News Archives: May, 2022
As we wrote last Wednesday, the Investment Company Institute recently published its "2022 Investment Company Fact Book," an annual compilation of statistics and commentary on the mutual fund industry. We reviewed much of the money fund content in our May 25 News, "ICI Publishes 2022 Fact Book, Reviews US, Worldwide Money Funds in '21." But below we focus on the numerous "Data Tables" involving "Money Market Mutual Funds," which start on page 200. ICI lists annual statistics on shareholder accounts, the number of funds, net assets, net new cash flows, paid and reinvested dividends, composition of prime and government funds, and net assets of institutional investors by type of institution.
ICI's annual statistics show that there's been a steady decline in the number of money market mutual funds over the last 16 years. (See Table 35 on page 200.) In 2021, according to the Fact Book, there were a total of 305 money funds, down from 340 in 2020, 364 in 2019, 802 in 2007, and down from 1,014 in 2001. The number of share classes stood at 1,061 in 2021, down from 1,108 in 2020, 1,126 in 2018 and 1,998 in 2008.
Table 36 on page 201, "Money Market Funds: Total Net Assets by Type of Fund," shows that total net assets in taxable U.S. money market funds increased $422.4 billion to $4.756 trillion in 2021. At year-end 2021, $3.276 trillion (68.9%) was in institutional money market funds, while $1.480 trillion (31.1%) was in retail money market funds. Breaking the numbers down by fund type, $441.0 billion (9.3%) was in prime funds, $4.228 trillion (88.9%) was in government money market funds, and $86.8 billion (1.8%) was in tax-exempt accounts.
Also, Table 37 on page 202, "Money Market Funds: Net New Cash Flow by Type of Fund," shows that there was $422.1 billion in net new cash flow into money market funds last year. A closer look at the data shows $465.7 billion in net new cash flow into institutional funds and a $43.5 billion cash outflow from retail funds. There were also $541.0 billion in net inflows into Government funds, versus $100.1 billion in net outflows from Prime funds.
Table 39 (page 204), "Money Market Funds: Paid and Reinvested Dividends by Type of Fund," shows dividends paid by money funds were $4.1 billion, $2.1 billion of which was reinvested (50.9%). Dividends have been as high as $127.9 billion in 2007 (when rates were over 5%), and as low as $5.2 billion in 2011 (when rates were 0.05%). Reinvestment rates were 64.4% in 2007 and 62.3% in 2011, so they've remained relatively stable over the past decade.
ICI's Tables 40 and 41 on pages 205 and 206, "Taxable Government Money Market Funds: Asset Composition as a Percentage of Total Net Assets" and "Taxable Prime Money Market Funds: Asset Composition," show that of the $4.228 trillion in taxable government money market funds, 9.0% were in U.S. government agency issues, 51.2% were in Repurchase agreements, 25.5% were in U.S. Treasury bills, 14.5% were in Other Treasury securities, and -0.3% was in "Other" assets. The average maturity was 35 days, down 14 days from the end of 2020.
The second table shows that of the $441.0 billion in Prime funds at year-end 2021, 26.4% was in Certificates of deposit, 31.0% was in Commercial paper, 36.6% was in Repurchase agreements, 0.1% was in US government agency issues, 0.4% was in Other Treasury securities, 0.5% was in Corporate notes, 0.1% percent was in Bank notes, 0.4% was in US Treasury bills, 0.1% was in Eurodollar CDs, and 4.0% was in Other assets (which includes Banker's acceptances, municipal securities and cash reserves).
Table 60 on page 225, "Total Net Assets of Mutual Funds Held in Individual and Institutional Accounts," shows that there was $1.949 trillion of assets in money funds with Institutional investors, and $2.806 in MMF assets in Individual accounts in 2021.
Finally, Table 62, "Total Net Assets of Institutional Investors in Taxable Money Market Funds by Type of Institution and Type of Fund," shows of the total of $1.942 trillion in Total Institutional assets ($1.790 trillion in Institutional funds and another $152.1 billion in Retail funds), $812.5 billion were held by business corporations (41.8%), $901.6 billion were held by financial institutions (46.4%), $147.1 billion were held by nonprofit organizations (7.6%), and $80.5 billion were held by Other (4.1%).
