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Money fund assets fell for the first week in four and just the second week out of the last 19 weeks. ICI'​s latest "Money Market Fund Assets" report shows that MMF totals have increased by $​320.​8 billion, or 10.​5%, since April 17, and they'​ve increased by $​316 billion, or 10.​4%, year-​to-​date. Over the past 52 weeks, ICI'​s money fund asset series has increased by $​500 billion, or 17.​5%, with Retail MMFs rising by $​224 billion (​21.​3%) and Inst MMFs rising by $​276 billion (​15.​2%). We review ICI'​s latest assets, and their monthly "​Trends" and "​Portfolio Composition" totals below.

ICI writes, "Total money market fund assets decreased by $​14.​07 billion to $​3.​36 trillion for the week ended Wednesday, August 28, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $​13.​80 billion and prime funds increased by $​178 million. Tax-​exempt money market funds decreased by $​440 million." ICI'​s weekly series shows Institutional MMFs falling $​17.​7 billion and Retail MMFs increasing $​3.​6 billion. Total Government MMF assets, including Treasury funds, were $​2.​514 trillion (​74.​7% of all money funds), while Total Prime MMFs were $​715.​1 billion (​21.​3%). Tax Exempt MMFs totaled $​134.​5 billion, 4.​0%.

They explain, "Assets of retail money market funds increased by $​3.​60 billion to $​1.​28 trillion. Among retail funds, government money market fund assets increased by $​1.​61 billion to $​730.​51 billion, prime money market fund assets increased by $​2.​49 billion to $​423.​89 billion, and tax-​exempt fund assets decreased by $​495 million to $​124.​10 billion." Retail assets account for over a third of total assets, or 38.​0%, and Government Retail assets make up 57.​1% of all Retail MMFs.

The release adds, "Assets of institutional money market funds decreased by $​17.​76 billion to $​2.​09 trillion. Among institutional funds, government money market fund assets decreased by $​15.​41 billion to $​1.​78 trillion, prime money market fund assets decreased by $​2.​31 billion to $​291.​19 billion, and tax-​exempt fund assets increased by $​55 million to $​10.​42 billion." Institutional assets accounted for 62.​0% of all MMF assets, with Government Institutional assets making up 85.​5% 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 $​78.​2 billion to $​3.​280 trillion in July. This follows increases of $​41.​5 billion in June, $​89.​3 billion in May, and a decrease of $​8.​8 billion in April. In the 12 months through July 31, 2019, money fund assets have increased by $​444.​2 billion, or 15.​7%.

The release states, "The combined assets of the nation'​s mutual funds increased by $​163.​34 billion, or 0.​8 percent, to $​20.​03 trillion in July, according to the Investment Company Institute'​s official survey of the mutual fund industry. In the survey, mutual fund companies report actual assets, sales, and redemptions to ICI."

It explains, "Bond funds had an inflow of $​36.​31 billion in July, compared with an inflow of $​14.​24 billion in June.... Money market funds had an inflow of $​74.​50 billion in July, compared with an inflow of $​37.​93 billion in June. In July funds offered primarily to institutions had an inflow of $​51.​36 billion and funds offered primarily to individuals had an inflow of $​23.​14 billion."

The latest statistics show that Taxable MMFs gained assets last month while and Tax Exempt MMFs lost assets. Taxable MMFs increased by $​78.​7 billion in July to $​3.​144 trillion. Tax-​Exempt MMFs decreased $​0.​6 billion in July to $​135.​8 billion. Taxable MMF assets increased year-​over-​year by $​439.​7 billion (​16.​3%). Tax-​Exempt funds rose by $​4.​6 billion over the past year (​3.​5%). Bond fund assets increased by $​53.​8 billion in July (​1.​2%) to $​4.​494 trillion; they'​ve risen by $​349.​6 billion (​8.​4%) over the past year.

Money funds represent 16.​4% of all mutual fund assets (​down from 16.​1% the previous month), while bond funds account for 22.​4%, according to ICI. The total number of money market funds was 368, up one fund from June and down from 383 a year ago. Taxable money funds numbered 287 funds, and tax-​exempt money funds remained at 81 funds.

ICI'​s "Month-​End Portfolio Holdings" update shows a jump in Repo last month. Repurchase Agreements remained in first place among composition segments; they increased by $​72.​9 billion, or 6.​4%, to $​1.​207 trillion, or 38.​4% of holdings. Repo holdings have risen by $​276.​5 billion, or 29.​7%, over the past year.

Treasury holdings in Taxable money funds increased by $​8.​2 billion, or 1.​1%, to $​750.​9 billion, or 23.​9% of holdings. Treasury securities have decreased by $​7.​1 billion, or -​0.​9%, over the past 12 months. U.​S. Government Agency securities were the third largest segment; they increased $​3.​9 billion, or 0.​6%, to $​679.​7 billion, or 21.​6% of holdings. Agency holdings have risen by $​15.​4 billion, or 2.​3%, over the past 12 months.

Certificates of Deposit (​CDs) stood in fourth place; they decreased by $​1.​0 billion, or -​0.​4%, to $​259.​5 billion (​8.​3% of assets). CDs held by money funds have grown by $​67.​9 billion, or 35.​4%, over 12 months. Commercial Paper remained in fifth place, up $​6.​0 billion, or 2.​6%, to $​232.​1 billion (​7.​4% of assets). CP has increased by $​42.​2 billion, or 22.​2%, over one year. Notes (​including Corporate and Bank) were up $​0.​9 billion, or 9.​5%, to $​10.​0 billion (​0.​3% of assets), while Other holdings increased to $​18.​0 billion.

The Number of Accounts Outstanding in ICI'​s series for taxable money funds increased by 552.​0 thousand to 35.​671 million, while the Number of Funds increased by one to 287. Over the past 12 months, the number of accounts grew by 3.​305 million and the number of funds decreased by 12. The Average Maturity of Portfolios was 30 days, the same as June. Over the past 12 months, WAMs of Taxable money funds have increased by 1 day.

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We learned from two niche financial information websites about two separate lawsuits involving brokerage sweeps and money funds, and money funds and stable value funds, respectively. In the first, publication AdvisorHub quotes us in its article, "Merrill Sued for '​Paltry' Sweep-​account Interest Rates." They write, "A woman who last year had more than $​1 million of cash in three Merrill Edge accounts earning 0.​14% and a Bank of America checking account paying 0.​06% has filed a class-​action lawsuit alleging unjust enrichment and deceptive trade practices over Merrill Lynch'​s cash sweep programs." In the second, publication PlanSponsor discusses, "Choosing Between a Stable Value or Money Market Fund." This article says, "There have been lawsuits filed against retirement plan sponsors for offering stable value funds as opposed to money market funds, and vice versa."

The first (​AdvisorHub) piece explains, "'Merrill'​s ... sweep accounts pay investors a paltry 0.​05% to 0.​14% annual percentage yield,' Sarah Valelly charged in the complaint filed on Tuesday in federal court in New York'​s southern district. The lawsuit accuses Merrill Lynch, Pierce, Fenner & Smith, the broker-​dealer for Merrill Wealth and Merrill Edge customers, of hiding disclosure about sweep options in difficult-​to-​read account opening documents and of shifting cash from brokerage accounts without the '​prior written affirmative consent' required by Securities and Exchange Commission, Financial Industry Regulatory Authority and New York Stock Exchange rules and regulations."

It quotes "The plaintiffs have an uphill battle, said Peter Crane, president of Crane Data, which publishes a newsletter on money-​market fund returns. '​The ultimate defense is that brokerages can say they are not holding their customers hostage,' he said, noting that he knows of no similar lawsuits. '​They send you a checkbook for these accounts, for G-​d'​s sake, [​so] you can move your money. Brokerage sweep and bank checking accounts are normally set up for convenience, not yield.'"

The article adds, "Merrill last year ended its policy of sweeping cash from brokerage accounts into higher-​paying money-​market funds, directing it instead to BofA accounts. Brokers who want to assuage rate-​sensitive customers now have to manually direct cash into money-​market funds."

The PlanSponsor piece tells us, "Lawsuits have led to confusion about which direction retirement plan sponsors should go when choosing a capital preservation fund for their plan lineup.... It is important for defined contribution (​DC) retirement plan sponsors to know what to weigh about each type of capital preservation fund when deciding what to include in their plan lineups."

John Faustino, chief product and strategy officer at Fi360 explains, "Stable value funds ... invest in both short- and intermediate-​term securities and follow the traditional concept of investing where the value of money over time generates a higher yield.... They tend to hold investments that are slightly less liquid and, as a result, have a higher yield. Plus, they have an insurance wrapper that protects the value of the assets should there be a fluctuation or a decrease in the assets' value."

It continues, "​For this reason, Antonis Mistras, managing director, alternative investments at DuPont Capital in Wilmington, Delaware, believes that stable value funds are preferable choice to money market funds: '​Their yields are not based on overnight rates but further out on the spectrum,' he says. '​They aim to capture the premium two-​and-​a-​half years to three-​and-​a-​half years, which, would normally capture about two percentage points above money market funds. However, in today'​s yield curve, that is not there. History has shown, though, that stable value funds have outperformed money market funds anywhere from one percent to three percent.'"

The update adds, "But there are considerations that sponsors should keep in mind when assessing whether to offer a stable value or money market fund, the experts say. '​Mutual funds' biggest benefit is they offer the most flexibility in terms of transparency,’ says Matt Patrick, team leader, investment solutions at CAPTRUST in Raleigh, North Carolina. 'They are also easily portable, so if the plan sponsor wants to move to another recordkeeper, they can take their money market fund with them. Plus, for participants, they can easily move their money in and out of a money market fund.' Stable value funds typically set time limits up to a year before an investor can withdraw their money, Faustino says."

It continues, "The most important thing to consider when evaluating a stable value fund, Faustino says, is the ability of the multiple wrap providers to pay. '​Lawsuits brought against sponsors for stable value funds are often premised on the fact that the proper due diligence wasn'​t done on the front end,' he says. 'It is also important to look at the relative yields of those investments compared to alternatives. That it critical with the capital preservation choices.’ Also, because there isn'​t as much data on returns -- changes in the crediting rate associated with the insurance wrappers for stable value funds, compared to the information available on money market funds -- it is important for sponsors to work with advisers.'"

Finally, PlanSponsor quotes Timothy Grove, a VP in Prudential Retirement'​s stable value business, "The litigation against stable value funds has primarily focused on the exit provisions, the lack of transparency and the fees, whereas the suits against money market funds have focused on the low returns over the past decade."

For more on stable value funds, see these Crane Data News articles: Asset TV Hosts Apostol, Howe on Stable Value; ICD Portal Shows Growth (​4/​3), SF Fed on Repo Facility; Heitman Hits Stable Value; Brokered Deposits (​3/​13) and Bond Fund Symposium Gears Up for Philly; Stable Value Data Acquisition (​2/​27).

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The Federal Deposit Insurance Corporation issued a press release entitled, "FDIC Issues Proposed Rule on Interest Rate Restrictions Applicable to Less Than Well Capitalized Institutions," we learned from an article in The National Law Review, "FDIC Published Notice of Proposed Rulemaking on Interest Rate Restrictions." The latest proposed rules are related to an earlier FDIC regulatory proposal, "Unsafe and Unsound Banking Practices: Brokered Deposits and Interest Rate Restrictions," which contains some comments on brokerage sweep accounts. We excerpt some of the parts related to money market deposit account rates, brokered deposits and sweep assets below.

The FDIC'​s latest release tells us, "The Federal Deposit Insurance Corporation (​FDIC) ... issued a notice of proposed rulemaking (​NPR) related to interest rate restrictions that apply to less than well capitalized insured depository institutions. Under the proposed rule, the FDIC would amend the methodology for calculating the national rate and national rate cap for specific deposit products to provide a more balanced, reflective, and dynamic national rate cap. The national rate would be the weighted average of rates offered on a given deposit product by all reporting institutions weighted by domestic deposit share. The national rate cap for particular products would be set at the higher of (​1) the 95th percentile of rates paid by insured depository institutions weighted by each institution'​s share of total domestic deposits, or (​2) the proposed national rate (​i.​e., the weighted average) plus 75 basis points."

It continues, "The proposed rule would also greatly simplify the current local rate cap calculation and process by allowing less than well capitalized institutions to offer up to 90 percent of the highest rate paid on a particular deposit product in the institution'​s local market area. Additionally, the proposed rule would seek comment on alternative approaches to setting the national rate caps, including setting the national rate cap at the higher of the current rate cap or the previous rate cap."

The FDIC explains, "The statutory interest rate restrictions generally limit a less than well capitalized institution from offering rates on deposits that significantly exceed the prevailing rates in its normal market area. The proposed approach would provide more balance, compared to the current methodology, in that it provides less than well capitalized institutions additional flexibility to compete for funds in different interest rate environments, and yet continues to satisfy the statutory restrictions." (​See the full proposal, "Interest Rate Restrictions on Institutions That Are Less Than Well Capitalized," here.)

Finally, the release adds, "In February 2019, the FDIC published an advance notice of proposed rulemaking in the Federal Register seeking comment on its regulations for the interest rate restrictions and brokered deposits. The FDIC received nearly 60 comments from individuals, banking organizations, and trade groups. Comments are now requested on the proposed approach, as well as alternative approaches. Comments will be accepted for 60 days after the NPR is published in the Federal Register. (​See the FDIC'​s "​Weekly National Rates and Rate Caps" here.)

The National Law Review'​s article explains, "On Tuesday, the FDIC released a Notice of Proposed Rulemaking (​NPR) that outlines anticipated revisions to its regulations regarding interest rate restrictions that apply to less than well capitalized insured depository institutions. The proposed rule modifies the methodology by which the national rate and national rate cap are calculated on deposit products and proposes a new methodology for calculation of a local rate."

They add, "This follows a December 2018 Advanced Notice of Proposed Rulemaking(​ANPR) in which the FDIC sought comments on its brokered deposit regulations and on proposed changes to the methodology used to calculate the national rate. Of the 130 comments on the ANPR, 59 addressed the interest rate restrictions; most of which responded that the current interest rate and rate cap methodology, which is calculated from a formula based on weighted deposits where the weights are the institutions’ number of branches, results in interest rates that are too low."

The FDIC'​s earlier proposal on "Brokered Deposits and Interest Rate Restrictions" says, "As described in the FDIC'​s 1997 study of the banking and thrift crises of the 1980s and early 1990s, brokered CDs became increasingly used as funding sources, first by money center banks and then by regional and smaller institutions. Even as early as the 1970s, the FDIC noted concerns about brokered deposits.... The largest concentrations of brokered deposits can be characterized as 3 types of deposits: (​1) Master Certificates of Deposits; (​2) sweep deposits that are viewed as brokered; and (​3) reciprocal deposits. Listing service deposits are also discussed below, but typically, are not reported as brokered."

On "Sweep Deposits," the proposal comments, "​Third parties (​including investment companies acting on behalf their clients) that sweep client funds into deposit accounts at IDIs are deposit brokers. As a result, the sweep deposits placed by these third parties are brokered deposits unless the third party meets one of the exceptions to the definition of '​deposit broker'. In 2005, FDIC staff issued an advisory opinion that took the view that a brokerage firm placing idle client funds into deposit accounts at its affiliate IDI, under certain circumstances, meets the '​primary purpose' exception. Thus, the deposits placed on behalf of their clients would not be brokered deposits."

It tells us, "​As of September 30, 2018, 28 insured depository institutions have indicated to the FDIC that they receive funds swept from an affiliated broker dealer under conditions that FDIC staff have indicated would support the affiliate being viewed as meeting the '​primary purpose' exception to the '​deposit broker' definition. Each of these insured depository institutions provides monthly reports to the FDIC of the monthly average of the swept funds as of month end. As of September 30, 2018, these 28 insured depository institutions reported $​724 billion as the average amount of funds swept from the institutions' affiliated broker dealers for September 2018."

The proposal continues, "Thus, as of September 30, 2018, the reported brokered deposits of $​986 billion, which includes brokered CDs and broker dealer sweeps to unaffiliated insured depository institutions, when combined with the average monthly balance of funds that broker dealers sweep to affiliated institutions for September of $​724 billion result in a combined amount of $​1.​710 trillion, which represents 14 percent of the $​12.​3 trillion in industry domestic deposits for that date."

Finally, it adds, "Reciprocal deposit arrangements are based upon a network of IDIs that place funds at other participating banks in order for depositors to receive insurance coverage for the entire amount of their deposits. Because reciprocal arrangements can be complex, and involve numerous banks, they are often managed by a third-​party sponsor. As a result, all deposits placed through this arrangement have historically been viewed as brokered deposits."

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This month, BFI speaks with Peter Yi, Northern Trust Asset Management'​s Director of Short Duration Portfolio Management and Head of Taxable Credit Research. We discuss Northern'​s history and presence in the ultra-​short sector, cash segmentation and a number of other issues below. Our Q&​A follows (​We published the first half of this interview in our August Money Fund Intelligence.) Note: This profile is reprinted from the August issue of our Bond Fund Intelligence publication. Contact us if you'​d like to see the full issue, or if you'​d like to see our BFI XLS performance spreadsheet, our BFI Indexes and averages, or our most recent Bond Fund Portfolio Holdings data set, which was published last week.

