10-Q Quarterly Report, which discusses the regulatory environment and reviews the impact of U.S. and European Money Fund Reforms.
Federated writes, "Deregulation also is a focus of certain legislative efforts. The House Financial Services Committee advanced a bill seeking to reverse certain aspects of money market fund reform and a hearing on that bill was held in the Senate in June 2018, and similar bills have been introduced in both the Senate and the House of Representatives in 2019 in a continuing effort to get revisions to money market fund reform passed and signed into law. The proposed law would permit the use of amortized cost valuation by, and override the floating NAV and certain other requirements for, institutional and municipal (or tax-exempt) money market funds."
They explain, "These requirements were imposed under the SEC's structural, operational and other money market fund reforms adopted through amendments to Rule 2a-7, and certain other regulations, on July 23, 2014 (2014 Money Fund Rules) and related guidance (collectively, the 2014 Money Fund Rules and Guidance). Compliance with the 2014 Money Fund Rules and Guidance became effective on October 14, 2016. Federated continues to support efforts to permit the use of amortized cost valuation by, and override the floating NAV and certain other requirements imposed under the 2014 Money Fund Rules and Guidance for, institutional and municipal (or tax-exempt) money market funds."
The 10-Q says, "The current regulatory environment has impacted, and will continue to impact, Federated's business, results of operations, financial condition and/or cash flows. For example, changes required under the 2014 Money Fund Rules and Guidance resulted in a shift in asset mix from institutional prime and municipal (or tax-exempt) money market funds to stable NAV government money market funds across the investment management industry and at Federated. This shift impacted Federated's AUM, revenues and operating income. Management continues to believe that, as and to the extent interest rates remain at higher levels and do not return to near zero, money market funds will benefit generally from increased yields, particularly as compared to deposit account alternatives, and that, as spreads widen, investors who exited prime money market funds will likely continue to reconsider their investment options over time, including Federated's prime private money market fund. While 2018 and 2019 to date did see a shift in asset mix back toward institutional prime and municipal (tax-exempt) money market funds, there is no guarantee such shift will continue and return the asset mix between institutional prime, municipal (or tax-exempt) and government money market funds to pre-October 2016 levels; therefore, the degree of improvement to Federated's prime money market business can vary and is uncertain."
It continues, "Management believes that the floating NAV, and fees and gates, required by the 2014 Money Fund Rules, as well as other Regulatory Developments, have been and will continue to be detrimental to Federated's fund business. In addition to the impact on Federated's AUM, revenues, operating income and other aspects of Federated's business described above, on a cumulative basis, Federated's regulatory, product development and restructuring, and other efforts in response to the Regulatory Developments discussed above, including the internal and external resources dedicated to such efforts, have had, and may continue to have, a material impact on Federated's expenses and, in turn, financial performance."
The report also tells us, "On July 19, 2019, the ESMA published a Final Report on Guidelines on stress test scenarios under the EU Money Market Fund Regulation (MMF Regulation) and a Final Report on reporting to competent authorities under Article 37 of the MMF Regulation, which are aimed at ensuring a coherent application of the MMF Regulation. As required by Article 28 of the MMF Regulation, the Guidelines on stress testing establish common reference parameters of the stress test scenarios money market funds or managers of money market funds should include in their stress testing scenarios. As required by Article 37 of the MMF Regulation, the Guidelines on reporting provide guidance on how to fill in the reporting template on money market funds that their managers will transmit to competent authorities as of the first quarter of 2020. Federated continues to analyze the new Guidelines and the requirements for compliance."
Finally, Federated writes, "On April 5, 2017, European Parliament passed EU money market fund reforms (Money Market Fund Regulation or MMFR). The MMFR provides for the following types of money market funds in the EU: (1) Government constant NAV (CNAV) funds; (2) Low volatility NAV (LVNAV) funds; (3) Short-term variable NAV (VNAV) funds; and (4) standard VNAV funds. The reforms had to be completed in regard to new funds on July 21, 2018 and in regard to certain existing funds (including the Federated Funds in Ireland and the UK) on January 21, 2019."
They add, "Federated utilized both internal and external resources to complete the conversion of two non-U.S. money market funds to LVNAV funds and two government non-U.S. money market funds to public debt CNAV funds, and otherwise began to comply with the MMFR, on January 11, 2019. Federated also continues to engage with trade associations and appropriate regulators in connection with the MMFR because the European Securities Market Authority and the European Commission continue work on implementing the MMFR and government CNAV and LVNAV fund reforms will be subject to a future review of their adequacy from a prudential and economic perspective by the European Commission in 2022."