ICI released its latest weekly "Money Market Fund Assets" report, as well as its latest monthly "Trends in Mutual Fund Investing" and "Month-End Portfolio Holdings of Taxable Money Funds" for April 2022 Thursday. The former shows assets rebounding strongly after two weeks of declines. Year-to-date, MMFs are down by $176 billion, or -3.7%, with Institutional MMFs down $129 billion, or -4.0% and Retail MMFs down $48 billion, or -3.3%. Over the past 52 weeks, money fund assets are down by $80 billion, or -1.7%, with Retail MMFs falling by $21 billion (-1.4%) and Inst MMFs falling by $59 billion (-1.9%). (Month-to-date in May through 5/25, MMF assets have decreased by $1.4 billion to $4.972 trillion according to Crane's MFI Daily, which tracks a broader universe of funds.)
ICI's weekly release says, "Total money market fund assets increased by $44.04 billion to $4.53 trillion for the week ended Wednesday, May 25, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $36.51 billion and prime funds increased by $6.27 billion. Tax-exempt money market funds increased by $1.26 billion." ICI's stats show Institutional MMFs jumping $41.1 billion and Retail MMFs increasing $2.9 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.009 trillion (88.5% of all money funds), while Total Prime MMFs were $420.3 billion (9.3%). Tax Exempt MMFs totaled $99.4 billion (2.2%).
ICI explains, "Assets of retail money market funds increased by $2.94 billion to $1.42 trillion. Among retail funds, government money market fund assets decreased by $1.08 billion to $1.13 trillion, prime money market fund assets increased by $2.78 billion to $201.55 billion, and tax-exempt fund assets increased by $1.24 billion to $89.19 billion." Retail assets account for just under a third of total assets, or 31.4%, and Government Retail assets make up 79.5% of all Retail MMFs.
They add, "Assets of institutional money market funds increased by $41.10 billion to $3.11 trillion. Among institutional funds, government money market fund assets increased by $37.58 billion to $2.88 trillion, prime money market fund assets increased by $3.49 billion to $218.75 billion, and tax-exempt fund assets increased by $21 million to $10.19 billion." Institutional assets accounted for 68.6% of all MMF assets, with Government Institutional assets making up 92.6% of all Institutional MMF totals. (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're approximately $400 billion lower than Crane's asset series.)
ICI's monthly "Trends" report shows that money fund assets decreased $71.0 billion in April to $4.521 trillion. This follows an increase of $9.6 billion in March, a decrease of $38.3 billion in February, a decrease of $136.1 billion in January, increases of $136.1 billion in December (coincidentally the exact same size as January's decline), $65.5 billion in November, $11.1 billion in October, $6.4 billion in September and $25.5 in August. MMFs decreased $24.4 billion in July and $73.4 billion in June, but increased $78.6 billion in May. For the 12 months through April 30, 2022, money fund assets decreased by $7.6 billion, or -0.0%.
The monthly release states, "The combined assets of the nation's mutual funds decreased by $1.56 trillion, or 6.2 percent, to $23.74 trillion in April, according to the Investment Company Institute's official survey of the mutual fund industry. In the survey, mutual fund companies report actual assets, sales, and redemptions to ICI.... Bond funds had an outflow of $56.27 billion in April, compared with an outflow of $44.57 billion in March.... Money market funds had an outflow of $71.33 billion in April, compared with an inflow of $11.50 billion in March. In April funds offered primarily to institutions had an outflow of $33.68 billion and funds offered primarily to individuals had an outflow of $37.65 billion."
The Institute's latest statistics show that Taxable funds and Tax Exempt MMFs moved in different directions last month. Taxable MMFs decreased by $76.3 billion in April to $4.429 trillion. Tax-Exempt MMFs increased $5.3 billion to $92.6 billion. Taxable MMF assets decreased year-over-year by $4.0 billion (-0.0%), and Tax-Exempt funds fell by $3.7 billion over the past year (-3.8%). Bond fund assets decreased by $209.9 billion in April to a $5.043 trillion, but they decreased by $355.5 billion (-6.6%) over the past year.