BFI: Talk about the non-​2a-​7 vehicles. Yi: A lot of people recognize Northern Trust for its significant presence in SEC-​registered money market mutual funds, but that only represents about half of our liquidity-​focused AUM.... Looked at more broadly, we focus on designing solutions, whether they'​re commingled or customized through separately managed accounts. Our product offerings range from registered money market mutual funds, roughly about $​117 billion, to our collective and common STIFs, which represent probably about $​50 billion. Our global offshore funds represent about $​22 billion in three different currencies: U.​S. dollar, euro and sterling.

The rest of our assets are customized SMAs or securities lending reinvestment vehicles. [​The other pools are] important because it gives us scale, which is critical to being competitive. In addition to our $​238 billion [​in '​cash'], we also have roughly $​20 billion in ultra-​short assets under management, which has been a real growth area for us and certainly a strategic focus over the last few years.

BFI: Talk about cash segmentation. Yi: I think investors have really embraced cash segmentation as a strategy, and one that provides a better risk-​reward and even a better yield. Despite the inverted yield curve, there'​s still a better yield in our ultra-​short total return products than there is in our money market funds. We think it'​s just another thing that differentiates Northern Trust A.​M. when we talk about taking an intelligent solutions-​stage-​based approach to cash management.

We introduced cash segmentation as a strategy well over a decade ago. We know how to use it effectively; it'​s allocating cash into different buckets. Over that time, we'​ve certainly challenged our clients to truly rethink cash in a way that optimizes expectations for risk, liquidity and return. For those clients that are looking for a little more customization, a better risk reward balance, they'​re the ones that have fully embraced cash segmentation. In the strategy, they have an opportunity to segment into three distinct buckets that have distinctive risk, return and liquidity expectations. The three buckets are for operational cash, reserve cash and strategic cash.

Operational cash is the biggest bucket right now and that'​s indicative of the inverted yield curve. A lot of investors are choosing to shift their allocations into more operational, and that'​s for their immediate or short-​term spending needs, using our most conservative government money market fund. They use it as a sweep vehicle for their everyday cash balances. Next you have reserve cash, which is for intermediate spending needs. It provides a little more flexibility for a better balance between having a high-​quality credit portfolio and return expectations that are better than a government fund but could also have some minimal principal fluctuation.... Prime funds are the ones that work best in that bucket.

Then you have your strategic cash, which is for the longer-​term cash needs, usually a three-​to-​six-​month time horizon. Ultra-​short fixed income strategies meet that bucket very well. They'​re going to have the durations of six months to a year. And you can also see higher yields today on a taxable ultra-​short product versus a prime fund. We'​re seeing yield differences between 10 and as much as 40 basis points.

As relates to ultra-​short, we have a full range of short duration products and strategies. Just like for our money market business, we have a very long history managing ultra-​short fixed income funds. It used to be called '​enhanced cash' but it'​s evolved into ultra-​short and we'​ve been managing such portfolios since the late 1980s. We'​ve seen incredible growth in that asset class over the last few years. We launched our first two ultra-​short fixed income mutual funds in 2009 and the AUM has really grown exponentially since then. Right now, we have two flagship mutual funds, a taxable and a tax-​advantaged fund that in total have about $​6 billion. We manage about $​20 billion in all of our ultra-​short mandates.

The success in our ultra-​short strategies really validates our view that clients still value a high-​quality portfolio, where they'​re looking for a better risk return and are comfortable with a total return type of structure. These investors, just like those in our money funds, appreciate a proven investment process and track record, again differentiated, in a total return product. It'​s different than a traditional money market fund. Over time, and even recently, including presently when there is a little bit of an inversion in the yield curve, ultra-​short strategies are providing better returns than money market funds. So when you can blend them all into a cash segmentation strategy, we feel that you do get a much better risk reward and a better balance, and you'​re doing more to optimize your opportunities.

BFI: Any thoughts on "​fin-​tech" or AI? Yi: I don'​t necessarily think the evolution of various fin-​tech platforms is a bad thing or puts stresses on asset managers. As an industry, I think we should embrace the efficiency and the powerfulness of these new tools since they enable us to be better investment managers. Whether it'​s to address new regulatory constraints for broker dealers or to find new inefficiencies in the marketplace to exploit in other risk asset classes, we all need to recognize more is coming. I like to draw somewhat of a parallel to when we saw a huge shift over a decade ago with the full-​service broker-​dealer model shifting to independent platforms. You can actually say that'​s where fin-​tech platforms started to surface.

Then we had the algorithmic trading which became more commonplace for, I guess other risk asset classes beyond money markets. But now it'​s AI and it'​s something that'​s being explored and could become a really powerful tool for asset managers, for everything from running commentaries to digital investment platforms. To us, we think there'​s an incredible amount of benefit from investing in AI, and at the end of the day that'​s going to translate into a better service model and better results for our clients. That'​s where I think fin-​tech is penetrating more in a meaningful way right now, just through the AI channel.

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The SEC released its latest quarterly "Private Funds Statistics" report recently, which summarizes Form PF reporting and includes some data on "Liquidity Funds." The publication shows that overall Liquidity fund assets fell sharply in the latest reported quarter to $​584 billion (​from $​617 billion in Q3). 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, refl​ecting data collected through Form PF and Form ADV fi​lings. Form PF information provided in this report is aggregated, rounded, and/​or masked to avoid potential disclosure of proprietary information of individual Form PF fi​lers. This report refl​ects data from First Calendar Quarter 2017 through Fourth Calendar Quarter 2018 as reported by Form PF fi​lers." (Note: Crane Data believes many of the liquidity funds are securities lending reinvestment pools and other short-​term investment funds; these are not the breed of "​3c-​7" private liquidity funds being marketed by Federated, JPMorgan and a few others.)

The tables in the SEC'​s "Private Funds Statistics: Fourth Calendar Quarter 2018," the most recent data available, now show 119 Liquidity Funds (​including "​Section 3 Liquidity Funds," which are Liquidity Funds from advisers with over $​1 billion total in cash), up 6 from the last quarter and down 1 from a year ago. (​There are 73 Liquidity Funds and 46 Section 3 Liquidity Funds.) The SEC receives Form PF reports from 40 Liquidity Fund advisers and 23 Section 3 Liquidity Fund advisers, or 63 advisers in total, up 3 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 $​584 billion, down $​33 billion from Q3'​18 and up $​5 billion from a year ago (​Q4'​17). Of this total, $​295 billion is in normal Liquidity Funds while $​289 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 $​589 billion, down $​34 billion from Q3'​18 and up $​9 billion from a year ago (​Q4'​17). Of this total, $​297 billion is in normal Liquidity Funds while $​292 billion is in Section 3 (​large manager) Liquidity Funds.

A table on "Beneficial Ownership for Section 3 Liquidity Funds" shows $​97 billion is held by Private Funds (​33.​6%), $​55 billion is held by Other (​19.​0%), $​18 billion is held by SEC-​Registered Investment Companies (​6.​2%), $​9 billion is held by Insurance Companies (​3.​1%), $​5 billion is held by Non-​U.​S. Individuals (​1.​7%), $​3 billion is held by Pension Plans (​0.​9%) and $​0 is held by Banking/​Thrift Inst (​0.​0%).

The tables also show that 77.​9% of Section 3 Liquidity Funds have a liquidation period of one day, $​278 billion of these funds may suspend redemptions, and $​243 billion of these funds may have gates (​out of a total of $​521 billion). The Portfolio Characteristics show that these funds are very close to money market funds. WAMs average a short 28.​5 days (​38.​0 days when weighted by assets), WALs are a short 53.​0 days (​67.​0 days when asset-​weighted), and 7-​Day Gross Yields average 2.​15% (​2.​28% asset-​weighted).

Daily Liquid Assets average about 52.​0% (​53.​0% asset-​weighted) while Weekly Liquid Assets average about 63.​0% (​62.​0% asset-​weighted). Overall, these portfolios appear shorter with a much heavier Treasury exposure than money market funds in general; more than half of them (​47.​8%) are fully compliant with Rule 2a-​7. (​See also our March 15, 2017 News, "CAG'​s Pan on Pros and Cons of Private Liquidity Funds, SEC Paper, Stats.")

In other news, we reprint our "Link of the Day" from Friday below, which explains the huge jump in assets late last week in our MFI Daily product. Subscribers to Crane Data'​s Money Fund Intelligence Daily product may notice a huge jump in money fund assets on Friday. Please note that the vast majority of the gains are due to the addition of $​195 billion in previously untracked funds. The majority of the increase is due to the addition of one fund, the $​111 billion American Funds Central Cash Fund. (​See our Nov. 16, 2018 News, "American Funds Files for Internal Money Fund, Capital Group Central Cash.")

The MFI Daily file with data as of Thursday, August 22, (​and today'​s file with data as of Friday, Aug. 23) contains 24 new funds with assets totaling $​194.​5 billion. So there was not a massive jump in MMF assets last week. Over the past several years, following October 2016 when the SEC began disclosing money fund information via its "​Form N-​MFP" data set in a timely manner, we'​ve added batches of money funds that we hadn'​t previously tracked to our collections.

A number of these funds are internal or private funds, but they are all "​2a-​7" money market funds. It'​s been over a year since we added a major batch of new funds, but we wanted to get our last large block added and over with. Note also that these funds are all already included in our monthly MFI XLS product. We apologize for the disruption in the asset series and any inconvenience this may cause, and we list the largest of these new funds below.

Funds added to MFI Daily Friday include: American Funds Central Cash M (​CMQXX with $​110.​9 billion), PGIM Inst Money Market Fund (​PRU01, $​18.​4B), T Rowe Price Govt Reserve Fund (​TRP01, $​16.​2B), Northern Trust AM Treas Assets Fund (​NOR01, $​8.​0B), TIAA CREF Money Market Account R3 (​TIA01, $​5.​1B), UBS Limited Purpose Cash Inv Fund (​UBS03, $​5.​0B), T Rowe Price Treas Reserve Fund (​TRP02, $​4.​2B), JPMorgan Sec Lending MM Agency SL (​VSLXX, $​3.​5B), Principal Government MM Inst (​PGVXX, $​3.​4B), TIAA CREF Money Market Account R2 (​TIA02, $​2.​9B) and Fidelity VIP Govt Money Market Initial (​FID07, $​2.​3B).

Note once again that this only impacts our MFI Daily; our MFI, MFI XLS and MF Portfolio Holdings data collections already include these funds. For more on the addition of funds to our collections and "​internal" money market funds, see our July 17, 2018 Link of the Day, "More Funds Added to MFI Daily," and our Jan. 5, 2017 News, "Internal and Private Money Funds Revealed.")

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Money fund assets rose for the 3rd week in a row and the 17th week out of the past 18 weeks, reaching their highest level since October 2009. ICI'​s latest "Money Market Fund Assets" report shows that MMF totals have increased by $​334.​9 billion, or 11.​0%, since April 17, and they'​ve increased by $​330 billion, or 10.​8%, year-​to-​date. Over the past 52 weeks, ICI'​s money fund asset series has increased by $​514 billion, or 17.​9%, with Retail MMFs rising by $​224 billion (​21.​3%) and Inst MMFs rising by $​290 billion (​16.​0%). (​See also our News from yesterday, "SEC: Money Fund Assets Approach $​3.​7 Trillion, Up 13th Month in a Row," which reviews the SEC'​s separate, broader asset series.)

ICI writes, "Total money market fund assets increased by $​23.​45 billion to $​3.​38 trillion for the week ended Wednesday, August 21, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $​16.​17 billion and prime funds increased by $​7.​77 billion. Tax-​exempt money market funds decreased by $​494 million." ICI'​s weekly series shows Institutional MMFs rising $​15.​36 billion and Retail MMFs increasing $​8.​09 billion. Total Government MMF assets, including Treasury funds, were a record $​2.​528 trillion (​74.​8% of all money funds), while Total Prime MMFs were $​714.​9 billion (​21.​2%). Tax Exempt MMFs totaled $​135.​0 billion, 4.​0%.

They explain, "Assets of retail money market funds increased by $​8.​09 billion to $​1.​27 trillion. Among retail funds, government money market fund assets increased by $​6.​66 billion to $​728.​90 billion, prime money market fund assets increased by $​1.​56 billion to $​421.​40 billion, and tax-​exempt fund assets decreased by $​127 million to $​124.​59 billion." Retail assets account for over a third of total assets, or 37.​7%, and Government Retail assets make up 57.​2% of all Retail MMFs.

The release adds, "Assets of institutional money market funds increased by $​15.​36 billion to $​2.​10 trillion. Among institutional funds, government money market fund assets increased by $​9.​51 billion to $​1.​80 trillion, prime money market fund assets increased by $​6.​22 billion to $​293.​50 billion, and tax-​exempt fund assets decreased by $​367 million to $​10.​37 billion." Institutional assets accounted for 62.​3% of all MMF assets, with Government Institutional assets making up 85.​6% of all Institutional MMF totals.

In other news, mutual fund news source ignites published the article, "Which Brokerage Clients Clean Up in Cash Sweeps." They explain, "Fidelity earlier this month announced that it had made its high-​yielding Government Money Market Fund the default cash sweep vehicle for brokerage and retirement accounts, no matter what size."

The piece continues, "​The Boston-​based custodian'​s new default posted a seven-​day yield of 1.​82% as of Aug. 14, according to data posted on its website. That rate is more than a percentage point higher than any other cash sweep default assigned by any of the 10 brokerages tracked by Crane Data'​s Brokerage Sweep Intelligence Report."

They quote Pete Crane, president of Crane Data, "​the Westboro, Mass.-​based money market and cash sweep data and research shop," "Presumably, [​Fidelity] intends to gain market share to gain wallet share.... They also want to have more happy customers that do more business."

The ignites article comments, "Fidelity is one of the only major brokerages that use a money market fund as their default, he says. These vehicles typically have higher returns than bank and other sweep products. Industrywide, the money market funds tracked through the Crane 100 Money Fund Index reported an average seven-​day yield of 2.​13% during the period ending July 31. Sweep options, meanwhile, returned just 0.​25%."

It also tells us, "Ameriprise clients can choose from a number of options to invest the cash in their accounts, including money market funds and brokered CDs, or they can leave their uninvested cash in one of our sweep options.... Other brokerages, such as E*​Trade, RW Baird and UBS, also allow certain investors to pick money market funds as places to park cash they earn from their investments, company websites show."

The piece adds, "About two thirds of industry professionals surveyed by Ignites believe that Fidelity'​s recent actions might spur other brokerages to change their cash sweep default to a money market fund. In all, 163 readers voted. However, Crane says it'​s unlikely that money market funds will become the widespread default. Many firms will likely wait to see how investors react to Fidelity'​s swap." "The trend has been to move the deposits and for the brokerages to earn money off the sweep, not the investors," he says. "​Fidelity is an outlier for now."

For more on the recent brokerage sweep news, see these Crane Data News articles: Fitch Reviews French MMFs: Standard Not Really; More Sweep Coverage (​8/​21), IBD on Brokerage Sweep Accounts (​8/​20), Cash Stories: Barron'​s Explains Brokerage Sweeps; Bloomberg on Assets (​8/​19), Cash of the Titans: Schwab vs. Fidelity; MF Yields Dip Below 2.​0 Percent (​8/​13), Barron'​s Clarifies Fidelity Sweep Push (​8/​12), WSJ on Fidelity: Cash'​s Sweeping Giant (​8/​9) and Fidelity Now Sweeps to Money Fund (​8/​8).

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The Securities and Exchange Commission released its latest "Money Market Fund Statistics" summary yesterday, which shows that total money fund assets were up sharply last month, rising by $​75.​6 billion in July to $​3.​690 trillion. It was the 13th straight month of gains for money funds overall. Prime MMFs increased $​22.​3 billion in July to close at $​1.​041 trillion, their highest level since August 2016, while Govt & Treasury funds rose by $​53.​5 billion to a record $​2.​509 trillion. Tax Exempt funds fell by $​290 million to $​140.​9 billion. Yields fell again for Prime MMFs and Govt MMFs in July. The SEC'​s Division of Investment Management summarizes monthly Form N-​MFP data and includes asset totals and averages for yields, liquidity levels, WAMs, WALs, holdings, and other money market fund trends. (​The SEC revised this report earlier this year to include more history and to split Prime into Prime Inst and Prime Retail and Muni into Muni Inst and Muni Retail.) We review their latest numbers below.

Last month'​s big asset gains follow increases of $​41.​9 billion in June, $​78.​2 billion in May, $​690 million in April, $​87.​9 billion in March, $​76.​9 billion in February and $​31.​4 billion in January. (​Our MFI Daily product shows money fund assets up by another $​87.​8 billion in August month-​to-​date through 8/​20.) Over the 12 months through 7/​31/​19, total MMF assets have increased $​576.​7 billion, or 18.​5%. (​Note that the SEC'​s series includes a number of internal money funds not reported to ICI or others, though Crane Data tracks most of these.)