UBS Asset Management is the latest money fund manager to file to launch an ESG Money Fund. The registration filing for UBS Select ESG Prime Institutional Fund says the fund's objective is, "Maximum current income as is consistent with liquidity and preservation of capital while incorporating select environmental, social, and governance criteria ('ESG') into the investment process." UBS's offering, which will also include "Investor" and "Preferred" fund shares, should become the fifth ESG offering, following DWS, BlackRock, SSGA and Morgan Stanley's launches (or filings). (Note: Goldman has a "social" fund and JPMorgan has integrated ESG principles into all of its funds, as have several other managers. See our Oct. 17 News, "Morgan Stanley Latest to Convert MMF to ESG; New DWS European ESG.")
UBS's new preliminary prospectus says, "The fund invests in securities through an underlying master fund, ESG Prime Master Fund.... [The total expense ratio of the Inst fund is 0.18%.] The fund is a money market fund that calculates its net asset value to four decimals (e.g., $1.0000) using market-based pricing. As a result, its share price will fluctuate. The fund seeks to achieve its objective by investing in a diversified portfolio of high quality money market instruments of governmental and private issuers while incorporating fundamental sustainability factors, such as ESG performance of such issuers, into the investment process."
It explains, "Money market instruments may include: short-term obligations of the US government and its agencies and instrumentalities; repurchase agreements; obligations of issuers in the financial services group of industries; commercial paper, other corporate obligations and asset-backed securities; and municipal money market instruments.... In addition, under normal circumstances, the fund invests at least 80% of its net assets (plus the amount of any borrowing for investment purposes), determined at the time of purchase, in securities that meet UBS AM's sustainability criteria. In developing its sustainability criteria, UBS AM draws upon firm-wide resources of the UBS Asset Management Division of UBS Group AG, of which UBS AM is a member."
The filing continues, "UBS AM conducts its own credit analyses of potential investments and portfolio holdings, and relies substantially on a dedicated proprietary credit research team. Embedded in the credit research process is the integration of issuer-level sustainable investing analysis as guided by the UBS Asset Management Division's approach to ESG research and evaluation methodology. The sustainability investing analysis provides a more comprehensive approach to security selection than credit analysis alone as internal and external ESG ratings are applied to evaluate the quality of sustainability practices employed by issuers. Credit analysts rate and maintain internal fundamental credit and ESG ratings, which form the basis for a portfolio construction/optimization approach and focus on issuers that contribute to the fund's ESG profile. UBS AM's portfolio construction process aims to align investments in money market instruments with the concept of sustainability (i.e., the potential for long-term maintenance of environmental, economic and social well-being)."
It tells us, "UBS AM is part of the UBS Asset Management Division of UBS Group AG. The UBS Asset Management Division, at the global level, seeks to be a leader in incorporating sustainability into its management process and honors various commitments in the sustainable investing industry. Active commitments include: Participant in the UN Global Compact since its inception in 2000; Independent assurance of the GRI (Global Reporting Initiative) based sustainability disclosure; UBS Asset Management signatory to Principles for Responsible Investment (PRI); Global Initiative for Sustainability Ratings steering committee; Sustainability Accounting Standards Board; and, The Forum for Sustainable and Responsible Investing."
Discussing "Sustainability factor risk," UBS writes, "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 issuers and, therefore, may underperform compared to funds that do not consider ESG factors in the investment process.... The investment objective of UBS Select ESG Prime Institutional Fund is non-fundamental and may be changed by the fund's board at any time without shareholder approval."
They explain, "UBS Select ESG Prime Institutional Fund seeks to achieve its investment objective by investing in a diversified portfolio of high quality money market instruments of governmental and private issuers while incorporating fundamental sustainability factors, such as ESG performance of such issuers, into the investment process. Money market instruments may include short-term obligations of the US government and its instrumentalities; repurchase agreements; obligations of issuers in the financial services group of industries; commercial paper, other corporate obligations and asset-backed securities; and municipal money market instruments. UBS Select ESG Prime Institutional Fund calculates its net asset value to four decimals (e.g., $1.0000) using market based pricing, and its share price will fluctuate."
The filing states, "Under normal circumstances, UBS Select ESG Prime Institutional Fund invests at least 80% of its net assets (plus the amount of any borrowing for investment purposes), determined at the time of purchase, in securities that meet UBS AM's sustainability criteria. In developing its sustainability criteria, UBS AM draws upon firm-wide resources of the UBS Asset Management Division of UBS Group AG, of which UBS AM is a member. UBS Select ESG Prime Institutional Fund's 80% policy is a 'non-fundamental' policy. This means that this investment policy may be changed by the fund's board without shareholder approval. However, UBS Select ESG Prime Institutional Fund has also adopted a policy to provide its shareholders with at least 60 days' prior written notice of any change to the 80% investment policy. UBS Select ESG Prime Institutional Fund will, under normal circumstances, invest more than 25% of its total assets in the financial services group of industries. UBS Select ESG Prime Institutional Fund may, however, invest less than 25% of its total assets in this group of industries as a temporary defensive measure."