Money funds represent 19.0% of all mutual fund assets (up 0.8% from the previous month), while bond funds account for 21.2%, according to ICI. The total number of money market funds was 301, down 1 from the prior month and down from 326 a year ago. Taxable money funds numbered 242 funds, and tax-exempt money funds numbered 59 funds.
ICI's "Month-End Portfolio Holdings" confirms a drop in Treasuries last month and an increase in CDs. Repurchase Agreements remained the largest composition segment in April, decreasing $15.2 billion, or -0.7%, to $2.176 trillion, or 49.1% of holdings. Repo holdings have increased $1.016 trillion, or 87.6%, over the past year. (See our May 11 News, "May MF Portfolio Holdings: Treasuries Plummet, Time Deposits Higher.)
Treasury holdings in Taxable money funds fell sharply again last month, but they remained the second largest composition segment. Treasury holdings decreased $76.1 billion, or -4.6%, to $1.561 trillion, or 35.2% of holdings. Treasury securities have decreased by $777.7 billion, or -33.3%, over the past 12 months. U.S. Government Agency securities were the third largest segment; they decreased $217 million, or -0.1%, to $357.0 billion, or 8.1% of holdings. Agency holdings have fallen by $202.4 billion, or -36.2%, over the past 12 months.
Certificates of Deposit (CDs) remained in fourth place; they jumped by $29.8 billion, or 20.7%, to $173.8 billion (3.9% of assets). CDs held by money funds shrank by $22.4 billion, or -11.4%, over 12 months. Commercial Paper remained in fifth place, down $6.8 billion, or -5.1%, to $127.5 billion (2.9% of assets). CP has decreased by $49.5 billion, or -28.0%, over one year. Other holdings decreased to $26.8 billion (0.6% of assets), while Notes (including Corporate and Bank) fell to $3.0 billion (0.1% of assets).
The Number of Accounts Outstanding in ICI's series for taxable money funds decreased to 57.275 million, while the Number of Funds decreased by one this past month to 242. Over the past 12 months, the number of accounts rose by 13.854 million and the number of funds decreased by 17. The Average Maturity of Portfolios was 28 days, 1 day lower than March. Over the past 12 months, WAMs of Taxable money have decreased by 14.
As we mentioned in Tuesday's "Link of the Day," the Bank of England and Financial Conduct Authority published a discussion paper entitled, "Resilience of Money Market Funds," which reviews money funds in the U.K. and pending European money fund regulatory reforms. The paper says, "In November 2020, the Financial Stability Board (FSB) published a Holistic Review of the March Market Turmoil, and began work on policy options to enhance MMF resilience. In October 2021, the FSB published its Final Report on possible policy proposals to enhance MMF resilience. FSB members agreed to assess and address the vulnerabilities that MMFs pose in their jurisdiction by utilising the framework and policy toolkit set out in the report. The UK contributed to and worked with the FSB on the report."
It explains, "This Discussion Paper (DP) is a contribution to an assessment of the vulnerabilities in MMFs and how much they contribute to risks to UK financial stability and investor protection. It aims to contribute to the debate about how to reduce such risks while also ensuring that the structure of the financial system and UK market support the needs of the real economy in a sustainable and robust way. It aims to gather views to inform the UK authorities' development of MMF reform proposals, and where possible, to set out the UK authorities' initial views on the possible effectiveness and proportionality of some reform options."
The paper continues, "In relation to MMFs, UK authorities aim to adopt policy measures following feedback received from this DP that will: i. Strengthen the resilience of MMFs and the financial system in supporting the UK economy. ii. Reduce the need for future extraordinary central bank interventions of the kind that occurred in March 2020 [and] iii. Support the provision of sustainable and robust cash management financial services that meet the needs of users including at times of financial stress."
The Introduction comments, "Chapter 2 discusses the current role of MMFs in the UK economy, who uses them and for what purpose, including on a cross-border basis. We also explore the MMF legal and regulatory framework. Chapter 3 discusses the nature and extent of the systemic risk that MMFs pose and the vulnerabilities within their structure that may amplify risks to the UK, using past events as case studies. Chapter 4 discusses the set of policy options the FSB proposed to enhance MMF resilience. Where possible, this chapter also puts forward the UK authorities' initial thinking on the possible effectiveness and proportionality of those options.... Please respond to this DP by 23 July using the details on the Contents page. The UK authorities will consider feedback in deciding whether to formally consult on one or more MMF reform proposals."