Of the $​3.​690 trillion in assets, $​1.​041 trillion was in Prime funds, which rose $​22.​3 billion in July after increasing $​9.​6 billion in June, $​8.​9 billion in May and $​27.​8 billion in April. Prime funds represented 28.​2% of total assets at the end of July. They'​ve increased by a stunning $​339.​3 billion, or 48.​4%, over the past 12 months. Government & Treasury funds totaled $​2.​509 trillion, or 68.​0% of assets. They rose by $​53.​5 billion in July, $​31.​8 billion in June and $​67.​3 billion in May, but fell $​20.​7 billion in April. Govt & Treas MMFs are up $​230.​9 billion over 12 months, or 10.​1%. Tax Exempt Funds decreased $​290M to $​140.​9 billion, or 3.​8% of all assets. The number of money funds was 370 in July, unchanged from the previous month but down 12 funds from a year earlier.

Yields for Taxable MMFs were lower in July for the fourth month in a row (​the 6th for Prime). This year'​s declines follow 24 months of (​almost straight) increases. The Weighted Average Gross 7-​Day Yield for Prime Institutional Funds on July 31 was 2.​44%, down 6 basis points from the previous month. The Weighted Average Gross 7-​Day Yield for Prime Retail MMFs was 2.​47%, down 8 basis points. Gross yields fell to 2.​39% for Government Funds, down 4 bps from last month. Gross yields for Treasury Funds decreased 7 basis point to 2.​30%. Gross Yields for Muni Institutional MMFs fell from 1.​88% in June to 1.​47%. Gross Yields for Muni Retail funds fell from 1.​88% to 1.​48% in July.

The Weighted Average 7-​Day Net Yield for Prime Institutional MMFs was 2.​36%, down 6 bps from the previous month but up 0.​31% since 7/​31/​18. The Average Net Yield for Prime Retail Funds was 2.​21%, down 7 bps from the previous month but up 0.​28% since 7/​31/​18. (​Note: These averages are asset-​weighted.)

WALs and WAMs were mixed in July. The average Weighted Average Life, or WAL, was 58.​8 days (​up 0.​6 days from last month) for Prime Institutional funds, and 62.​9 days for Prime Retail funds (​up 0.​1 days). Government fund WALs averaged 94.​7 days (​down 0.​8 days) while Treasury fund WALs averaged 93.​6 days (​up 2.​5 days). Muni Institutional fund WALs were 12.​8 days (​down 1.​3 days), and Muni Retail MMF WALs averaged 31.​4 days (​down 1.​1 days).

The Weighted Average Maturity, or WAM, was 32.​2 days (​down 0.​2 days from the previous month) for Prime Institutional funds, 32.​9 days (​unchanged from the previous month) for Prime Retail funds, 26.​9 days (​down 0.​8 days) for Government funds, and 33.​3 days (​up 1.​7 days) for Treasury funds. Muni Inst WAMs were down 1.​3 days to 12.​4 days, while Muni Retail WAMs decreased by 1.​7 days to 28.​9 days.

Total Daily Liquid Assets for Prime Institutional funds were 38.​4% in July (​up by 0.​6% from the previous month), and DLA for Prime Retail funds was 22.​2% (​up 0.​7% from previous month) as a percent of total assets. The average DLA was 45.​3% for Govt MMFs and 90.​2% for Treasury MMFs. Total Weekly Liquid Assets was 53.​1% (​down 0.​6% from the previous month) for Prime Institutional MMFs, and 40.​6% (​unchanged from the previous month) for Prime Retail funds. Average WLA was 69.​9% for Govt MMFs and 97.​9% for Treasury MMFs.

In the SEC'​s "Prime MMF Holdings of Bank-​Related Securities by Country table for July 2019," the largest entries included: Canada with $​150.​6 billion, the U.​S. with $​125.​2 billion, Japan with $​102.​1 billion, France with $​96.​1B, the UK with $​52.​2B, Germany with $​51.​4B, Australia/​New Zealand with $​39.​9B, the Netherlands with $​38.​2B and Switzerland with $​26.​1B. The biggest gainers among the "Prime MMF Holdings by Country" include: France (​up $​23.​7B), the Netherlands (​up $​9.​4B), Germany (​up $​8.​4B) and Japan (​up $​5.​3B). The smallest increases include: Australia (​up $​1.​7B), Canada (​up $​2.​8B), the UK (​up $​3.​5B) and Switzerland (​up $​4.​2B).

The SEC'​s "Trend in Prime MMF Holdings of Bank-​Related Securities by Major Region" table shows Europe had $​316.​7B (​up $​38.​9B from last month), the Eurozone subset had $​195.​3B (​up $​43.​1B). The Americas had $​276.​6 billion (​up $​7.​0B), while Asia Pacific was oddly missing from the SEC'​s latest update.

The "​Prime MMF Portfolio Composition" chart shows that of the $​1.​041 trillion in Prime MMF Portfolios as of July 31, $​320.​3B (​30.​8%) was in CDs and Time Deposits (​down from $​321.​8B), $​290.​7B (​27.​9%) was in Government & Treasury securities (​direct and repo) (​up from $​281.​6B), $​149.​0B (​14.​3%) was held in Non-​Financial CP and Other securities (​up from $​147.​7B), $​216.​6B (​20.​8%) was in Financial Company CP (​up from $​205.​1B) and $​63.​9B (​6.​1%) was in ABCP (​up from $​62.​7B).

The SEC'​s "Government and Treasury MMFs Bank Repo Counterparties by Country" table shows the U.​S. with $​221.​8 billion, Canada with $​130.​3 billion, France with $​232.​5 billion, Germany with $​19.​3 billion, Japan with $​138.​2 billion, the U.​K. with $​115.​4 billion and Other with $​37.​9 billion. All MMF Repo with the Federal Reserve plunged by $​36.​2 billion in July to $​7.​4 billion.

Finally, a "Percent of Securities with Greater than 179 Days to Maturity" table shows Prime Inst MMFs with 9.​5%, Prime Retail MMFs with 8.​4%, Muni Inst MMFs with 0.​9%, Muni Retail MMFs with 6.​1%, Govt MMFs with 18.​1% and Treasury MMFs with 17.​8%.

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Fitch Ratings recently published the update, "French Money Market Funds: Reforms Strengthen Credit Profiles, but Structural Differences Remain," which gives a brief overview of money market funds in France They write, "French MMFs were much less affected by the recently concluded European MMF reforms than other European MMFs. More than 80% of the French MMF industry'​s assets AUM come from '​Standard' MMFs, which were less affected by the reforms. In other jurisdictions, such as Ireland and Luxembourg, where Constant Net Asset Value (​CNAV) funds were prevalent, the effect of the reforms was much more significant, as these funds almost universally converted to the new LVNAV fund type. There were almost no CNAV funds in France prior to the implementation of the MMF reform: the remaining 20% of funds includes mainly Short-​Term VNAV funds."

The update explains, "While '​Standard' MMFs qualify as MMFs under applicable regulation, Fitch believes the market risk profile of these funds to be incomparable with MMFs in most other jurisdictions and with Fitch'​s definition of a MMF. The maximum market risk that '​Standard' MMFs can assume, under the applicable regulation (​for example a maximum WAM of six months), goes substantially beyond the level of market risk MMFs can incur in most other jurisdictions. For example, the maximum permissible WAM in US MMFs is 60 days, and Chinese MMFs is 120 days. Accordingly, Fitch rates '​Standard' MMFs under it Global Bond Fund Rating Criteria."

Fitch also tells us, "The French MMF segment is more concentrated by manager than the US MMF industry, but marginally more diverse than the Irish and Luxembourg MMF segments. The top 10 investment management companies in France managed around 87% of total assets at end-​2018. The French MMF industry is dominated by Amundi ('​A+'/ Stable/'​F1'), Ostrum Asset Management and BNP Paribas Asset Management which had shares of 32%, 11% and 10% respectively at end-​2018." A chart shows the top French MMF managers as: Amundi (​32%), Other (​32)%, Ostrum AM (​11%), BNP Paribas AM (​10%), CM-​CIC Am (​9%) and BFT IM (​6%).

They continue, "Fitch estimates that the French MMF industry reached around EUR325 billion (​about USD375 billion) in AUM at end-​2018. This total made France the third-​largest MMF domicile in Europe after Ireland (​about EUR490 billion/​USD560 billion) and Luxembourg (​around EUR335 billion/​USD385 billion) at the same date. On a global scale, France ranks fifth, after China (​around USD1.​1 trillion) and the US (​USD3 trillion). In the first quarter of 2019 French MMF AUM increased by an estimated EUR20 billion to EUR345 billion (​about USD385 billion)."

Fitch adds, "Unlike their counterparts in Ireland and Luxembourg, French MMFs are virtually all denominated in euros. Irish and Luxembourg MMFs are denominated in various other currencies, principally US dollars, where MMF demand has benefited from interest rate rises."

Lastly, they write, "The French MMF sector is large compared with the wider asset management sector. French MMFs accounted for 18% of the total industry AUM of EUR1.​8 trillion at end-​2018. While the MMF share in France is lower than that of China (​63%) it is comparable with or higher than other peers (​Ireland: 20%, US: 14%; Luxembourg: 8%). Fitch believes that if the '​Standard' MMFs prevalent in France were reclassified as bond funds (​as they would be classified in many other jurisdictions), then the French asset allocation would become much more comparable with international norms.... The French MMF segment is highly retail focused, whereas the MMF segments in the US, Ireland and Luxembourg are primarily institutionally focused."

In other news, website RIABiz writes, "Abby Johnson set financial services on fire with a 1.​91% '​cash' offer, drawing '​first blood' in an '​accelerating war of rates,' analyst says." The piece tells us, "Abby Johnson set Vanguard'​s feet on fire with no-​fee mutual funds and now appears intent on burning down Charles Schwab'​s house. The Fidelity Investments' CEO tossed a Molotov cocktail through the window on Aug. 7 by announcing a plan to automatically sweep investors' cash into money market options with rates as high as 1.​91% for brokerage and retirement accounts."

The article explains, "The CEO'​s venture into the industry'​s '​cash war,' will hit Schwab where it hurts the most -- its lucrative practice of sweeping client cash into its proprietary bank, which now accounts for 57% of its revenues.... RIAs, however, will continue to have to opt-​in to Fidelity'​s money market funds. The current default for their client cash is the lower-​yielding FDIC-​insured FCash."

They add, "The genius behind Fidelity'​s move is the way it takes advantage of a little known and somewhat dubious industry practice of defaulting customers' cash into a low-​yielding account -- often at an affiliated bank -- with no other option in what'​s known as a '​cash sweep.'"

The piece quotes our Peter Crane, "​president of Westborough, Mass.-​based money-​market fund tracker Crane Data," "The product-​pushing rhetoric is as notable as the product itself.... `​It'​s shocking because to date no major brokerage has dared to push '​cash' as a competitive advantage."

RIABiz adds, "Fidelity started automatically moving retail-​side brokerage cash into better paying funds in late 2015, and it made the switch on the retirement-​side in May 2019." They also quote Daniel Wiener, who says, "It'​s entirely possible that Fidelity, if they hammer on it relentlessly ... will begin to make people aware of the costs of working with a low-​yield provider."

Crane Data noticed that Fidelity ran another full-​page ad in The Wall Street Journal yesterday (​8/​20, on page A5). Entitled, "At Fidelity, value is automatic. Can your broker say the same?," it compares Fidelity Government Money Market Fund'​s 1.​82% 7-​day yield against Schwab'​s (​0.​18%), TD Ameritrade'​s (​0.​04%) and E*​Trade'​s (​0.​03%) brokerage sweep rates. The ad explains, "Where you keep your cash matters. At Fidelity, when you open a retail brokerage or retirement account, your cash automatically goes into our money market fund with a current yield of 1.​82%. That'​s 10X more than Schwab. Plus, only Fidelity offers zero account fees and zero minimums -- so you'​ll know you'​re getting great value."

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This month, we interview Northern Trust Asset Management'​s Director of Short Duration Portfolio Management and Head of Taxable Credit Research Peter Yi. We discuss Northern'​s history and presence in the cash sector, the latest challenges and issues facing money market funds, and a number of other issues. Our Q&​A follows. (Note: The following is reprinted from the August issue of Money Fund Intelligence, which was published on August 7. Contact us at info@​cranedata.​com to request the full issue or to subscribe.)

MFI: Give us some history. Yi: Northern Trust Asset Management has a very rich history managing cash and other liquidity products. We'​ve been managing money markets since the 1970s, when our trust department created its first cash sweep vehicle. We view cash management to be a core capability and a product that caters incredibly well to our institutional asset servicing business, as well as to our wealth management franchise. We'​re managing about $​238 billion in AUM across our money market funds and other liquidity products. History tells us that experience and leadership are critical for the money market business. It'​s served us well in successfully navigating different credit and interest rate cycles.

Personally, I'​ve been at Northern Trust since 2000, and we'​ve seen significant growth in our liquidity business since then. I oversee the teams that manage our 2a-​7 money market mutual funds, our common and collective STIFs, our offshore global cash funds and our separately managed accounts, as well as our security lending reinvestment. I also recently took over as head of our taxable credit research team that covers strategies ranging from money market all the way to high yield across the yield curve.

MFI: Talk about the non-​2a-​7 vehicles. Yi: A lot of people recognize Northern Trust for its significant presence in SEC-​registered money market mutual funds, but that only represents about half of our liquidity-​focused AUM.... Looked at more broadly, we focus on designing solutions, whether they'​re commingled or customized through separately managed accounts. Our product offerings range from registered money market mutual funds, roughly about $​117 billion, to our collective and common STIFs, which represent about $​50 billion. Our global offshore funds represent about $​22 billion in three different currencies: U.​S. dollar, euro and sterling. The rest of our assets are customized separately managed accounts or securities lending reinvestment vehicles. The other pools are important because it gives us scale, which is critical to being very competitive. In addition to our $​238 billion, we have roughly $​20 billion in ultra-​short assets under management, which has been a real growth area for us and certainly a strategic focus over the last few years.

With regards to our offshore global cash funds, they underwent changes from the implementation of European Money Market Reforms earlier this year. We came through that experience with a much stronger fund lineup with structures that better accommodate client needs. We don'​t think we'​ve compromised the risk profiles of the funds in any way, and believe, in terms of the three currencies, [​we'​re] positioned well in this new European money market fund landscape.

MFI: How similar are these vehicles? Yi: Without a doubt our investment philosophy and investment process have always been consistent across all our liquidity funds. Some of our funds may have different structures, whether they'​re CNAV or LVNAV or even Variable NAV in Europe. We'​ve always prioritized principle preservation and liquidity above all else. For example, our conservative philosophy is always focused on fully understanding risk, whether it'​s credit risk or interest rate risk. We'​re always assessing whether the benefits outweigh the risks in the marketplace.

Similar to how our investors think, we recognize the money market business is an asymmetric one. Investors don'​t want to compromise their principle or access to liquidity for a few extra basis points. We'​re constantly debating the question, '​Are we getting paid for the risk?' In these situations, relative value assessments become really valuable to our portfolio positioning. But as it relates to how we think about our liquidity products within our cash management business, we use the same robust risk management process as well as the same credit research teams as enterprise tools to ensure that we are implementing the same credit views across a very conservative asset class.

MFI: What about your clients? Yi: Our client base for liquidity solutions is very broad-​based. As I mentioned before, cash has been a core capability for the organization. The investor base for our asset servicing business gives us a sophisticated institutional presence across a variety of market segments, and that ranges from public funds to ERISA clients to foundations and endowments. We also have a very strong service model for corporate treasurers, who are looking more for direct investment vehicle options. Then, on the other side of the house, we have a strong wealth management franchise that allows us to offer thoughtful solutions for retail investors.

MFI: Why do they choose Northern? Yi: We employ a solutions-​based approach when thinking about client needs. We spend a considerable amount of time talking to clients and focusing on their liquidity needs. Whether it be an institution that is preparing for scheduled benefit payments ... or a high net worth individual that might be having a liquidity event, all of those conversations are really important. It'​s our relationship management and our ability to provide thoughtful solutions to these different types of clients that differentiates us from competitors. Our clients value our conservative investment philosophy that prioritizes principle preservation and liquidity, but also offers a very competitive yield. They'​re attracted to our unwavering investment process that emphasizes strong risk management and credit research. With all that, our clients are quite happy with our approach.

MFI: What are you buying? Yi: We like to overweight secured instruments. One example is repurchase agreements that are over collateralized and backed by high-​quality transparent collateral and serviced through an independent tri-​party custodian. In addition to those safeguards, we select the largest and strongest repo counterparties. Repo tends to be a very attractive investment option for managing portfolio liquidity and comes with competitive yields. We also like instruments like asset-​backed commercial paper, again a securitized instrument. We'​re looking for structures that have full liquidity and credit support from strong and highly rated bank sponsors. We try to be opportunistic and overweight in that asset class as well.

MFI: What about your challenges? Yi: Some of the bigger challenges include: money market [​funds] positioning for lower rates.... We saw the Fed lower rates last week, and history tells us that money fund industry assets fall on average about 7 percent after the first rate cut. But, the magnitude of that cycle and the reasons behind the rate cuts do matter. If the easing cycle is much shallower, we think the industry assets will be resilient and won'​t see a dramatic drop.... But if the Fed ends up being much more accommodative and rates start to move toward zero again, we could see a meaningful drop in assets.

Positioning around this is going to be the biggest challenge for portfolio managers today. We are long duration as a strategy, using high quality instruments like government securities, because our view is that we can have a low growth and low inflation environment for an extended period which translates into a more accommodative Fed.... The reality is, this recovery is the longest expansion we'​ve seen, and at some point, the credit cycle is going to turn. That could prompt a much more aggressive Fed.