They write, "UBS AM conducts its own credit analyses of potential investments and portfolio holdings, and relies substantially on a dedicated proprietary credit research team. Embedded in the credit research process is the integration of issuer-level sustainable investing analysis as guided by the UBS Asset Management Division's approach to ESG research and evaluation methodology. The sustainability analysis provides a more comprehensive approach to security selection than credit analysis alone as internal and external ESG ratings are applied to evaluate the quality of sustainability practices employed by issuers. Credit analysts rate and maintain internal fundamental credit and ESG ratings which form the basis of a portfolio construction/optimization approach, focusing on companies that contribute to meeting the ESG profile for the fund. Portfolio construction focuses on the alignment of a Rule 2a-7 (the regulation governing money market funds) investment discipline with the concept of sustainability -- the potential for long-term maintenance of environmental, economic and social well-being."
UBS adds, "Sustainability criteria includes the fundamental analysis of ESG risks of issuers (that is, the issuers of the money market instruments in which the fund may invest), and evaluating whether, at the time of the fund's investment, such issuers have better than average performance in ESG practices and managing ESG risks. The fundamental analysis of ESG risks may include, but is not limited to, review of the following factors: environmental responsibility; human rights and labor standards; diversity and inclusion in employment; and corporate governance."
They tell us, "UBS AM will employ a negative screening process with regard to security selection for UBS Select ESG Prime Institutional Fund, which will exclude from the fund's portfolio securities or sectors that manufacture products or engage in business activities with a negative social or environmental impact. These may include: controversial weapons; antipersonnel mines; cluster munitions; adult entertainment (5% revenue threshold); tobacco producers (5% revenue threshold); thermal coal (30% revenue threshold); and, generation thermal coal (30% revenue threshold). UBS AM may modify this list of negative screens at any time, without prior shareholder approval or notice."
The prospectus says, "Like all money market funds, each of the funds is subject to maturity, quality, diversification and liquidity requirements pursuant to Rule 2a-7. Each of the funds' investment strategies are designed to comply with these requirements. Each of the funds may invest in high quality, short-term, US dollar-denominated money market instruments paying a fixed, variable or floating interest rate.... Investing primarily in investments that meet ESG criteria carries the risk that UBS Select ESG Prime Institutional Fund may forgo otherwise attractive investment opportunities, or increase or decrease its exposure to certain types of issuers and, therefore, may underperform compared to funds that do not consider ESG factors in the investment process. UBS AM's assessment of an issuer's ESG criteria may change over time, which could cause the fund to hold securities that may no longer meet UBS AM's current ESG criteria."
It warns, "Investing on the basis of ESG criteria is qualitative and subjective by nature and there can be no assurance that the process utilized by any vendors of UBS AM or any judgment exercised by UBS AM will reflect the beliefs or values of any particular investor. In addition, due to constraints imposed by regulations applicable to money market funds or other considerations relating to credit quality, liquidity or yield, the fund may be less able to implement as fully its ESG investment strategy than non-money market funds."
Finally, UBS comments, "Each of UBS Select Prime Institutional Fund and UBS Select ESG Prime Institutional Fund will invest a significant portion of its assets in securities issued by companies in the financial services group of industries, including US banking, non-US banking, broker-dealers, insurance companies, finance companies (e.g., automobile finance) and related asset-backed securities. As a result, each fund's performance will be significantly impacted, both positively and negatively, by developments in the financial services sector, and each fund will be more susceptible to such developments than other funds that do not concentrate their investments."
For more on ESG Money Market Funds, see these Crane Data News articles: BlackRock Launches First Offshore ESG MMF; ICS LEAF in EUR, GBP, USD (7/22/19), Money Fund Assets Up 13th Week Straight; Fitch on ESG in Money Funds (7/19/19), SSGA Goes Live with ESG Money Market Fund; Fitch on Prime MF Flows (7/3/19) and Cap Advisors Group Demystifies ESG Investing; Weekly Portfolio Holdings (6/19/19).
Money fund assets rose for the 25th week out of the past 28, and broke above $3.5 trillion for the first time since September 2009. ICI's latest "Money Market Fund Assets" report shows that MMF totals have increased by $466.0 billion, or 15.3%, year-to-date. Over the past 52 weeks, ICI's money fund asset series has increased by $629 billion, or 21.8%, with Retail MMFs rising by $249 billion (22.8%) and Inst MMFs rising by $380 billion (21.2%). We review ICI's latest assets, as well as their monthly "Trends" and "Portfolio Composition" totals, below.