On "The role of MMFs in the UK economy," the Bank of England and FCA write, "MMFs are a type of authorised open-ended investment fund (OEF) that invest in short term money market instruments. Globally, MMFs had over 7 trillion of assets under management (AUM) as at 31 December 2021. AUM of sterling-denominated MMFs have more than doubled since the 2008 global financial crisis, standing at around 280 billion at December 2021. This section sets out how UK investors use sterling MMFs, the role of sterling MMFs in markets, and explains the current legal and regulatory framework for MMFs that UK investors use."
They continue, "Among UK investors, MMFs are predominantly used by investment funds, pension funds, other non-bank financial institutions, non-financial corporates, local authorities and charities. Many investors use MMFs as part of their cash management strategies because MMFs offer 'same day liquidity'. Unlike other OEFs, MMFs tend to prioritise stability of value over maximising return, and aim to deliver rates consistent with the short-term money market."
The paper says, "The way different types of investor use MMFs varies. Most UK MMF investors use sterling MMFs, although a number of large corporates and financial institutions based in the UK also use MMFs denominated in other currencies, including US dollars and euros.... Non-financial corporates (mostly large or medium sized) use MMFs as a way of managing cash balances. These balances may come from monthly payroll, from the proceeds of a bond issuance or in the run of up to large capital expenditure. Non-financial corporates often treat MMFs as similar to bank deposits, and many account for them as 'cash equivalent' on their balance sheets, despite MMFs being clearly labelled as investments. For example, Bank of England analysis estimates that around half of FTSE 100 companies use MMFs to some extent."
It adds, "Financial institutions, such as insurers, pension funds and other investment funds, also use MMFs as a way of managing cash, including as a place to hold cash they may use for margin payments. Margin calls may increase when market volatility increases, and financial institutions need to be able to access cash on demand to pay margin calls. Failure to access their cash could result in increased likelihood of default. In the non-profit sector, local authorities and charities use MMFs to manage tax receipts and donations. Those institutions may be more sensitive to losses than financial institutions, no matter how small, given their not-for-profit mandate. Individual UK retail investors account for a small proportion of overall MMF shareholders by assets."
The Discussion Paper also tells us, "While MMFs offer same day liquidity to their investors, MMFs provide a return by investing in assets with residual maturity (the length of time before an investment matures) longer than a day. MMFs typically invest in bank deposits, UK government bills, certificates of deposit (CD), commercial paper (CP), asset-backed commercial paper (ABCP) and reverse repurchase agreements.... This means MMFs run a liquidity mismatch, potentially increasing the likelihood of investor redemptions under some circumstances."
It comments, "In terms of assets, UK investors predominantly use sterling MMFs domiciled in the EU.... EU MMFs come under the EU Money Market Fund Regulation (EU MMFR). UK MMFs must be authorised under the UK MMFR. The EU law version of the MMFR was retained in UK law as the UK MMFR through the European Union (Withdrawal) Act 2018 (EUWA)."
Finally, Chapter 4, "Tackling risks to the UK financial system - discussion of policy options," states, "In October 2021, the FSB published its Final Report on policy options to reduce vulnerabilities and enhance the resilience of MMFs. FSB members agreed to assess the vulnerabilities in their own jurisdictions and implement any necessary reforms using the policies outlined in the report." Options include: "`Asset-side reduction in liquidity transformation. One way to enhance the resilience of MMFs is to reduce liquidity transformation by requiring them to hold more liquid assets. Larger holdings of more liquid assets that are more readily convertible into cash either through their ability to be sold, or by maturing within a shorter period, would increase the ability of MMFs to meet redemptions."