Another challenge is money funds differentiating themselves in a commoditized asset class.... The money market business is likely to be more commoditized than any other investment sector because of the stricter constraints the SEC puts on it. There are only so many levers that can be pulled to differentiate, and just a few basis points can be the difference between the 2nd quartile and 1st based on yield performance.

We have been very up front saying we differentiate ourselves through implementing our interest rate views. Obviously, that serves us well in an industry that is highly weighted now towards governments. But even for our credit and prime strategies, we put more weight around our interest rate and duration views.... We implement credit barbell strategies. We take credit exposures shorter but take duration with longer maturity with high-​quality instruments like government securities.

MFI: Are you looking at ESG? Yi: ESG, minority-​owned, all of these new social headlines and directives have been front and center at Northern Trust Asset Management. ESG has become a hot topic across asset management and is something that the money market industry continues to explore. We'​ve spent an incredible amount of time thinking about how to thoughtfully incorporate ESG into our liquidity solutions. We'​ve certainly had clients engage in conversations with the desire to learn more. But the concept is still in its infancy domestically, at least with regards to incorporating it into money market funds. As an industry, we haven'​t seen a meaningful shift in assets into ESG-​sensitive products yet. Most of the requests that we'​ve been seeing have been for customized solutions. But we do think ESG will have a place, and we'​re expecting to hear more from clients about it.... We'​ve spent a lot of time developing our own proprietary scoring frameworks for various money market instruments.

MFI: What about the future? Yi: The money market industry will continue to thrive but could see some volatility ... as we undergo a Federal Reserve that pivots into an easing cycle.... I think the biggest benefit to being in money market funds will always be their ability to preserve capital and provide access to liquidity.... Liquidity is valued in every market cycle. Money market funds will always play a critical role in an overall asset allocation. While those allocations can vary depending on factors such as risk profile, having some level of cash allows investors to be more opportunistic in the marketplace.

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Two major articles on money market funds and "​cash" were published on Friday, which examine the two biggest stories of August to date -- brokerage sweep account changes and money fund asset growth. The first, Barron'​s "How Brokerages Use '​Sweep Accounts' and Cash In on Your Desire for Convenience," discusses brokerage programs and deposits vs. money funds, while the second, Bloomberg'​s "The $​3.​4 Trillion Haven Where Investors '​Hide Out for a While'," discusses the recent surge in money fund assets. We quote from these articles below. (​See our August 13 News, "Cash of the Titans: Schwab vs. Fidelity; MF Yields Dip Below 2.​0 Percent," and our August 16 Link of the Day, "ICI: Money Fund Assets Push Higher.")

Barron'​s Daren Fonda writes, "​With the market getting choppy, investors may want to horde some cash for peace of mind -- and dry powder in case stocks get really cheap. But don'​t expect to earn much yield on cash reserves if you keep them in a brokerage '​sweep' account.... The deposits are also a major profit center for brokers and affiliated banks: Uninvested cash in a sweep account can be shifted to a bank deposit account, freeing it up be reinvested for the firm'​s benefit. Sweep yields average just 0.​25%, according to Crane Data, well below the 1.​8% average for retail money-​market funds."

The piece explains, "Brokerage customers can buy money-​market funds to capture more income. But most brokers no longer provide a money-​market as the sweep account, for trading or other liquidity needs.... Brokers that have eliminated money markets for cash sweeps include Charles Schwab (​SCHW), E*​Trade Financial(​ETFC), Edward Jones, LPL Financial (​LPLA), Bank of America Merrill Lynch (​BAC), Morgan Stanley (​MS), and TD Ameritrade (​AMTD). Only two holdouts -- Fidelity and Vanguard -- still make money markets available for daily trading and liquidity."

The piece quotes Crane Data'​s Pete Crane, "Sweep accounts are built for convenience, and brokerage firms have taken advantage of the transactional aspect of the money.... Customers are harvesting pennies, but it adds up to millions of dollars in profits for brokerages and banks."

Barron'​s also quotes Sandler O'​Neill analyst Richard Repetto, "It'​s more profitable for brokers to move the cash to their banks." They write, "​Brokerage firms are losing revenue in other areas, as they wage price wars over trading commissions and management fees. That'​s making sweep deposits more important as a funding source for asset growth."

The article continues, "​To see how the moving parts work, look at Schwab. The firm is partly a discount broker and asset manager, and partly a federally regulated bank (​through its Schwab Bank subsidiary). Client cash held at Schwab recently hit $​405 billion, with individual accounts averaging $​33,​876, according to Repetto. That sharply exceeds client cash held at TD Ameritrade (​averaging $​12,​395 per account) and E*​Trade ($​10,​728). Schwab makes most of its money off interest income from reinvesting customer cash and other assets. Of its $​5.​4 billion in revenue in the first six months of 2019, $​3.​3 billion was net interest on securities and lending."

It adds, "Rather than swallow ultralow yields, investors can -- and should -- move cash out of a sweep account if they don'​t need the daily liquidity. Bank products like high-​yield online checking and savings accounts pay around 2% (​and are FDIC-​insured); money-​market mutual funds yield more than most sweep accounts (​though they aren'​t insured). Most brokerage firms only offer proprietary funds or a couple of choices from external fund companies, including tax-​free municipal funds."

Finally, they write, "​For retail investors, one of the best choices is Vanguard Federal Money Market (​VMFXX), yielding 2.​13%, though it may not be available outside Vanguard (​it’​s at TD Ameritrade and E*​Trade, for instance, but not Fidelity or Schwab). None of these yields will last if the Fed keeps cutting rates. But for now, they beat sweeping up the cash crumbs left by most brokerage firms."

In the second article, Bloomberg writes, "As fears of a global economic slowdown deepen and stock prices swing wildly, many U.​S. investors are running for cover in money-​market funds.... That has triggered a rally in Treasuries which pushed yields on even 30-​year government bonds to near or below those of short-​term assets held by money market funds, which are still yielding close to 2.​2%."

They continue, "Money-​market mutual funds saw $​18 billion of inflows in the week ended Wednesday, pushing total assets to an almost 10-​year high of $​3.​35 trillion, data from the Investment Company Institute show. The flows are partly driven by the desire for investors to '​take some chips off the table and hide out for a while,' said Rob Sabatino, global head of liquidity at UBS Asset Management, which has $​831 billion under management."

Bloomberg tells us, "Institutional and individual investors have few better places to park their cash given that bank deposit rates are significantly lower and market volatility has erupted in August. Many investors are simply 'parking it in cash,' Sabatino said, using the industry short-​hand for money market mutual funds."

Finally, the article also quotes Federated Investors' Chief Investment Officer of Global Money Markets, Debbie Cunningham, "Investors are looking for a safe-​haven place to take cover that'​s not subjected to volatility." It adds, "With Federated cash funds yielding around 2.​1% to 2.​3%, compared with a two-​year Treasury yield hovering around 1.​5% and a 30-​year rate of 1.​98%, money market funds are '​still pretty attractive and looking better than debt securities.'"

​

A press release entitled, "State Street Provides Clients Record Access to Cleared Repo Financing," tells us, "State Street Corporation (​STT), today announced that it has sponsored a record $​140 billion in repo investment volumes as a result of its partnership with the Fixed Income Clearing Corporation (​FICC). In 2005, State Street partnered with FICC to launch its Sponsoring/​Sponsored Member Repo Program, whereby a bank netting member of the clearing house could sponsor eligible US mutual funds to clear their repos with FICC." We quote from the release, and review the latest Portfolio Holdings updated from JP Morgan and ICI too, below.

It explains, "With the evolution of the FICC program, and specifically the rule changes in 2017 and 2019 permitting additional sponsoring and sponsored member client types, FICC'​s aggregate cleared repo and reverse repo volumes have risen substantially. As a designated Systemically Important Financial Market Utility (​SIFMU), FICC is required to maintain prescribed risk management standards and is subject to heightened regulatory oversight, factors that play a critical role in participants' assessment of their counterparty risk. US money market funds have been particularly active buy-​side participants recently; corporations, hedge funds, insurance companies, and state and local governments are taking notice."

State Street Head of Funding and Collateral Transformation Gino Timperio comments, "The growth in sponsored member repo through FICC has been transformational in the actively managed cash marketplace, providing cash investors and cash borrowers critical and stable liquidity.... I believe we'​re in the early stages of a sustained growth trajectory, from which our clients and the overall market will continue to benefit."

UBS Asset Management'​s Head of Liquidity Investments, Rob Sabatino tells us, "​UBS was an early adopter of Sponsored Repo [​with State Street]. The growth of sponsored repo volumes within FICC highlights demand from both cash investors and borrowers for a highly efficient, centrally cleared solution and I anticipate the next wave of growth will be from corporations, local government investment pools, and offshore entities managing US dollars."

The release adds, "State Street continues to work closely with the FICC and other central clearing counterparties to expand the eligibility of cleared collateral options, jurisdictions and tenors, to further support clients' liquidity and financing needs."

Crane Data shows that money fund holdings of FICC repo have grown to a record $​217.​5 billion (​as of 7/​31) according to our latest Money Fund Portfolio Holdings data series. This is up from $​111.​7 billion on April 30 and $​95.​1 billion as of January 31. Bank of New York Mellon and JP Morgan Chase Bank are also large participants in FICC repo program.

J.​P. Morgan Securities' newest "US Short Duration Update also discusses FICC repo. It says, "The latest taxable MMF holdings data show FICC sponsored repo with MMFs stood at $​218bn as of the end of July, an increase of $​7bn month over month and $​173bn year over year. At current levels, this reaches another record high, surpassing the previous peak of $​211bn at the end of 2Q. FICC is now the largest individual repo counterparty with MMFs and has also broken the record in terms of the largest dealer repo counterparty ever, as sponsored repo has gained significant traction among the MMF community. Indeed, not only are there more fund families that engage in sponsored repo (​from 9 in July 2018 to 21 in July 2019), but the average dollar volume of sponsored repo engaged per fund family has also increased (​from $​5bn in July 2018 to $​10bn in July 2019)."

They explain, "As of now, we believe there are three sponsoring banks that are providing collateral to MMFs. Fund holdings data do not always disclose the sponsor with which the MMF is engaged. Based on the holdings data that do report the sponsor and DTCC'​s disclosures of the relationship between sponsoring and sponsored members, we estimate BNY comprises the largest share of the sponsored repo market with MMFs, followed by STT, and then JPM.... It'​s worth noting that MMFs can have multiple sponsors, as a way to source additional collateral and access different rates. Indeed, with respect to the latter, based on fund holdings and what the reports have identified as their sponsors, we find that while some sponsors offer rates similar to tri-​party, others offer sponsored repo at a spread above it."

JPM'​s update also says, "Looking ahead, we suspect sponsored repo balances with MMFs will continue to grow as we head into year-​end, particularly as MMFs remain in demand in the face of an inverted yield curve, volatility in the equity markets, and seasonality. As cash balances in MMFs continue to grow, the yield advantage of sponsored repo relative to treasury bills, discount notes, and other credit instruments should encourage funds to favor the former.... A standing repo facility would help address some of those liquidity issues, though it still remains unclear whether the Fed could get it up and running by year-​end. Given some of the challenges around how the standing repo facility should be structured, the Fed may have to pursue other alternatives."

Finally, ICI released its monthly "Money Market Fund Holdings" summary yesterday, which reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (​WAM and WAL) for Prime and Government money market funds. (​For our initial review of July 31 Holdings, see our August 12 News, "July Money Fund Portfolio Holdings: Repo Up Again, Agencies Rebound")

The MMF Holdings release says, "The Investment Company Institute (​ICI) reports that, as of the final Friday in July, prime money market funds held 26.​7 percent of their portfolios in daily liquid assets and 42.​0 percent in weekly liquid assets, while government money market funds held 60.​3 percent of their portfolios in daily liquid assets and 79.​4 percent in weekly liquid assets." Prime DLA increased from 25.​8% in June, and Prime WLA decreased from 42.​1% the previous month. Govt MMFs' DLA increased from 59.​5% in June and Govt WLA increased from 77.​8% from the previous month.

ICI explains, "At the end of July, prime funds had a weighted average maturity (​WAM) of 35 days and a weighted average life (​WAL) of 68 days. Average WAMs and WALs are asset-​weighted. Government money market funds had a WAM of 29 days and a WAL of 95 days." Prime WAMs stayed the same as the previous month, and WALs decreased by one day. Govt WAMs and WALs were the same as their June levels.

Regarding Holdings By Region of Issuer, ICI'​s release tells us, "Prime money market funds' holdings attributable to the Americas rose from $​300.​86 billion in June to $​305.​31 billion in July. Government money market funds' holdings attributable to the Americas declined from $​1,​955.​37 billion in June to $​1,​945.​33 billion in July."

The Prime Money Market Funds by Region of Issuer table shows Americas-​related holdings at $​305.​3 billion, or 43.​7%; Asia and Pacific at $​136.​7 billion, or 19.​6%; Europe at $​250.​1 billion, or 35.​8%; and, Other (​including Supranational) at $​6.​16 billion, or 1.​0%. The Government Money Market Funds by Region of Issuer table shows Americas at $​1.​945 trillion, or 79.​1%; Asia and Pacific at $​121.​6 billion, or 4.​9%; Europe at $​385.​7 billion, or 15.​7%, and Other (​Including Supranational) at $​8.​0 billion, or 0.​3%."

​

Crane Data'​s latest MFI International shows assets in "​offshore" or European money market mutual funds rising sharply in the latest month through August 13. These U.​S.-​style funds, domiciled in Ireland or Luxemburg and denominated in US Dollars, Sterling and Euro, increased by $​34.​4 billion to $​868.​8 billion over the past month, and they'​re now up by $​22.​9 billion year-​to-​date. Offshore USD money funds rose $​13.​3 billion the past month and they'​re up $​9.​9 billion YTD. Euro funds surged E8.​3 billion to break into the black YTD, up E0.​3 billion. GBP funds jumped by L9.​0 billion from July 12 through August 13, are they are up by L14.​6 billion YTD. U.​S. Dollar (​USD) money funds (​175) account for over half ($​463.​8 billion, or 53.​4%) of our "​European" money fund total, while Euro (​EUR) money funds (​78) total E99.​3 billion (​11.​4%) and Pound Sterling (​GBP) funds (​103) total L224.​0 billion (​25.​8%). We summarize our latest "​offshore" money fund statistics and our Money Fund Intelligence International Portfolio Holdings (​which went out to subscribers yesterday), below.

Offshore USD MMFs yield 2.​05% (​7-​Day) on average (​as of 8/​13/​19), down from 2.​29% on 12/​31/​18, but up from 1.​19% at the end of 2017. EUR MMFs yield -​0.​51 on average, compared to -​0.​49% at year-​end 2018 and -​0.​55% on 12/​29/​17. Meanwhile, GBP MMFs yielded 0.​64%, the same as 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 7/​31/​19), show that European-​domiciled US Dollar MMFs, on average, consist of 28% in Commercial Paper (​CP), 26% in Repurchase Agreements (​Repo), 21% in Certificates of Deposit (​CDs), 13% in Other securities (​primarily Time Deposits), 11% in Treasury securities and 1% in Government Agency securities. USD funds have on average 41.​1% of their portfolios maturing Overnight, 9.​4% maturing in 2-​7 Days, 14.​0% maturing in 8-​30 Days, 8.​9% maturing in 31-​60 Days, 9.​9% maturing in 61-​90 Days, 12.​5% maturing in 91-​180 Days and 4.​2% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (​23.​8%), France (​14.​6%), Canada (​12.​4%), Japan (​10.​7%), the United Kingdom (​9.​4%), Germany (​7.​2%), the Netherlands (​3.​8%), Sweden (​3.​8%), Australia (​3.​0%), China (​2.​7%), Switzerland (​2.​4%), Singapore (​1.​9%), Norway (​1.​2%) and Belgium (​0.​7%).

The 10 Largest Issuers to "​offshore" USD money funds include: the US Treasury with $​57.​8 billion (​11.​4% of total assets), Barclays PLC with $​21.​8B (​4.​3%), BNP Paribas with $​18.​3B (​3.​6%), Bank of Nova Scotia with $​15.​9B (​3.​1%), Mitsubishi UFJ Financial Group Inc with $​15.​6B (​3.​1%), Wells Fargo with $​14.​5B (​2.​9%), Toronto-​Dominion Bank with $​14.​1B (​2.​8%), RBC with $​13.​8B (​2.​7%), Sumitomo Mitsui Banking Co with $​12.​4B (​2.​4%) and Standard Chartered Bank with $​11.​9B (​2.​4%).

Euro MMFs tracked by Crane Data contain, on average 48% in CP, 20% in CDs, 22% in Other (​primarily Time Deposits), 8% in Repo, 1% in Agency securities and 1% in Treasuries. EUR funds have on average 25.​7% of their portfolios maturing Overnight, 7.​5% maturing in 2-​7 Days, 14.​5% maturing in 8-​30 Days, 16.​9% maturing in 31-​60 Days, 16.​0% maturing in 61-​90 Days, 16.​1% maturing in 91-​180 Days and 3.​3% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (​28.​6%), Japan (​15.​0%), the US (​10.​6%), Germany (​10.​3%), Sweden (​7.​0%), the U.​K. (​6.​3%), the Netherlands (​4.​8%), China (​3.​3%), Belgium (​2.​7%), Switzerland (​2.​7%), Canada (​1.​7%), Finland (​1.​7%) and Austria (​1.​6%).