ICI writes, "Total money market fund assets increased by $27.27 billion to $3.51 trillion for the week ended Wednesday, October 30, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $26.54 billion and prime funds increased by $1.46 billion. Tax-exempt money market funds decreased by $738 million." ICI's weekly series shows Institutional MMFs jumping $25.2 billion and Retail MMFs increasing $2.1 billion. Total Government MMF assets, including Treasury funds, were $2.626 trillion (74.8% of all money funds), while Total Prime MMFs were $750.1 billion (21.4%). Tax Exempt MMFs totaled $137.3 billion, 3.9%.
They explain, "Assets of retail money market funds increased by $2.09 billion to $1.34 trillion. Among retail funds, government money market fund assets increased by $442 million to $765.63 billion, prime money market fund assets increased by $1.92 billion to $448.76 billion, and tax-exempt fund assets decreased by $274 million to $125.44 billion." Retail assets account for over a third of total assets, or 38.1%, and Government Retail assets make up 57.1% of all Retail MMFs.
The release adds, "Assets of institutional money market funds increased by $25.18 billion to $2.17 trillion. Among institutional funds, government money market fund assets increased by $26.10 billion to $1.86 trillion, prime money market fund assets decreased by $455 million to $301.32 billion, and tax-exempt fund assets decreased by $464 million to $11.90 billion." Institutional assets accounted for 61.9% of all MMF assets, with Government Institutional assets making up 85.6% of all Institutional MMF totals.
The Investment Company Institute also released its monthly "Trends in Mutual Fund Investing" and its latest monthly "Month-End Portfolio Holdings of Taxable Money Funds" reports yesterday. The latest numbers show money fund assets jumping $74.4 billion to $3.441 trillion in September. This follows increases of $87.0 billion in August, $78.2 billion in July and $41.5 billion in June. In the 12 months through Sept. 30, 2019, money fund assets have increased by $577.5 billion, or 20.2%.
The release states, "The combined assets of the nation's mutual funds increased by $200.85 billion, or 1.0 percent, to $20.13 trillion in September, 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 $24.38 billion in September, compared with an inflow of $8.96 billion in August.... Money market funds had an inflow of $70.69 billion in September, compared with an inflow of $83.38 billion in August. In September funds offered primarily to institutions had an inflow of $42.53 billion and funds offered primarily to individuals had an inflow of $28.16 billion."
The latest statistics show that Taxable MMFs gained assets last month while and Tax Exempt MMFs lost assets. Taxable MMFs increased by $75.4 billion in September to $3.307 trillion. Tax-Exempt MMFs decreased $0.9 billion in September to $133.9 billion. Taxable MMF assets increased year-over-year by $574.9 billion (21.0%). Tax-Exempt funds rose by $2.6 billion over the past year (2.0%). Bond fund assets increased by $8.7 billion in September (0.2%) to $4.568 trillion; they've risen by $401.1 billion (9.6%) over the past year.
Money funds represent 17.1% of all mutual fund assets (up from 16.9% the previous month), while bond funds account for 22.7%, according to ICI. The total number of money market funds was 367, the same the prior month and down from 383 a year ago. Taxable money funds numbered 286 funds, and tax-exempt money funds remained at 81 funds.
ICI's "Month-End Portfolio Holdings" update confirms a big jump in Treasury holdings and a plunge in Repo last month. Repurchase Agreements remained in first place among composition segments; they decreased by $64.3 billion, or -5.2%, to $1.173 trillion, or 35.5% of holdings. Repo holdings have risen by $253.1 billion, or 27.5%, over the past year. (See our Oct. 10 News, "Oct. Money Fund Portfolio Holdings: Treasuries Surge, Break $1 Trillion.")
Treasury holdings in Taxable money funds increased by $113.8 billion, or 13.7%, to $945.2 billion, or 28.6% of holdings. Treasury securities have increased by $180.2 billion, or 23.6%, over the past 12 months. U.S. Government Agency securities were the third largest segment; they increased $33.4 billion, or 5.0%, to $695.4 billion, or 21.0% of holdings. Agency holdings have risen by $74.9 billion, or 12.1%, over the past 12 months.
Certificates of Deposit (CDs) stood in fourth place; they decreased by $12.5 billion, or -4.6%, to $258.6 billion (7.8% of assets). CDs held by money funds have grown by $61.7 billion, or 31.4%, over 12 months. Commercial Paper remained in fifth place, up $5.5 billion, or 2.4%, to $237.0 billion (7.2% of assets). CP has increased by $47.0 billion, or 24.7%, over one year. Notes (including Corporate and Bank) were up $2.0 billion, or 19.0%, to $12.8 billion (0.4% of assets), while Other holdings increased to $15.5 billion.
The Number of Accounts Outstanding in ICI's series for taxable money funds increased by 301.0 thousand to 35.978 million, while the Number of Funds remained the same at 286. Over the past 12 months, the number of accounts grew by 3.442 million and the number of funds decreased by 13. The Average Maturity of Portfolios was 33 days, two more than in August. Over the past 12 months, WAMs of Taxable money have remained the same.