They also include: "Placing minimum requirements for holdings of assets that mature within a certain amount of time (such as daily or weekly liquid assets).... Placing minimum requirements for holdings of assets that tend to exhibit higher market liquidity such as holdings of high quality public sector debt. This option would require MMFs to hold a certain amount of assets such as short[1]term government debt, and could be required alongside DLA/WLA requirements.... Placing maximum limits on holdings of assets that tend to exhibit lower market liquidity, particularly under stress (such as holdings of private sector issued CD and CP). This option would place an upper limit on the amount of less liquid assets an MMF can hold, such as CP and CD.... Removal of threshold effects related to liquidity levels, and usability of liquidity resources.... Impose on redeeming investors the cost of their redemptions. One way to minimise the first mover advantage for redeeming investors is to impose on them the true costs of their redemptions.... Swing pricing/anti-dilution adjustments or anti-dilution levies/liquidity fees are examples of liquidity management tools (LMTs).... Removal of stable NAV.... Liability side reduction in liquidity transformation. Policies to absorb losses [and] Issues related to the underlying short-term funding markets (STFMs)."
The Investment Company Institute released its "2022 Investment Company Fact Book," an annual compilation of statistics and commentary on the mutual fund space. Subtitled, "A Review of Trends and Activities in the Investment Company Industry," the latest edition reports that equity, bond fund and money market funds all saw assets increase nicely in 2021 (though 2022 year-to-date has been another matter). Overall, money funds assets were $4.756 trillion at year-end 2021, making up 17.6% of the $27.0 trillion in overall mutual fund assets. Retail investors held $1.480 trillion, while institutional investors held $3.276 trillion. We excerpt from the latest "Fact Book" below. (Note: Our Peter Crane will be attending the 2022 ICI Leadership Summit in Washington Wednesday and Thursday, so look for him at the show and watch for reports from the show in coming days.)
Discussing "Worldwide" mutual funds (page 5), ICI writes, "Money market funds -- which are generally defined throughout the world as regulated funds that are restricted to holding short-term, high-quality debt instruments -- saw their total net assets increase from $8.3 trillion to $8.8 trillion (6.2%). At year-end 2021, equity funds remained the largest category of worldwide regulated funds, accounting for 47% of net assets. Bond funds accounted for 19% of net assets, mixed/other funds for 21%, and money market funds for 12%."
On "Worldwide Net Sales of Money Market Funds" (page 13), they tell us, "Worldwide net sales of money market funds totaled $673 billion in 2021, a decrease from $1.3 trillion in 2020.... The decline in worldwide demand for money market funds was largely driven by a decrease in net sales in the United States and Europe. Investor demand for money market funds in the United States decreased from $700 billion in 2020 to $424 billion in 2021. Money market funds in Europe experienced net outflows of $20 billion in 2021 after experiencing $250 billion in net inflows in 2020. In the Asia-Pacific region, money market funds experienced net inflows of $254 billion in 2021, down from $302 billion in 2020, and money market funds in the rest of the world received $15 billion in net inflows in 2021, down from $43 billion in 2020."
ICI explains, "Investors use money market funds because they are professionally managed, tightly regulated vehicles with holdings limited to high-quality, short-term debt instruments. As such, they are highly liquid, attractive, cash-like alternatives to bank deposits. Generally, the demand for money market funds depends on their performance and interest rate risk exposure. As the difference between yields on short-term fixed-income securities and yields on long-term fixed income securities narrows (i.e., the 'yield curve' flattens), money market funds tend to experience inflows because investors can reduce interest rate risk without sacrificing much yield by using a fund with a short duration. By contrast, steeper yield curves tend to be associated with a weaker demand for money market funds."
They comment, "In 2021, demand for money market funds weakened as yield curves worldwide generally became steeper, and demand for high-quality, short-term investments -- brought on by the COVID-19 public health crisis -- abated. Despite the intermittent spikes in COVID-19 cases and the emergence of the Omicron variant, economic growth was projected to be strong -- at the same time, inflation was expected to rise, which contributed to higher long-term yields and steeper yield curves."
Chapter 2, "U.S.-Registered Investment Companies," states, "Money market funds received $422 billion of net inflows, while long-term mutual funds saw net outflows of $59 billion in 2021.... Businesses and other institutional investors also rely on funds. For instance, institutions can use money market funds to manage some of their cash and other short-term assets. At year-end 2021, nonfinancial businesses held 15 percent, or $816 billion, of their short-term assets in money market funds.... Finally, mutual funds are important investors in the US commercial paper market, which is a critical source of short-term funding for many major corporations around the world. At year-end 2021, the share of the commercial paper market held by mutual funds (primarily prime money market funds) was 17%, down from 22% at year-end 2020."