The 10 Largest Issuers to "​offshore" EUR money funds include: Credit Agricole with E6.​2B (​6.​6%), BNP Paribas with E5.​2B (​5.​6%), Mizuho Corporate Bank Ltd with E4.​3B (​4.​6%), Mitsubishi UFJ Financial Group Inc with E3.​4B (​3.​6%), Svenska Handelsbanken with E3.​3B (​3.​6%), BPCE SA with E3.​1B (​3.​3%), Citi with E2.​9B (​3.​1%), Procter & Gamble Co with E2.​8B (​3.​0%), Nordea Bank with E2.​6B (​2.​8%) and DekaBank Deutsche Girozentrale with E2.​5B (​2.​7%).

The GBP funds tracked by MFI International contain, on average (​as of 7/​31/​19): 35% in CDs, 24% in Other (​Time Deposits), 23% in CP, 13% in Repo, 4% in Treasury and 1% in Agency. Sterling funds have on average 26.​1% of their portfolios maturing Overnight, 9.​5% maturing in 2-​7 Days, 11.​5% maturing in 8-​30 Days, 13.​0% maturing in 31-​60 Days, 16.​1% maturing in 61-​90 Days, 18.​4% maturing in 91-​180 Days and 5.​4% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: France (​19.​1%), the United Kingdom (​18.​0%), Japan (​16.​3%), Canada (​10.​0%), Germany (​5.​7%), the Netherlands (​5.​1%), Sweden (​4.​9%), United States (​3.​7%), Singapore (​3.​1%), Australia (​2.​6%), China (​2.​2%) and Abu Dhabi (​2.​1%).

The 10 Largest Issuers to "​offshore" GBP money funds include: the UK Treasury with L15.​6B (​9.​9%), Credit Agricole with L7.​8B (​4.​9%), Mizuho Corporate Bank Ltd with L6.​7B (​4.​2%), Sumitomo Mitsui Banking Co with L6.​3B (​4.​0%), BCPE SA with L6.​0B (​3.​8%), BNP Paribas with L5.​1B (​3.​3%), Mitsubishi UFJ Financial Group Inc with L4.​9B (​3.​1%), Nordea Bank with L4.​8B (​3.​1%), Sumitomo Mitsui Trust Bank with L4.​7B (​3.​0%) and Toronto-​Dominion Bank with L4.​6B (​2.​9%).

In related news, U.​K. website Citywire posted the piece, "BlackRock launches ESG money market fund range." They explain, "BlackRock has launched a new money market Ucits fund range BlackRock Institutional Cash (​ICS) LEAF. Three new LEAF funds provide investors with same-​day access to liquidity in sterling, euro and US dollar and invest in securities of entities that meet the funds' ESG criteria. BlackRock will commit 5% of the net revenue from management fees from the ICS LEAF series to purchase and subsequently retire carbon offsets." (​See our July 22 News, "`​BlackRock Launches First Offshore ESG MMF; ICS LEAF in EUR, GBP, USD.")

They quote BlackRock'​s Head of International Cash Management Peter Loehnert, "Sustainable investing is about smart investing and recognising that companies seeking to solve the world'​s biggest challenges may be best positioned to grow. This launch provides greater choice to investors wishing to align their financial and ESG goals, and complements our ongoing efforts to integrate sustainability-​related insights and data into our investment platform."

Finally, we wanted to remind readers once more about the 7th Annual Crane'​s European Money Fund Symposium, which will take place Sept. 23-​24 at The Hilton Dublin in Dublin, Ireland. The latest agenda is available and registrations are still being taken for the largest money market fund gathering in Europe. More details are below, and feel free to contact us for more information. We hope to see you in Dublin next month!

EMFS will be held at the The Hilton Dublin. Hotel rooms must be booked before Monday, August 21 to receive the discounted rate of E295. Registration for our 2019 Crane'​s European Money Fund Symposium is $​1,​000 USD. Visit www.​euromfs.​com to register, or contact us to request the PDF brochure or for Sponsorship pricing and info.

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The August issue of our Bond Fund Intelligence, which will be sent out to subscribers Wednesday morning, features the lead story, "Fund Concentration Grows in Muni Bond Space; Big Flows," which discusses recent articles on the municipal fixed-​income space and "Northern'​s Peter Yi Part II: Ultra-​Shorts & Segmentation," which features BFI'​s recent "​profile" interview. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show lower bond fund yields and higher returns (​again) in July. 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 article says, "For some reason, a number of articles have appeared recently on municipal bond funds. So we decided to review them and take a look at this underappreciated corner of the fixed-​income fund marketplace. Our Crane Muni BFI Index currently tracks 126 funds with $​350 billion in assets, representing 12.​8% of the overall bond fund universe tracked by BFI. As the Journal story below points out, the market is highly concentrated with Vanguard managing almost half -- 45.​1% -- of all fund assets.

It continues, "The Wall Street Journal wrote recently that, 'The Municipal-​Bond Market Is Now Controlled by Just a Few Firms.' They tell us, 'A few behemoths are increasingly dominating the municipal market, helping to lower prices for many investors but also sparking worries about concentration and influence. There has been a mammoth shift in the $​4 trillion muni market over the past decade as investors have increasingly used professional money managers to invest in both high- and low- grade state and local government debt.'"

The WSJ article continues, "Mutual-​fund holdings of municipal bonds now total $​738.​6 billion, according to Federal Reserve data, a more than 50% increase since 2009. This shift has been particularly beneficial to firms like Nuveen LLC and Vanguard Group. Since 2010, more than one in three new dollars going to muni funds (​classified as high yield) has gone to Nuveen, according to an analysis of Morningstar Direct data through June. Over that time, almost a third of new money going to all muni funds has gone to Vanguard."

Our "Northern" profile explains, "​This month, BFI speaks with Peter Yi, Northern Trust Asset Management'​s Director of Short Duration Portfolio Management and Head of Taxable Credit Research. We discuss Northern'​s history and presence in the ultra-​short sector, cash segmentation and a number of other issues below. Our Q&​A follows. (Note: We published some of this interview in our July Money Fund Intelligence, but this version contains additional sections.)

When discussing non-​2a-​7 vehicles, Yi says, "​A lot of people recognize Northern Trust for its significant SEC-​registered mutual funds, but that only represents about half of our liquidity-​focused AUM.... What we really do is focus on designing solutions, whether they'​re commingled or customized through separately managed accounts. Our product offerings range from registered money market mutual funds, roughly about $​117 billion, to our collective and common STIFs, which represent probably about $​50 billion, to our securities lending reinvestment -- that'​s about $​60 billion, and there are some other pockets of SMAs. Our global offshore funds represent about $​20 billion in three different currencies: U.​S. dollar, euro and sterling."

He adds, "[​The other pools are] important because it gives us scale, something that we need to have to be very competitive in this marketplace. In addition to our $​225 billion, we also have roughly $​20 billion in ultra-​short assets under management, which has been a real growth area for us and certainly a strategic focus over the last few years."

Our Bond Fund News includes the brief "Yields Slide Again, Returns Jump in July," which explains, "Bond fund yields fell while returns rose last month. Our BFI Total Index returned 0.​42% over 1-​month and 5.​69% over 12 months. The BFI 100 returned 0.​33% in July and 6.​49% over 1 year. Our BFI Conservative Ultra-​Short Index returned 0.​32% over 1-​mo and 2.​56% over 1-​yr; the BFI Ultra-​Short Index <​b:>`​_averaged 0.​37% in July and 2.​69% over 12 mos. `​BFI Short-​Term returned 0.​19% and 4.​26%, and BFI Intm-​Term returned 0.​26% and 6.​99%. BFI'​s Long-​Term Index returned 0.​47% in July and 8.​69% for 1-​year; our High Yield Index returned 0.​58% in July and 5.​57% over 1-​year.

Another News brief quotes The WS Journal'​s "Investors Pour Money Into Bond Funds at a Record Pace." It explains, "Investors are piling into safe-​haven bonds at a record pace, a sign that caution remains despite stocks pushing toward records. Mutual funds and exchange-​traded funds tracking bonds posted $​12.​1 billion of inflows for the week ended July 17, the 28th consecutive week of inflows. That brings the total so far this year to $​254 billion, on pace for a record $​455 billion on an annualized basis in 2019, according to a Bank of America Merrill Lynch analysis of EPFR Global data. That compares with $​1.​7 trillion in bond inflows over the past 10 years, the bank said."

A third News update cites a Financial Times piece, "Anxious investors rush to bond funds at fastest rate since crisis." The FT writes, "About $​487bn flowed into fixed income funds this year, up from $​148bn in the first half of 2018, according to figures from Morningstar.... It is the highest level of first-​half net inflows into bond mutual funds for at least a decade.... Robert Tipp, head of global bonds for PGIM Fixed Income, the US asset manager, says, 'With ageing demographics and burgeoning savings, bond markets are attractive. Trade tensions, very muted growth globally and high volatility have also pushed investors to bonds.... The bottom line for investors is they are looking for income and are concerned about risk.'"

Finally, a sidebar entitled, "More on Bond ETFs at $​1T," explains, "​We wrote last month about the press erroneously calling Bond ETFs $​1 trillion while they are only at (​now) $​735 billion. (​See our July BFI News, 'Bond ETFs Break $​700 Billion, Not $​1 Trillion Like WSJ Says.') But the $​1 trillion number is too hard to resist, so the stories keep coming. (​They'​re counting non-​U.​S. funds)."

It continues, "Pensions & Investments' story, 'Bond ETFs Hit $​1 Trillion, Now Set for Takeoff,' explains, 'Global assets under management in bond exchange-​traded funds passed the $​1 trillion mark for the first time during the quarter ended June 30, and industry sources are confident assets will double over the next five years, possibly sooner, thanks to increasing demand across the investor spectrum.'"

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Most money market fund and brokerage sweep yields moved lower in the latest week, driven by the Federal Reserve'​s July 31 rate cut. The notable exception was Fidelity'​s brokerage sweep rate, which jumped from 0.​79% to 1.​07% last week. (​See our August 8, 9 and 12 Links of the Day, "Fidelity Now Sweeps to Money Fund," "WSJ on Fidelity: Cash'​s Sweeping Giant" and Barron'​s Clarifies Fidelity Sweep Push.") Fidelity announced the sweep move, which took aim at Schwab, E*​TRADE and TD Ameritrade, with a full page ad ("​Your cash never had it so good") in the Wall Street Journal, but over the weekend Charles Schwab returned fire with a full page ad in the Sunday New York Times. So begins what we'​re calling the "Cash of the Titans."

Schwab'​s advertisement, which is also featured on www.​schwab.​com, ignores the issue of default "​sweep" accounts and compares Schwab Value Advantage Money Fund'​s 2.​04% yield (​as of 8/​8) to Fidelity Money Market Fund'​s 1.​98%. (​It also compares the yield to JPMorgan Liquid Assets MMF'​s 1.​85%.) Under the headline, "With Schwab, earning more on your cash is just the beginning," it says, "​Get more when you invest your cash with Schwab," and emphasizes a satisfaction guarantee.

Overall money market mutual fund rates, dipped back below 2.​00% for the first time in a year. Our Crane 100 Money Fund Index, inched below 2.​00% Friday to 1.​99% (​and fell one bp to 1.​98% yesterday), while our broader Crane Money Fund Average dropped to 1.​85%. (​It fell below 2.​00% just prior to the Fed cut on July 25.) The Crane 100 was 2.​18% at the end of June and was 2.​22% two months ago. Money fund yields should continue inching lower in coming weeks, but Brokerage Sweep rates could rebound under pressure for Fidelity'​s marketing push.

Our latest weekly Brokerage Sweep Intelligence publication shows that six brokerages out of 11 cut their sweep rates in the latest week. (​Four cut rates last week.) Ameriprise, E*​Trade, Morgan Stanley, Raymond James, TD Ameritrade, UBS all lowered rates on some tiers in the past week, while Fidelity hiked all of theirs. Ameriprise cut rates almost across the board, with everything except their $​500K balances dropping by 5 basis points. On $​100K balances, they shifted from 0.​25% to 0.​20%.

E*​Trade cut rates across the board with their $​100K balance dropping from 0.​15% to 0.​08%. TD Ameritrade also trimmed its rates; their $​100K balance tier now pays 0.​07%. UBS cut its rates for balances under $​250K to 0.​15% from 0.​18% (​they cut rates on higher tiers too), and Morgan Stanley also dropped rates for all balances except $​1 million. Their $​100K balance shifted from 0.​15% to 0.​10%.

Our Crane Brokerage Sweep Index, an average of the 11 largest brokerage firms' "​sweep" rates, is currently showing a rate of 0.​25% for balances under $​100K, up 3 bps from 0.​22% last week. (​Fidelity'​s hike in sweep rates increased all the averages under $​100K, but averages for $​100K and higher all fell.) The average FDIC sweep rate is now 0.​27% for balances of $​100K to under $​250K, 0.​33% for balances under of $​250K to under $​500K, 0.​39% for balances of $​500K to under $​1 million, 0.​56% for balances of $​1 million to under $​5 million and 0.​69% for balances over $​5 million.

Fidelity is by far the highest FDIC-​insured sweep rates among the $​100K balance tier, with a yield of 1.​07% as of August 9. (​Note: This is comparing the FDIC sweeps; Fidelity also has an even higher yielding money fund sweep for new accounts.) RW Baird occupies the No. 2 spot in the weekly survey, paying out 0.​55% on its $​100K tier. Raymond James and Wells Fargo rank third with rates of 0.​25% at the $​100K tier, followed by Ameriprise , with a 0.​20% rate. Schwab was fifth, yielding 0.​18% on balances of $​100K, with UBS in sixth yielding 0.​15%. Morgan Stanley offers 0.​10%, while E*​Trade follows with 0.​08%. Ameritrade pays 0.​07% and Merrill ranks last with a rate of just 0.​05%.

Mutual fund news source ignites added to the list of articles covering Fidelity'​s cash sweep increase with the piece, "Our Cash Sweep is 10X Better Than Yours: Fidelity." They tell us, "`​Fidelity recently upped the ante for its competition for retail retirement accounts, making a high-​yielding money market fund the default vehicle for cash. The Boston-​based firm this week announced that its Government Money Market Fund is now the cash sweep default for its clients. Fidelity made that product the default cash vehicle for its brokerage account customers in the third quarter of 2015, but only did so for retail retirement accounts in May, according to the company."

The ignites article says, "While the bank products often used for sweeps are FDIC-​insured, they have been criticized for the low rates customers collect. Further, the amount of spread that banks retain from such products can make them a lucrative option for brokerages that use them."

It quotes our Peter Crane, president of Crane Data, "Brokerages have become highly dependent on the revenue they earn from spreads on bank sweep programs.... Fidelity'​s action opens up a new front in the brokerage wars.... Fidelity, Schwab, TD Ameritrade and others have been fighting over $​4.​95 trade [​commissions] and zero-​fee ETFs for years now. It was just a matter of time before somebody realized where the real money was being made."

Ignites adds, "​Schwab states, 'By comparison, purchased money market funds will generally pay higher interest yields than any sweep vehicle.' How brokerage and retail retirement account providers will respond to Fidelity'​s recent sweep change is uncertain, Crane says. Most likely, he says, 'they'​re going to ignore it and hope Fidelity doesn'​t carry the weight that they did 20 years ago.'"

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Crane Data released its August Money Fund Portfolio Holdings Friday, and our most recent collection of taxable money market securities, with data as of July 31, 2019, shows another big jump in Repo, and a rebound in Agencies. Money market securities held by Taxable U.​S. money funds (​tracked by Crane Data) increased by $​102.​1 billion to $​3.​504 trillion last month, after increasing $​18.​7 billion in June, $​77.​2 billion in May and $​88.​9 billion in April. 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) rose by $​72.​2 billion (​6.​0%) to $​1.​273 trillion, or 36.​3% of holdings, after increasing $​37.​2 billion in June, $​57.​2 billion in May and $​87.​4 billion in April. Treasury securities fell $​3.​7 billion (-​0.​5%) to $​816.​3 billion, or 23.​3% of holdings, after decreasing $​19.​6 billion in June, $​7.​6 billion in May and $​111.​0 billion in April. Government Agency Debt rose by $​18.​2 billion (​2.​6%) to $​716.​4 billion, or 20.​4% of holdings, after decreasing $​26.​0 billion in June, increasing $​8.​6 billion in May and increasing $​48.​6 billion in April. Repo, Treasuries and Agencies totaled $​2.​805 trillion, representing a massive 80.​1% of all taxable holdings.

Money funds' holdings of CP rose again in July. Other (​mainly Time Deposits) holdings also increased, but CDs inched lower. Commercial Paper (​CP) increased $​8.​9 billion (​2.​7%) to $​337.​7 billion, or 9.​6% of holdings, after increasing $​5.​5 billion in June, $​14.​0 billion in May and $​46.​8 billion in April. Certificates of Deposit (​CDs) fell by $​0.​6 billion (-​0.​2%) to $​253.​0 billion, or 7.​2% of taxable assets, after increasing $​15.​3 billion in June, $​4.​8 billion in May and $​10.​9 billion in April. Other holdings, primarily Time Deposits, increased $​8.​1 billion (​8.​8%) to $​100.​6 billion, or 2.​9% of holdings, after increasing $​5.​8 billion in June, $​0.​4 billion in May and $​5.​9 billion in April. VRDNs moved down to $​7.​3 billion, or 0.​2% of assets. (​Note: This total is VRDNs for taxable funds only. We will publish Tax Exempt MMF holdings separately late Monday.)

Prime money fund assets tracked by Crane Data increased $​19 billion to $​1.​015 trillion, or 29.​0% of taxable money funds' $​3.​504 trillion total. Among Prime money funds, CDs represent a quarter of holdings at 24.​9% (​down from 25.​5% a month ago), while Commercial Paper accounted for 33.​4% (​up from 33.​0%). The CP totals are comprised of: Financial Company CP, which makes up 20.​3% of total holdings, Asset-​Backed CP, which accounts for 6.​7%, and Non-​Financial Company CP, which makes up 6.​4%. Prime funds also hold 6.​0% in US Govt Agency Debt, 6.​5% in US Treasury Debt, 8.​3% in US Treasury Repo, 1.​1% in Other Instruments, 6.​0% in Non-​Negotiable Time Deposits, 4.​4% in Other Repo, 7.​0% in US Government Agency Repo and 0.​5% in VRDNs.

Government money fund portfolios totaled $​1.​701 trillion (​48.​5% of all MMF assets), up $​71 billion from $​1.​630 trillion in June, while Treasury money fund assets totaled another $​789 billion (​22.​5%), up from $​775 billion the prior month. Government money fund portfolios were made up of 38.​5% US Govt Agency Debt, 21.​1% US Government Agency Repo, 13.​9% US Treasury debt, and 25.​8% in US Treasury Repo. Treasury money funds were comprised of 65.​2% US Treasury debt, 34.​8% 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.​490 trillion, or 71.​1% of all taxable money fund assets.

European-​affiliated holdings (​including repo) rose by $​114.​2 billion in July to $​740.​0 billion; their share of holdings rose to 21.​1% from last month'​s 18.​4%. Eurozone-​affiliated holdings rose to $​483.​3 billion from last month'​s $​386.​5 billion; they account for 13.​8% of overall taxable money fund holdings. Asia & Pacific related holdings rose by $​7.​1 billion to $​312.​8 billion (​8.​9% of the total). Americas related holdings fell $​0.​02 billion to $​2.​449 trillion and now represent 69.​9% of holdings.

The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (​up $​48.​0 billion, or 6.​4%, to $​798.​1 billion, or 22.​8% of assets); US Government Agency Repurchase Agreements (​up $​22.​1 billion, or 5.​4%, to $​429.​7 billion, or 12.​3% of total holdings), and Other Repurchase Agreements (​up $​2.​1 billion from last month to $​44.​7 billion, or 1.​3% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (​up $​10.​8 billion to $​205.​4 billion, or 5.​9% of assets), Asset Backed Commercial Paper (​up $​1.​9 billion to $​67.​8 billion, or 1.​9%), and Non-​Financial Company Commercial Paper (​down $​3.​8 billion to $​64.​5 billion, or 1.​8%).

The 20 largest Issuers to taxable money market funds as of July 31, 2019, include: the US Treasury ($​816.​3 billion, or 23.​3%), Federal Home Loan Bank ($​541.​8B, 15.​5%), Fixed Income Clearing Co ($​217.​5B, 6.​3%), BNP Paribas ($​134.​3B, 3.​8%), RBC ($​106.​1B, 3.​0%), JP Morgan ($​93.​9B, 3.​5%), Barclays ($​86.​5B, 2.​5%), Federal Farm Credit Bank ($​82.​9B, 2.​4%), ` Credit Agricole <​b:>`​_ ($​79.​8B, 2.​3%), Wells Fargo ($​75.​8B, 2.​2%), Mitsubishi UFJ Financial Group Inc ($​69.​2B, 2.​0%), Federal Home Loan Mortgage Co ($​67.​6B, 1.​9%), Societe Generale ($​55.​7B, 1.​6%), HSBC ($​50.​2B, 1.​4%), Sumitomo Mitsui Banking Co ($​47.​9B, 1.​4%), Natixis ($​46.​2B, 1.​3%), Toronto-​Dominion Bank ($​45.​9B, 1.​3%), Bank of Montreal ($​43.​3B, 1.​2%), Bank of America ($​43.​1B, 1.​2%) and Bank of Nova Scotia ($​42.​5B, 1.​2%).

In the repo space, the 10 largest Repo counterparties (​dealers) with the amount of repo outstanding and market share (​among the money funds we track) include: Fixed Income Clearing Co ($​217.​5B, 17.​1%), BNP Paribas ($​122.​4B, 9.​6%), JP Morgan ($​79.​1B, 6.​2%), RBC ($​75.​7B, 6.​0%), Barclays PLC ($​75.​1B, 5.​9%), Wells Fargo ($​64.​6B, 5.​1%), Credit Agricole ($​58.​0B, 4.​6%), Mitsubishi UFJ Financial Group Inc ($​44.​9B, 3.​5%), Societe Generale ($​44.​4B, 3.​5%) and HSBC ($​42.​1B, 3.​3%). Fed Repo positions among MMFs on 7/​31/​19 declined, with the following funds showing positions: Goldman Sachs FS Treas Sol ($​4.​4B), DFA Short Term Investment ($​1.​0B), Franklin IFT US Govt MM ($​1.​0B), Vanguard Fed MMkt ($​0.​5B), Wilmington US Govt MMF ($​0.​5B), First American Govt Oblg ($​0.​1B), First American Trs Oblg ($​0.​1B), Western Asset Inst Govt ($​0.​0B) and Western Asset Inst Liq Res ($​0.​0B).

The 10 largest issuers of "​credit" -- CDs, CP and Other securities (​including Time Deposits and Notes) combined -- include: Toronto-​Dominion Bank ($​32.​7B, 5.​7%), RBC ($​30.​3B, 5.​2%), Mitsubishi UFJ Financial Group ($​24.​3B, 4.​2%), Credit Suisse ($​22.​7B, 3.​9%), Bank of Nova Scotia ($​22.​2B, 3.​8%), Credit Agricole ($​21.​8B, 3.​8%), Sumitomo Mitsui Banking Co ($​19.​2B, 3.​3%), Bank of Montreal ($​18.​0B, 3.​1%), Mizuho Corporate Bank Ltd ($​16.​7B, 2.​9%) and Canadian Imperial Bank of Commerce ($​16.​5B, 2.​8%).

The 10 largest CD issuers include: Mitsubishi UFJ Financial Group ($​17.​8B, 7.​1%), Bank of Montreal ($​15.​5B, 6.​1%), Sumitomo Mitsui Banking ($​14.​8B, 5.​9%), Toronto-​Dominion Bank ($​11.​7B, 4.​7%), Svenska Handelsbanken ($​11.​3B, 4.​5%), Sumitomo Mitsui Trust Bank ($​11.​0B, 4.​3%), Mizuho Corporate Bank ($​10.​9B, 4.​3%), Wells Fargo ($​10.​9B, 4.​3%), Bank of Nova Scotia ($​9.​8B, 3.​9%) and Canadian Imperial Bank of Commerce ($​9.​5B, 3.​8%).

The 10 largest CP issuers (​we include affiliated ABCP programs) include: Toronto-​Dominion Bank ($​19.​8B, 7.​0%), RBC ($​18.​7B, 6.​7%), JPMorgan ($​14.​5B, 5.​2%), Credit Suisse ($​13.​6B, 4.​8%), Bank of Nova Scotia ($​11.​6B, 4.​1%), Societe Generale ($​10.​9B, 3.​9%), NRW.​Bank ($​8.​8B, 3.​1%), Toyota ($​8.​6B, 3.​0%), National Australia Bank Ltd ($​8.​5B, 3.​0%) and BNP Paribas ($​8.​1B, 2.​9%).

The largest increases among Issuers include: Credit Agricole (​up $​43.​6 B to $​79.​8B), Barclays PLC (​up $​26.​3B to $​86.​5B), Societe Generale (​up $​16.​3B to $​55.​7B), Natixis (​up $​15.​0B to $​46.​2B), Goldman Sachs (​up $​11.​0B to $​35.​7B), Federal Home Loan Mortgage Co (​up $​10.​8B to $​67.​6B), Federal Home Loan Bank (​up $​9.​8B to $​541.​8B), Credit Suisse (​up $​8.​1B to $​31.​5B), Mizuho Corporate Bank Ltd (​up $​6.​8B to $​34.​8B) and Fixed Income Clearing Co (​up $​6.​3B to $​217.​5B).

The largest decreases among Issuers of money market securities (​including Repo) in July were shown by: RBC (​down $​26.​0B to $​106.​1B), Nomura (​down $​6.​0B to $​31.​5B), HSBC (​down $​4.​3B to $​50.​2B), Canadian Imperial Bank of Commerce (​down $​4.​0B to $​33.​1B), Skandinaviska Enskilda Banken AB (​down $​3.​7B to $​8.​8B), US Treasury (​down $​3.​7B to $​816.​3B), Federal Farm Credit Bank (​down $​2.​3B to $​82.​9B), DNB ASA (​down $​2.​3B to $​14.​9B), Svenska Handelsbanken (​down $​1.​1B to $​12.​9B) and RBS (​down $​0.​9B to $​9.​7B).

The United States remained the largest segment of country-​affiliations; it represents 61.​6% of holdings, or $​2.​158 trillion. France (​9.​7%, $​338.​5B) was number two, and Canada (​8.​3%, $​290.​6B) was third. Japan (​7.​0%, $​245.​1B) occupied fourth place. The United Kingdom (​4.​8%, $​168.​4B) remained in fifth place. Germany (​2.​1%, $​74.​0B) was in sixth place, followed by The Netherlands (​1.​8%, $​61.​6B), Australia (​1.​3%, $​44.​3B), Switzerland (​1.​2%, $​42.​0B) and Sweden (​0.​9%, $​31.​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 July 31, 2019, Taxable money funds held 38.​5% (​up from 35.​9%) of their assets in securities maturing Overnight, and another 16.​1% maturing in 2-​7 days (​down from 16.​8% last month). Thus, 54.​6% in total matures in 1-​7 days. Another 18.​7% matures in 8-​30 days, while 10.​0% matures in 31-​60 days. Note that over three-​quarters, or 83.​3% of securities, mature in 60 days or less (​up slightly from last month), the dividing line for use of amortized cost accounting under SEC regulations. The next bucket, 61-​90 days, holds 6.​4% of taxable securities, while 7.​7% matures in 91-​180 days, and just 2.​6% matures beyond 181 days.

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Money fund assets showed their largest increase since December and one of the largest jumps ever in the latest week, reaching their highest level since November 2009. This follows a slight decline last week, which broke a record-​tying 14 straight weeks of increases. ICI'​s latest "Money Market Fund Assets" report shows that MMF totals have increased by $​293.​4 billion, or 9.​6%, since April 17, and they'​ve increased by $​289 billion, or 9.​5%, year-​to-​date. Over the past 52 weeks, ICI'​s money fund asset series has increased by $​472 billion, or 16.​5%, with Retail MMFs rising by $​222 billion (​21.​2%) and Inst MMFs rising by $​250 billion (​13.​8%). We review the latest money fund asset totals below, and we also look at Fidelity'​s asset growth and summarize the latest Form N-​MFP Portfolio Holdings data.

ICI writes, "Total money market fund assets increased by $​57.​70 billion to $​3.​36 trillion for the week ended Wednesday, August 7, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $​46.​91 billion and prime funds increased by $​10.​66 billion. Tax-​exempt money market funds increased by $​127 million." ICI'​s weekly series shows Institutional MMFs rising $​46.​67 billion and Retail MMFs rising $​11.​03 billion. Total Government MMF assets, including Treasury funds, stood at $​2.​493 trillion (​74.​7% of all money funds), while Total Prime MMFs rose to $​707.​1 billion (​21.​2%). Tax Exempt MMFs totaled $​135.​9 billion, or 4.​1%.

They explain, "Assets of retail money market funds increased by $​11.​03 billion to $​1.​27 trillion. Among retail funds, government money market fund assets increased by $​8.​33 billion to $​721.​46 billion, prime money market fund assets increased by $​2.​60 billion to $​420.​49 billion, and tax-​exempt fund assets increased by $​95 million to $​125.​11 billion." Retail assets account for over a third of total assets, or 38.​0%, and Government Retail assets make up 56.​9% of all Retail MMFs.

The release adds, "Assets of institutional money market funds increased by $​46.​67 billion to $​2.​07 trillion. Among institutional funds, government money market fund assets increased by $​38.​58 billion to $​1.​77 trillion, prime money market fund assets increased by $​8.​06 billion to $​286.​64 billion, and tax-​exempt fund assets increased by $​33 million to $​10.​81 billion." Institutional assets accounted for 62.​0% of all MMF assets, with Government Institutional assets making up 85.​6% of all Institutional MMF totals.

In related news, Reuters writes "Fidelity'​s Money-​Market Fund Assets Surged 20% in Past Year," which tells us, "Fidelity Investments' money-​market fund assets have climbed $​116 billion, or 20%, over the past 12 months as investors embrace higher yields for their idle cash, research firm Crane Data said on Thursday."

They state, "At the end of July, Boston-​based Fidelity had $​710 billion in money-​market fund assets, according to Crane. Fidelity is the No. 1 money-​market fund provider in the United States. Vanguard Group, which is second largest, had $​381 billion in money fund assets, up $​72 billion over the past 12 months, according to Crane Data."

Also, Crane Data'​s latest monthly Money Fund Portfolio Holdings statistics will be published Friday, August 9, and we'​ll be writing our normal monthly update on the July 31 data for Thursday'​s News. But we also generate a separate and broader Portfolio Holdings data set based on the SEC'​s Form N-​MFP filings. (​We continue to merge the two series, and the N-​MFP version is now available via Holding file listings to Money Fund Wisdom subscribers.)

Our new N-​MFP summary, with data as of July 31, 2019, includes holdings information from 1,​197 money funds (​ten more than last month), representing assets of $​3.​703 trillion (​up from $​3.​613 trillion). We review the latest data, which shows that total money fund assets surged over $​3.​7 trillion in July.

Our latest Form N-​MFP Summary for All Funds (​taxable and tax-​exempt) shows Repurchase Agreement (​Repo) holdings in money market funds totaling $​1,​288 billion (​up from $​1,​211 billion), or 34.​8% of all assets. Treasury holdings total $​825.​3 billion (​down from $​829.​2 billion), or 22.​3%, and Government Agency securities totaled $​732.​9 billion (​up from $​729.​3 billion), or 19.​8%. Commercial paper (​CP) totals $​352.​8 billion (​up from $​342.​4 billion), or 9.​5%, and Certificates of Deposit (​CDs) total $​257.​9 billion (​down from $​258.​0 billion), or 7.​0%. The Other category (​primarily Time Deposits) totals $​145.​2 billion (​up from $​139.​5 billion), or 3.​9%, and VDRNs account for $​101.​2 billion (​down from $​103.​7 billion last month), or 2.​7%.

Broken out into the SEC'​s more detailed categories, the CP totals were comprised of: $​216.​6 billion, or 5.​8%, in Financial Company Commercial Paper; $​62.​5 billion or 1.​7%, in Asset Backed Commercial Paper; and, $​73.​7 billion, or 2.​0%, in Non-​Financial Company Commercial Paper. The Repo totals were made up of: U.​S. Treasury Repo ($​805.​8B, or 21.​8%, U.​S. Govt Agency Repo ($​437.​0B, or 11.​8%) and Other Repo ($​45.​6B, or 1.​2%).

The N-​MFP Holdings summary for the 214 Prime Money Market Funds shows: CP holdings of $​347.​4 billion (​up from $​337.​1 billion), or 33.​4%; CD holdings of $​257.​9 billion (​down from $​258.​0 billion), or 24.​8%; Repo holdings of $​205.​2 billion (​up from $​189.​8 billion), or 19.​7%; Other (​primarily Time Deposits) holdings of $​93.​2 billion (​down from $​93.​3 billion), or 9.​0%; Treasury holdings of $​69.​8 billion (​down from $​75.​9 billion), or 6.​7%; Government Agency holdings of $​62.​3 billion (​up from $​58.​9 billion), or 5.​9%; and VRDN holdings of $​5.​7 billion (​down from $​5.​9 billion), or 0.​6%.

The SEC'​s more detailed categories show CP in Prime MMFs made up of: $​216.​6 billion (​up from $​205.​1 billion), or 20.​8% in Financial Company Commercial Paper; $​62.​5 billion (​up from $​61.​6 billion) or, 6.​0% in Asset Backed Commercial Paper; and $​68.​3 billion (​down from $​70.​4 billion), or 6.​6% in Non-​Financial Company Commercial Paper. The Repo totals include: U.​S. Treasury Repo ($​87.​9 billion, or 8.​5%), U.​S. Govt Agency Repo ($​71.​7 billion, or 6.​9%), and Other Repo ($​45.​6 billion, or 4.​4%).