ICI writes in Chapter 3, "The majority of US mutual fund net assets at year-end 2021 were in long-term mutual funds, with equity funds alone making up 55% of US mutual fund net assets. Bond funds were the second-largest category, with 21% of net assets. Money market funds (18%) and hybrid funds (7%) held the remainder.... Despite near-zero yields on short-term assets, money market funds experienced another year of strong demand.... Retail investors also held substantial money market fund net assets ($2.8 trillion), but this was a relatively small share (12%) of their total mutual fund net assets ($23.7 trillion).... The majority (60%) of the $3.2 trillion that institutions held in mutual funds was in money market funds, because one of the primary reasons institutions use mutual funds is to help manage their cash balances."
The section on "Money Market Funds" (page 64), explains, "In 2021, demand for money market funds remained strong, with $422 billion in net new cash flows -- despite another year of near-zero yields.... Government money market funds received substantial inflows ($541 billion) while prime money market funds and tax-exempt money market funds had outflows of $100 billion and $19 billion, respectively."
It continues, "Demand for government money market funds in 2021 was likely shaped by movements in long-term interest rates. In the first quarter of 2021, the yield on the 10-year Treasury sharply increased 81 basis points, which led to capital losses on long-term bonds. To mitigate these losses, investors may have shifted some of their bond fund positions into money market funds to shorten the duration of their fixed-income investments. And with the Federal Reserve announcements in November and December (see page 56), investors likely expected that long-term interest rates would soon rise, which may have contributed to additional inflows into money market funds in those months."
A chapter on "Characteristics of US Mutual Fund Owners," tells us (on page 123), "Households are more likely to invest their retirement assets in long-term mutual funds than in money market funds.... DC retirement plan and IRA assets in money market funds totaled just $529 billion, or 11% of those funds' total net assets industrywide.... DC plans and IRAs held 54% of total net assets in long-term mutual funds but a much smaller share of total net assets in money market funds (11%). Similarly, mutual funds held in DC plans and IRAs accounted for 58% of household long-term mutual fund assets, but only 19% of household money market fund assets."
Finally, on page 131 ICI says, "Equity funds were the most commonly owned type of mutual fund in 2021, held by 89% of mutual fund–owning households.... In addition, 41% owned balanced funds, 44% owned bond funds, and 53% owned money market funds." On page 159, they write, "The remaining 18% of mutual fund assets held in DC plans and IRAs at the end of 2021 were invested in bond funds and money market funds. Bond funds held $1.7 trillion, or 14%, of mutual fund assets held in DC plans or IRAs, and money market funds accounted for $529 billion, or 4%."
Money market fund yields continue to climb higher following a surge earlier in May in reaction to the 50-basis-point Fed move on May 4. The 7-Day Yield Average for our flagship Crane 100 Money Fund Index rose to 0.55% in the week ended Friday, 5/20. The average had been 0.52% the prior week, up from 0.21% on April 29, up from 0.15% on March 31 and up from 0.02% on February 28 (where it had been for almost 2 years prior). Brokerage sweep rates also continued to inch higher over the past week. Our latest Brokerage Sweep Intelligence shows most brokerages now paying an average of 0.04% or higher (on FDIC insured deposits), up from 0.01% a month ago (and in reaction to several brokerages raising rates last week). We review the latest money fund and brokerage sweep yields below.
The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 674), shows a 7-day yield of 0.44%, up 3 basis points in the week through Friday. The Crane Money Fund Average is up 29 bps from 0.15% at the beginning of May. Prime Inst MFs were up 2 bps to 0.62% in the latest week, and up 38 bps over the course of May. Government Inst MFs rose by 2 bps to 0.51%, they are up 34 bps MTD. Treasury Inst MFs rose by 3 bps to 0.46%, up 27 bps in May. Treasury Retail MFs currently yield 0.25%, (up 3 bps for the week, and up 19 bps in May), Government Retail MFs yield 0.23% (up 1 bp for the week, and up 19 bps in May), and Prime Retail MFs yield 0.45% (up 2 bps for the week, and up 31 bps for May), Tax-exempt MF 7-day yields rose by 5 bps to 0.41%, they were up 27 bps in May.
Our Crane Brokerage Sweep Index, the average rate for brokerage sweep clients (all of which are swept into FDIC insured accounts), inched higher to 0.04%. This follows increases over the past 2 weeks and follows 2 straight years of yields at 0.01%. Sweep yields were 0.12% on average at the end of 2019 and 0.28% on average at the end of 2018. The latest Brokerage Sweep Intelligence, with data as of May 20, shows no changes over the previous week but several increases the previous week).
Last week's Brokerage Sweep Intelligence reported that Fidelity hiked its FCash brokerage account rate to 0.25% across all tiers. (Rates on its default sweep Cash Management Account also rose to 0.25%.) We also showed that Raymond James increased rates from 0.01% to 0.02% for balances under $25K, to 0.03% for balances under $100K, to 0.05% for balances under $500K and to 0.08% for balances $500K to $2.5 million. Also, RW Baird increased its sweep rates from 0.03% to 0.10% for the week ended May 13. Seven of 11 major brokerages still offer rates of 0.01% for balances of $100K (and most other tiers). These include: Ameriprise, E*Trade, Merrill Lynch, Morgan Stanley, Schwab, TD Ameritrade, and UBS. (Wells moved its rates to 0.02% two weeks ago.)
According to Monday's Money Fund Intelligence Daily, with data as of Friday (5/20), just 84 funds (out of 821 total) still yield 0.00% or 0.01% with assets of $68.8 billion, or 1.4% of total assets. (This compares to 593 funds with $2.623 trillion yielding 0.00% or 0.01% at the beginning of the year.) There were 35 funds yielding between 0.02% and 0.09%, totaling $54.9B, or 1.1% of assets; 43 funds yielded between 0.10% and 0.19% with $27.9 billion, or 0.6% of assets; 281 funds yielded between 0.20% and 0.49% with $1.399 trillion in assets, or 28.3%; 347 funds yielded between 0.50% and 0.79% with $3.085 trillion in assets, or 62.4%; and just 30 funds yielded 0.80% or higher with $312.3 billion in assets or 6.3%; two funds yielded over 0.90%.
On Friday, mutual fund news source ignites reported on the news in, "Brokerages Bump Up Sweep Account Rates." They explain, "Several brokerages in recent weeks have hiked the rates they pay on brokerage sweep accounts, including Fidelity, Raymond James, R.W. Baird and Wells Fargo, Crane Data reports. The other major brokerages examined have kept their rate at 0.01% for most clients, the data provider notes. Those firms include Merrill Lynch, Morgan Stanley and Schwab."
The article tells us, "Two Federal Reserve interest rate hikes since March, as well as the prospect of future increases, likely led the brokerages to push up the rates, given that competing sweep products -- namely money market funds -- are now offering richer returns, said Peter Crane, Crane Data's chief executive."
It quotes Crane, "It's unclear if this is just a friendly rate tweak or trying to get ahead of customers who may move their money to take advantage of higher returns.... Brokerage clients may be complaining [about sweep rates] or starting to move."
The ignites piece comments, "Two Fidelity money market funds that are also used for uninvested cash currently offer higher yields than the sweep account options. The $251 billion Fidelity Government Money Market Fund had a seven-day yield of 0.34% as of Thursday, the firm's website shows. The $34.3 billion Treasury Money Market Fund offered a seven-day yield of 0.32% as of the same date."
It adds, "Fidelity automatically directs investors' cash into the highest-yielding core option available at account opening for retail brokerage and retirement accounts, the spokesperson said. 'This is unlike many other companies that don't provide choice for their customers' cash and simply put the money in low-yielding and affiliated bank sweep products,' she wrote in an email. 'As rates rise, we will continue to evaluate market conditions and aim to return greater value to clients.'"
Finally, ignites writes, "Brokerages will probably increase the rates they offer on sweep accounts as interest rates climb, Crane predicted. 'Brokerages probably won't be able to let the spread between sweep deposits and money funds get too large,' Crane said. 'They'll risk a cash exodus.' ... 'Money market fund yields may reach 2% by the end of the year,' Crane said. 'We're not at the point where money funds are hot, but it's certainly headed that way,' he added."