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Crane Data'​s latest Money Fund Market Share rankings show assets were up again for almost all U.​S. money fund complexes in July. Money fund assets increased by $​78.​1 billion, or 2.​2%, last month to $​3.​620 trillion. Assets have climbed by $​201.​8 billion, or 5.​9%, over the past 3 months, and they have increased by $​578.​5 billion, or 19.​0%, over the past 12 months through July 31, 2019. The biggest increases among the 25 largest managers last month were seen by Fidelity, BlackRock, Federated, Invesco, JP Morgan and Schwab, which increased assets by $​13.​3 billion, $​10.​7B, $​10.​4B, $​10.​3B, $​6.​8B and $​6.​3B respectively. The only decline in assets among the largest complexes in July was seen by Goldman Sachs. 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, which moved lower in July.

Over the past year through July 31, 2019, Fidelity (​up $​116.​3B, or 19.​6%), American Funds (​up $​114.​4B, or 693.​6%; this was inflated by the addition last month of the $​108 billion American Funds Central Cash Fund), Federated (​up $​75.​2B, or 38.​4%), Vanguard (​up $​71.​9B, or 23.​3%), JP Morgan (​up $​47.​1B, or 17.​4%), Schwab (​up $​44.​7B, or 35.​0%) and Goldman Sachs (​up $​21.​6B, or 11.​6%) were the largest gainers. These complexes were followed by Invesco (​up $​19.​3B, or 31.​1%), First American (​up $​15.​6B, or 28.​9%), BlackRock (​up $​14.​4B, or 4.​9%) and Wells Fargo (​up $​13.​9B, or 12.​8%). Fidelity, BlackRock, Federated, Invesco and Schwab had the largest money fund asset increases over the past 3 months, rising by $​44.​7B, $​33.​1B, $​26.​2B, $​21.​1B and $​16.​4B, respectively. The only decliners over 3 months were: Vanguard (​down $​2.​3B, or -​0.​6%), DFA (​down $​1.​3B, or -​6.​1%), PGIM (​down $​349M, or -​1.​9%) and T Rowe Price (​down $​41M, or -​0.​1%).

Our latest domestic U.​S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $​709.​8 billion, or 19.​6% of all assets. That was up $​13.​3 billion in June, up $​44.​7 billion over 3 mos., and up $​116.​3B over 12 months. Vanguard ranked second with $​380.​8 billion, or 10.​5% market share (​up $​262M, down $​2.​3B and up $​71.​9B for the past 1-​month, 3-​mos. and 12-​mos., respectively). JPMorgan was third with $​318.​2 billion, or 8.​8% market share (​up $​6.​8B, up $​7.​2B and up $​47.​1B). BlackRock ranked fourth with $​310.​1 billion, or 8.​6% of assets (​up $​10.​7B, up $​33.​1B and up $​14.​4B for the past 1-​month, 3-​mos. and 12-​mos.), while Federated remained in fifth with $​270.​7 billion, or 7.​5% of assets (​up $​10.​4B, up $​26.​2B and up $​75.​2B).

Goldman Sachs remained in sixth place with $​208.​2 billion, or 5.​8% of assets (​down $​3.​3 billion, up $​16.​0B and up $​21.​6B), while Schwab was in seventh place with $​172.​5 billion, or 4.​8% (​up $​6.​3B, up $​16.​4B and up $​44.​7B). Dreyfus ($​162.​4B, or 4.​5%) was in eighth place (​up $​1.​3B, up $​4.​2B and down $​6.​8B), followed by American Funds ($​130.​9B, or 3.​6%, unchanged, up $​1.​3B and up $​114.​4B). Wells remained in 10th place ($​122.​2B, or 3.​4%; up $​3.​1B, up $​10.​6B and up $​13.​9B).

The 11th through 20th-​largest U.​S. money fund managers (​in order) include: Northern ($​115.​7B, or 3.​2%), Morgan Stanley ($​114.​9, or 3.​2%), SSGA ($​95.​8B, or 2.​6%), Invesco ($​81.​2B, or 2.​2%), First American ($​69.​6B, or 1.​9%), UBS ($​62.​2B, or 1.​7%), T Rowe Price ($​34.​0B, or 0.​9%), DWS ($​23.​6B, or 0.​7%), Franklin ($​23.​1B, or 0.​6%) and Western ($​20.​7B, or 0.​6%). 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 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 ($​718.​8 billion), J.​P. Morgan ($​475.​0B), BlackRock ($​471.​3), Vanguard ($​380.​8B) and Goldman Sachs ($​324.​3B). Federated ($​280.​8B) was sixth, Dreyfus/​BNY Mellon ($​181.​6B) was in seventh, followed by Schwab ($​172.​5B), Morgan Stanley ($​149.​1B) and Northern ($​138.​7B) 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 August issue of our Money Fund Intelligence and MFI XLS, with data as of 7/​31/​19, shows lower yield in July across all of our taxable Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (​currently 750), fell 5 basis points to 1.​97% for the 7-​Day Yield (​annualized, net) Average, and the 30-​Day Yield decreased by 3 bps to 2.​00%. The MFA'​s Gross 7-​Day Yield decreased by 4 bps to 2.​40%, while the Gross 30-​Day Yield fell 3 bps to 2.​43%.

Our Crane 100 Money Fund Index shows an average 7-​Day (​Net) Yield of 2.​12% (​down 6 bps) and an average 30-​Day Yield that decreased to 2.​15%. The Crane 100 shows a Gross 7-​Day Yield of 2.​40% (​down 5 bps), and a Gross 30-​Day Yield of 2.​43%. Our Prime Institutional MF Index (​7-​day) yielded 2.​18% (​down by 4 bps) as of July 31 while the Crane Govt Inst Index was 2.​09% (​down 3 bps) and the Treasury Inst Index was 1.​97% (​down 6 bps). Thus, the spread between Prime funds and Treasury funds is 20 basis points, while the spread between Prime funds and Govt funds is 9 basis points. The Crane Prime Retail Index yielded 2.​01% (​down 6 bps), while the Govt Retail Index was 1.​76% (​down 4 bps) and the Treasury Retail Index was 1.​73% (​down 6 bps). The Crane Tax Exempt MF Index yield had a big drop in July to 1.​03% (​down 38 bps).

Gross 7-​Day Yields for these indexes in July were: Prime Inst 2.​52% (​down 5 bps), Govt Inst 2.​39% (​down 3 bps), Treasury Inst 2.​29% (​down 5 bps), Prime Retail 2.​52% (​down 5 bps), Govt Retail 2.​38% (​down 3 bps) and Treasury Retail 2.​31% (​down 6 bps). The Crane Tax Exempt Index decreased 38 basis points to 1.​51%. The Crane 100 MF Index returned on average 0.​18% over 1-​month, 0.​55% over 3-​months, 1.​29% YTD, 2.​12% over the past 1-​year, 1.​27% over 3-​years (​annualized), 0.​79% over 5-​years, and 0.​42% over 10-​years. The total number of funds, including taxable and tax-​exempt, decreased by 2 to 935. There are currently 750 taxable, down by 2, and 185 tax-​exempt money funds (​unchanged). (Contact us if you'​d like to see our latest MFI XLS, Crane Indexes or Market Share report.)

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The August issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Wednesday morning, features the articles: "Money Fund Assets Surging in '​19; No Signs of Slowdown," which reviews the recent strength in money market fund asset flows; "Northern'​s Peter Yi: Money Market Business Asymmetric," which profiles Northern Trust Asset management'​s Director of Short Duration Portfolio Management and Head of Taxable Credit Research; and, "Confusion Grows as '​ESG' Gets Hotter in Money Funds," which discusses the latest developments in the "​green" money fund space. We'​ve also updated our Money Fund Wisdom database with July 31 statistics, and sent out our MFI XLS spreadsheet Wednesday a.​m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our August Money Fund Portfolio Holdings are scheduled to ship on Friday, August 9, and our August Bond Fund Intelligence is scheduled to go out Wednesday, August 14.

MFI'​s "Money Fund Assets," article says, "Money market fund assets have been unusually strong in 2019, and the surge shows no signs of slowing. Quite the contrary. Assets jumped by $​78.​1 billion in July to a $​3.​622 trillion, according to Crane Data'​s latest totals. This is the highest level since March 2009 (​Jan. 2009 was the record high) and follows gains of $​42.​3 billion in June, $​81.​2B in May and $​113.​3B in April. (​April'​s numbers were inflated by the addition of the $​108B American Funds Central Cash Fund.) Year-​to-​date, money fund assets have increased by $​408.​6 billion, or 12.​7%, and over 12 months assets have jumped by $​579.​8 billion, or 19.​1%."

It continues, "Year-​to-​date and over the past year, Prime money funds have led the gains, but Government & Treasury MMFs have grown faster over the past 3 months. Prime MMFs increased by $​282.​6 billion, or 38.​8%, YTD, and they'​ve grown by $​327.​7 billion, or 48.​0%, over 12 months. Govt (& Treasury) funds have grown by $​136.​3 billion, or 5.​8%, YTD and $​247.​2 billion, or 11.​1%, over 1-​year. The past 3 months, Prime MMFs have grown by $​42.​8B, or 4.​4%, vs. $​157.​2B, or 6.​8%, for Govt MMFs."

Our Northern profile reads, "​This month, MFI speaks with Peter Yi, Northern Trust Asset Management'​s Director of Short Duration Portfolio Management and Head of Taxable Credit Research. We discuss Northern'​s history and presence in the cash sector, the latest challenges and issues facing money market funds and a number of other issues below. Our Q&​A follows."

MFI says, "Give us some history." Yi responds, "Northern Trust Asset Management has a very rich history managing cash and other liquidity products. We'​ve been managing money markets since the 1970s, when our trust department created its first cash sweep vehicle. We view cash management to be a core capability and a product that caters incredibly well to our institutional asset servicing business, as well as to our wealth management franchise. We'​re managing about $​238 billion in AUM across our money market funds and other liquidity products. History tells us that experience and leadership are critical for the money market business. It'​s served us well in successfully navigating different credit and interest rate cycles."

He adds, "​Personally, I'​ve been at Northern Trust since 2000, and we'​ve seen significant growth in our liquidity business since then. I oversee the teams that manage our 2a-​7 money market mutual funds, our common and collective STIFs, our offshore global cash funds and our separately managed accounts, as well as our security lending reinvestment. I also recently took over as head of our taxable credit research team that covers strategies ranging from money market all the way to high yield across the yield curve."

Our "ESG" update says, "Over the past month, we saw several developments in the '​ESG,' '​green' and '​social' money fund space, including a WSJ article on a converted Goldman '​social' fund and the launch of the first '​offshore' ESG money funds. While interest grows in the sector, so do questions about what exactly should be considered ESG and whether there is any hope of standardization."

It continues, "​It appears you don'​t need to be '​environmental' to be an '​ESG' fund, at least according to ​​The Wall Street Journal. 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, reflecting a growing shift toward investing with environmental, social and governance, or ESG, principles."

The latest MFI also includes the News Brief, "Fed Cuts, Yields Inch Lower." It says, "The Federal Reserve cut short-​​term interest rates for the first time since December 2008, lowering its Federal funds target range by 1/​​4 point to 2.​​00-​​2.​​25%. Money fund yields, which have been inching lower for 2 months in anticipation of the cut, have fallen by about 10 bps since."

Our July MFI XLS, with June 30, 2019, data, shows total assets rose by $​78.​1 billion in June to $​3.​622 trillion, after rising $​40.​0 billion in June, $​91.​1 billion in May and $​105.​7 billion in April (​this included the addition of the $​108 billion American Funds Central Cash Fund). Our broad Crane Money Fund Average 7-​Day Yield fell to 1.​98% during the month, while our Crane 100 Money Fund Index (​the 100 largest taxable funds) was down 5 basis points to 2.​13%.

On a Gross Yield Basis (​7-​Day) (​before expenses are taken out), the Crane MFA fell 3 basis points to 2.​40% and the Crane 100 fell to 2.​40%. Charged Expenses averaged 0.​42% (​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 29 and 31 days, respectively (​up one day for both). (​See our Crane Index or craneindexes.​xlsx history file for more on our averages.)

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Money fund, brokerage sweep, bank savings and "​robo" yields all moved lower in the days following the Federal Reserve'​s rate cut last Wednesday. Money market mutual fund rates, which had been inching down in the 2 months prior to the cut, have declined by 6 basis points over the past 3 days. Our weekly Brokerage Sweep Intelligence publication shows 4 brokerages cut their sweep rates (​out of 11), and the two main "​fin-​tech" advisors offering savings products both cut rates by 1/​4 point. Our Crane 100 Money Fund Index, currently at 2.​06%, was 2.​18% at the end of June and 2.​22% two months ago. Rates should continue inching lower in coming weeks.

Looking at brokerage sweep rates, Merrill Lynch dropped its yields to become the lowest-​paying brokerage firm. Merrill cut rates for balances below $​250K from 0.​14% to 0.​05% in the latest week, according to our Brokerage Sweep Intelligence, and they trimmed rates for balances at $​250K to under $​1 million from 0.​33% to 0.​10%. Balances over $​1 million now earn 0.​40% (​down from 0.​60%) while balances over $​10 million now earn 0.​55% (​vs. 0.​75% before).

Schwab, TD Ameritrade and UBS also all lowered rates in the past week too. For balances under $​1 million, Schwab cut rates from 0.​26% to 0.​18%, while it also cut rates for balances over to 0.​61% to 0.​65%. TD Ameritrade trimmed rates across the board; their rate for $​100K balances is now 0.​07% from 0.​10%. UBS cuts its rates for balances under $​250K to 0.​18% from 0.​25%. We expect more trimming in the coming weeks as pressure builds on brokerages to maintain net interest margins.

Our Crane Brokerage Sweep Index, an average of the 11 largest brokerage firms' "​sweep" rates, is currently 0.​28% for balances under $​100K, down 2 bps from 0.​30% last week, while rates below this are now paying 0.​22% (​down from 0.​24%). The average FDIC sweep rate is now 0.​35% for balances under $​500K (​and over $​250K), 0.​40% for balances under $​1 million, 0.​59% for balances under $​5 million and 0.​72% for balances over $​5 million.

Fidelity is still offering by far the highest FDIC-​insured sweep rates among the $​100K balance tier, with a yield of 0.​79% as of August 2. RW Baird occupies the No. 2 spot in the weekly survey, paying out 0.​55% on its $​100K tier. Raymond James ranks third with a rate of 0.​40% at the $​100K tier, followed by Wells Fargo and Ameriprise , both with a 0.​25% rate. UBS and Schwab both yielding 0.​18% on balances of $​100K. E*​Trade and Morgan Stanley offer just 0.​15%, Ameritrade pays 0.​07% and Merrill ranks last at just 0.​05%.

Fin-​tech "​robo" advisors also cut rates. Despite increasing rates to 2.​57% at the end of June, Wealthfront'​s rate recently took a 0.​25% drop, landing at 2.​32% following the Fed cut. In a June blogpost, "How the Fed Funds Rate Impacts the Wealthfront Cash Account," Co-​Founder Andy Rachleff said, "​But what happens if the Fed lowers their target range for the fed funds rate? If the rate is lowered by 0.​25%, then we will have to lower the rate for our cash account by the same amount. In contrast, the vast majority of our competitors will likely lower their rates even more than 0.​25%.... Most banks only give you a portion of any rate increase, and decrease rates by more than any fed funds rate decrease, to maximize their margins. Avoiding this practice is one of the many ways we put your interests first."

Betterment also passed through the rate drop, shifting from 2.​65% to 2.​44%. Betterment addresses rate changes in, "Betterment Everyday Savings has a Variable APY: What That Means for You." The article says, "If the Federal Reserve lowers its target range, the interest rate on Betterment Everyday Savings will generally change by a similar amount.... Because Savings tracks closely with the Federal Funds Rate, you can expect that, in the future, our Savings rate will continue to track alongside the Federal Funds Rate as it goes down. The structure of Betterment Everyday Savings is aligned with our customers' interests to keep our rate highly competitive -- even as interest rates decline overall."

For more on brokerage sweeps and "​robos", see these `​Crane Data News articles: Fed Cuts Rates Quarter to 2.​0-​2.​25 Percent; FP on USAA, Schwab Deal (​8/​1/​19), Cash Next Big Thing for Robos Says Barron'​s; Betterment Hikes Rates (​7/​30/​19), Schwab Completes Shift from Money Funds to FDIC; LPL Changes Sweeps (​7/​18/​19), Brokerage Sweep Rates Flat; MS, E*​Trade Earnings; TD Lowers Rates (​4/​23/​19), BNY Keeps Dreyfus Name on Money Funds; Brokerage Sweep Rates Flat (​3/​5/​19), Edward Jones Latest to Shift to FDIC Sweeps; ICI: MMFs Break $​3T in '​18 (​1/​31/​19) and Schwab Liquidating MMF, Shifting to FDIC; Brokerage Sweep Rates Jump (​1/​4/​18).

In related news, Federated Investors' Deborah Cunningham'​s latest monthly commentary, "Searching for neutral," tells us, "Neutral is not a position much in favor these days, but Federal Reserve policymakers would love to get the federal funds rate there. They have targeted 2% for some time now, but lately aren'​t sure that is the correct level. At one point they talked about it being somewhere within a range of 2.​75-​3%, then somewhere in a much lower span of 2-​2.​5%. With inflation measured by personal consumption expenditures stubbornly refusing to get to 2%, even the latter range might be too high."

The article continues, "That search is at the heart of the members of the Federal Open Market Committee'​s decision to cut the target range of the fed funds rate by a quarter point [​last week]. They have made clear this is not the beginning of a path leading to zero rates as we experienced following the financial crisis, but rather a pullback from December'​s hike that shot too high. There were no projections from this meeting, but Chair Jerome Powell suggested that another move may or may not be warranted, and the futures market is expecting at least one more. The hunt continues."

Finally, it adds, "Participants in the liquidity marketplace found an ample supply of securities in July, particularly in the repo market and in the Treasury market. There also were fewer buyers in the marketplace and money market funds -- not Federated -- lost assets. Combine all of these and repo rates hung in there at elevated levels throughout the month. We did not adjust our weighted average maturity (​WAM) ranges in July, still 30-​40 days for our government funds and 40-​50 days for prime and municipal funds. On a fixed-​rate basis, we are sticking with the 3- and 4-​month areas, not going too far out beyond that."

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European regulators just issued some new guidance on parts of the recently implemented European Money Fund Reforms, though we couldn'​t understand a word of it. A press release entitled, "ESMA readies stress testing requirements for money market funds" tells us, "The European Securities and Markets Authority (​ESMA) has today issued two sets of guidelines regarding the stress testing of money market funds and reporting on money market funds to national competent authorities (​NCAs), aimed at ensuring a coherent application of the Money Market Fund (​MMF) Regulation." We quote from the release below, and we also review an article on global money funds and remind readers about our upcoming European Money Fund Symposium in Dublin (​Sept. 23-​24).

ESMA'​s release continues, "​The Guidelines on stress testing establish common reference parameters of the stress test scenarios MMFs or managers of MMFs should include in their stress scenarios. The Guidelines on reporting provide guidance on how to fill in the reporting template on money market funds that managers of MMFs will transmit to competent authorities as of Q1 2020."

ESMA Chair Steven Maijoor comments, "​Money market funds offer high liquidity at lower risk than other funds, contributing to the funding of banks, governments and corporates. However, due to their important role in the money market, any disruption affecting MMFs may impact financial stability. Stress testing is an important tool to assessing and mitigating potential stability risks. Our guidance will ensure that the same level of care, risk management, and stress testing is applied across the European MMF sector -- allowing investors to benefit from similar safeguards across different countries."

The release adds, "MMFs and managers of MMFs are expected to measure the impact of the common reference stress test scenarios specified in the Guidelines, the results of which should be shared with regulators through the reporting template with their first quarterly reports for Q1 2020. Therefore, the Guidelines include stress test scenarios in relation to hypothetical changes in MMFs': liquidity levels; credit and interest rate risks; redemptions levels; widening/ narrowing of spreads among indexes to which interest rates of portfolio securities are tied; and macro-​economic shocks."

Finally, ESMA says, "The guidelines will be updated at least every year and will take into account the latest market developments. The current guidelines include the calibration of the stress test scenarios for 2019. Today'​s publication includes reporting validation rules and the XML schemas of the candidate ISO 20022 messages to be used by MMF for their reporting."

In related news, Asian investment news source The Asset talks with HSBC Global Asset Management'​s Jonathan Curry in their article, "Money market funds growing in Asia despite low returns." They write, "In Asia, the Chinese money market fund Tianhong Yu'​e Bao has become the world'​s largest with assets of about 1.​56 trillion yuan (​US$​233 billion). The reason for the huge growth of this asset class ... is that more investors are seeking greater capital preservation and liquidity on their assets rather than performance. '​Managing investors' cash is all about preservation of capital and provision of liquidity. A return is important but it'​s a secondary factor against those two primary objectives,' says Jonathan Curry, global CIO Liquidity & CIO America of HSBC Global Asset Management."

The article continues, "HSBC GAM manages a total of US$​80 billion in money market funds across a range of developed market and emerging market currencies for institutional and corporate investors. '​In this asset class it is less about asset allocation decisions being driven by the macroeconomic picture. It'​s less about markets being driven by geopolitical issues that might change an investor'​s asset allocation. Now clearly that may have an impact on their cash allocation but that isn'​t really what drives the investors to use money market funds,' Curry says."

The Asset quotes Curry, "What we are seeing is a wider range of different client types that are now using money market funds as a way of managing some of their cash. In Asia, the range of users isn'​t as broad as in the US but it'​s growing.... It depends on the client in terms of how they use the funds because one of the key premises about them is the provision of liquidity. You get some investors that use that liquidity frequently, so they'​ll be going in and out of the fund regularly. You get others that might be building cash out for a specific purpose and then redeeming it. But that will be a long-​term period where they will be holding the fund. And then you have investors that have a long-​term cash allocation and they don'​t have significant liquidity needs. So they will be a very stable investor in the fund."

The article adds, "In Asia, money market funds have been established longer in some markets particularly Hong Kong (​HKD), India (​INR), and Korea (​KRW).... More recently established but fast-​growing money market fund industries are in Australia (​AUD), China (​RMB), and Singapore (​SGD). HSBC GAM'​s RMB money market fund is about 16 billion yuan (​US$​2.​33 billion) and growing steadily. HSBC GAM'​s single biggest money market fund is its US dollar European domiciled fund with US$​28 billion."

Finally, we also continue making preparations for the 7th Annual Crane'​s European Money Fund Symposium, which will take place Sept. 23-​24 at The Hilton Dublin in Dublin, Ireland. The latest agenda is available and registrations are still being taken for the largest money market fund gathering in Europe. More details are below, and feel free to contact us for more information. We hope to see you in Dublin in September!

Last year'​s European Crane Symposium in London attracted 140 attendees, sponsors and speakers -- our largest European event ever. Given the recent implementation of new money fund regulations and structures in Europe, the continued "​repatriation" of assets back to the U.​S., Brexit and the ongoing issue of negative interest rates, we expect our show in Dublin to attract an equally high level of interest.

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

EMFS will be held at the The Hilton Dublin. Hotel rooms must be booked before Monday, August 21 to receive the discounted rate of E295. Registration for our 2019 Crane'​s European Money Fund Symposium is $​1,​000 USD. Visit www.​euromfs.​com to register, or contact us to request the PDF brochure or for Sponsorship pricing and info.

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Money fund assets fell in the latest week after a record-​setting 14 straight weeks of increases. The Investment Company Institute'​s latest "Money Market Fund Assets" report shows that MMF totals have increased by $​235.​7 billion, or 7.​7%, since April 17, and they'​ve increased by $​231 billion, or 7.​6%, year-​to-​date. Over the past 52 weeks, ICI'​s money fund asset series has increased by $​427 billion, or 15.​0%, with Retail MMFs rising by $​212 billion (​20.​4%) and Inst MMFs rising by $​211 billion (​11.​6%). We review the latest money fund asset totals below, and we quote from a new FT article on the company with the largest cash hoard.

They write, "Total money market fund assets decreased by $​5.​51 billion to $​3.​28 trillion for the week ended Wednesday, July 31, the Investment Company Institute reported today. Among taxable money market funds, government funds decreased by $​3.​17 billion and prime funds decreased by $​952 million. Tax-​exempt money market funds decreased by $​1.​39 billion." ICI'​s weekly series shows Institutional MMFs falling $​8.​2 billion and Retail MMFs rising $​2.​6 billion. Total Government MMF assets, including Treasury funds, stood at $​2.​446 trillion (​74.​6% of all money funds), while Total Prime MMFs rose to $​696.​5 billion (​21.​2%). Tax Exempt MMFs totaled $​135.​8 billion, or 4.​1%.

ICI states, "Assets of retail money market funds increased by $​2.​64 billion to $​1.​26 trillion. Among retail funds, government money market fund assets increased by $​1.​98 billion to $​713.​13 billion, prime money market fund assets increased by $​1.​92 billion to $​417.​89 billion, and tax-​exempt fund assets decreased by $​1.​26 billion to $​125.​01 billion." Retail assets account for over a third of total assets, or 38.​3%, and Government Retail assets make up 56.​8% of all Retail MMFs.

The release adds, "Assets of institutional money market funds decreased by $​8.​15 billion to $​2.​02 trillion. Among institutional funds, government money market fund assets decreased by $​5.​15 billion to $​1.​73 trillion, prime money market fund assets decreased by $​2.​88 billion to $​278.​58 billion, and tax-​exempt fund assets decreased by $​127 million to $​10.​78 billion." Institutional assets accounted for 61.​7% of all MMF assets, with Government Institutional assets making up 86.​0% of all Institutional MMF totals.

When we asked whether the 14-​week inflow streak (​which just ended) was a record, a spokeswoman for ICI tells us that another week of inflows (​15) would have made it the longest period of increases since they started tracking weekly money market fund assets in January 2007. ICI'​s series shows just one other time with 14 straight weeks of inflows -- from 12/​26/​07 to 3/​26/​2008. But they tell us that the total inflows during that prior 14-​week streak were $​375.​8 billion vs. the current streak'​s the (​4/​24/​19-​7/​24/​19) $​241.​2 billion. Thus, the period just ended tied the record for the longest inflow streak, but not for the largest.

Crane Data'​s separate and broader Money Fund Intelligence Daily series shows money fund assets falling by $​7.​5 billion to $​3.​425 trillion in the week ended July 31, 2019. Month-​to-​date through 7/​31, money fund assets have risen a stunning $​97.​2 billion, still on pace for one of their strongest monthly gains ever. Our latest Money Fund Intelligence and MFI XLS, which track a broader set of funds than our MFI Daily, showed assets rising $​78.​3 billion to $​3.​407 trillion in June. We expect asset inflows to remain strong in coming months, particularly in the fourth quarter, even following the Fed'​s 1/​4-​point rate cut.

In other news, the Financial Times writes about the companies with the largest cash positions in its piece, "Alphabet/​Apple: cash me if you can." They tell us, "While many mega-​cap companies maintain even modest leverage, the tech giants have preferred to build staggering net cash totals. At the end of the most recent quarter, Apple, Google parent Alphabet, Microsoft and Facebook have cash, net of debt, balances between $​40bn and nearly $​120bn. This raises an intriguing question. Does where that cash resides -- in pockets of shareholders or on companies' balance sheets -- really matter when it comes to assessing the ultimate value of the business?"

The FT article continues, "​Carl Icahn years ago browbeat Apple into sending much more of its cash to shareholders. The company also began to tap the debt markets to add to leverage. At the end of its most recent quarter it had total cash of $​210bn and total debt of $​108bn. That net cash figure has dropped sharply enough that Alphabet -- with its net cash of $​117bn -- is now the most cash-​abundant company in the world. Unlike Apple, which is paying a modest dividend (​its yield is less than 2 per cent), Alphabet has not initiated a regular payout. It has, however, recently decided to up its share buyback authorisation to nearly $​40bn."

It adds, "​All tech companies say the right thing about investing heavily in added computing power and moonshot projects. Still their core businesses churn out so much cash that they literally cannot spend it fast enough. This group'​s cash flow from operations less capex still ranged in the several billions of dollars in the most recent quarter."

The FT concludes, "​Returning cash to shareholders becomes its own fraught calculus. Buybacks are difficult because companies risk paying too much for their shares in the open market. Dividends require commitment and can signal maturity and growth slowing. Special dividends -- one time large distributions -- may strike the right balance. Yet the tech paranoia seems to endure. Obsolescence may be just around the corner. Finance equations aside, cash accumulation for a rainy day will continue."

For comparison'​s sake, Crane Data shows the 10 Largest Money Fund Portfolios (​with symbols and assets as of June 30, 2019). These include: JPMorgan US Govt MM (​OGVXX) $​144.​7 billion, Fidelity Govt Cash Reserves (​FDRXX) $​143.​9, Fidelity Government MM Cap Res (​FZAXX) $​125.​2B, Vanguard Federal Money Mkt Fund (​VMFXX) $​125.​2B, Vanguard Prime MMF (​VMMXX) $​122.​7B, Fidelity Inv MM: Govt Port (​FIGXX) $​117.​0B, American Funds Central Cash (​CMQXX) $​113.​4B, Goldman Sachs FS Govt (​FSOXX) $​108.​0B, Schwab Value Adv MF (​SWVXX) $​99.​3B and BlackRock Lq FedFund (​BLFXX) $​98.​3B. Thus, Aphabet would rank as the 6th largest money fund portfolio (​along w/​FIGXX), while Apple would rank as the ninth largest (​if their cash pools were money market funds).

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The Federal Reserve cut short-​term interest rates for the first time since December 2008, lowering the range for its Federal funds target rate by 1/​4 point to 2.​00-​2.​25%. Money market mutual fund rates, which have been inching lower over the past 2 months in anticipation of the cut, should decline in the weeks ahead to reflect the full quarter-​point. Our Crane 100 Money Fund Index, which is currently at 2.​12%, was 2.​18% at the end of June and 2.​22% two months ago, so money market funds are already reflecting a large portion of the latest cut. We expect the Crane 100 to fall below 2.​00% by the end of August. Our broader Crane Money Fund Average, which tracks 657 taxable money funds, is currently 1.​98%. It fell below the 2.​00% level last week and was 2.​08% 2 months ago.

The Federal Reserve'​s FOMC Statement says, "Information received since the Federal Open Market Committee met in June indicates that the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although growth of household spending has picked up from earlier in the year, growth of business fixed investment has been soft. On a 12-​month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-​based measures of inflation compensation remain low; survey-​based measures of longer-​term inflation expectations are little changed."

It explains, "​Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 2 to 2-​1/​4 percent. This action supports the Committee'​s view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee'​s symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain. As the Committee contemplates the future path of the target range for the federal funds rate, it will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective."

The Fed'​s statement adds, "In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee will conclude the reduction of its aggregate securities holdings in the System Open Market Account in August, two months earlier than previously indicated."

The Wall Street Journal, in its piece, "Fed Cuts Rates by a Quarter in Precautionary Move," comments, "Mr. Powell said officials weren'​t ruling out additional rate reductions, but neither did officials view Wednesday'​s action as '​the beginning of a long series of rate cuts,' he said. '​You would do that if you saw real economic weakness.... That'​s not what we'​re seeing. Instead, he framed the decision to lower the Fed'​s benchmark short-​term rate to a range between 2% and 2.​25% as a '​mid-​cycle adjustment.'"

In other news, Financial Planning writes, "Veterans with USAA to see reduced cash yields following Schwab deal." The article explains, "Charles Schwab'​s purchase of 1 million USAA accounts will benefit the industry titan'​s bottom line -- but it will also cut into returns on cash belonging to veterans and their families. As part of the deal set to close in 2020, Schwab will sweep $​7 billion in cash from USAA retail brokerage accounts -- currently held in money market funds -- into Schwab'​s bank, CFO Peter Crawford told analysts and shareholders on a webcast last week."

It continues, "Currently, cash sitting in USAA clients' brokerage accounts defaults to one of three funds: the USAA Money Market Fund, which has a 1-​year yield of 1.​93% and 0.​62% expense ratio; USAA Treasury Money Market Trust, which has a 1-​year yield of 1.​91% and 0.​35% expense ratio or the USAA Tax-​Exempt Money Market Fund, which has a 1-​year yield of 1.​11% and .​56% expense ratio, according to USAA spokesman Matt Hartwig. By contrast, Schwab'​s bank sweep will give USAA clients a .​26% annual percentage yield (​clients with over $​1 million invested will have a .​65% APY), according to the company. Interest-​earning assets are profitable for Schwab, which earned an average yield rate of 2.​42% on cash and cash equivalents in the first quarter of this year, according to the company'​s earnings statement."

The piece adds, "Schwab moved $​11.​6 billion out of money market funds in the first three months of 2019, according to its earning statement. Schwab'​s average interest-​earning assets were 15% higher in these months -- primarily due to the bank sweeps -- compared to the year-​ago period, the filing says. The sweep also played a key role in saving the company $​96 million in asset management and administration fees. Schwab is far from the only brokerage that is looking to profit from cash. '​It'​s sort of become an industry practice,' says Tim Welsh, consultant at Nexus Strategy, referring to the bank sweeps, who notes it'​s a natural next step as fees fall."

It adds, "Pete Crane, president of Crane Data, which tracks money fund and brokerage sweep data and returns, agrees. '​Brokerages have been under severe stress to find new areas of profitability, and bank sweep programs were a godsend for them,' he says. Firms profiting off brokerage sweeps include LPL Financial, TD Ameritrade, Wells Fargo Advisors, Raymond James and E-​Trade." (​The article includes a chart of sweep rates sourced to Crane Data'​s Brokerage Sweep Intelligence too.)

Finally, Financial Planning writes, "However, financial advisors are paying attention, pushing clients into money market funds as brokerages increasingly turn to brokerage and bank sweeps, Crane says. '​All you have to do is call or click or ask and do a position trade or a ticket trade to move into a higher yielding money fund,' Crane says." (​For more, see these Crane Data News articles: Schwab Completes Shift from Money Funds to FDIC; LPL Changes Sweeps (​7/​18/​19) and Schwab Liquidating MMF, Shifting to FDIC; Brokerage Sweep Rates Jump (​1/​4/​18).)

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