Dreyfus recently hosted a webinar entitled, "Money Market Funds, Rising Rates and Geopolitical Turmoil," which featured CIO John Tobin and Credit Head Keith Lawler discussing rising rates, Treasury funds, bank deposits and other topics. The description explains, "The Dreyfus team discusse[s] how money market funds will be impacted amid rising rates, inflation, and geopolitical friction. Our professionals weighed in on: The structure of money market fund portfolios in the current rate environment, Geopolitical tensions and its potential impact on Federal Reserve policy, [and] How the current credit landscape is evolving." We quote from their webinar below. (Note: Dreyfus' Tobin will also speak on the "Major Money Fund Issues 2022" panel at our upcoming Money Fund Symposium, which takes place June 20-22, in Minneapolis, Minn.)
Asked about the dispersion in yields and high yields on Treasury funds, Tobin tells us, "I think the reason you're seeing a lot of dispersion is one, fund positioning, [and, two] cash flows. [Y]ou saw several funds extend in late February and early March. [This was] still when we were in a world where we thought we were just going to get a series of 25's. [I]n a pretty dramatic twist or, ... hawkish pivot all of a sudden, this idea of going 50 and maybe multiple 50 [bps became the consensus] ... with the backdrop of, hey, we need to hit neutral rates by year end at a minimum. [It was an] unbelievable change of events in a matter of two months. So that's why I think you've seen as much dispersion in performance as we have ever seen."
He continues, "But having said that, I think with this next rate hike, because of the opportunity set in the bill market, there's really not a lot to be done there. We've seen some trading in the last five weeks, but I think this next 50 will tighten things up fairly dramatically."
Tobin comments, "In terms of the Treasury questions, it's really a function of cash flows. Who extended? Who has floaters? We've seen this many times in the past, right? Treasury-only funds don't have a place to hide. Every day you have a subscription or redemption. Let's talk about subscriptions, money coming into the fund. You can't hide in overnights. You basically have to put [money out] on the curve, and they're just forced buyers. Sometimes there's an advantage to that over someone that can hide in often relatively short period of time. Treasury only funds can help."
When asked about how the war in Ukraine impacts issuers, Lawler responds, "I would just start off by ... stating that we have zero direct exposure to any issuers in Russia or Ukraine in terms of holdings and names on the approved list. And I would say that's resoundingly true for the money market industry as a whole. As it relates to indirect exposure in terms of issuers that would have any sort of residual exposure to the region, again, very, very limited. I would classify that as not material."
He says, "So the impact of the war in Ukraine on money market issuers ... is really kind of the second order effects.... I would say now is certainly more challenging in 2022 than the very good conditions that existed in 2021.... You've got elevated inflation, you've got supply chain disruptions, there's been further lockdowns in China, you've got elevated commodity prices and some increased financial market volatility. And all of this is being compounded by central banks."
Lawler continues, "So prime funds, we're buying commercial paper, you know, time deposits, CDs that are issued by banks, or we're doing repo with banks.... So, when you think about some of these ... operating conditions, higher rates are actually benefits for banks. They tend to be asset sensitive. So, we're already starting to see with first quarter earnings a lift in terms of their net interest margins."
He adds, "I would just kind of conclude by saying that both corporates and banks ... went into the pandemic in 2020 with very strong balance sheets. If anything, going into this current environment, they have even stronger balance sheets. So, during the pandemic, we saw a significant buildup of liquidity among corporate and bank issuers. Their capital levels remain very robust. So, there's really ample cushion to kind of navigate in this current environment. And that's kind of facilitated itself in terms of your credit ratings, which I would say remain broadly stable across the board.... But, you know, we’re certainly watching how this plays out."
Tobin summarizes, "The rate that our investors are going to earn on these funds is going to rise dramatically. You just think about ... [with] the magnitude of the Fed hike, ... we're going to basically pop. For investors [over] the last decade, from an absolute rate standpoint, it's been tough sledding. But at least for the next couple of years here and certainly this year, dramatic rate increases in funds will follow very, very quickly."
He also says, "In terms of the backdrop and [credit] environment ... I don't see any inherent risks in that. So, I think `from a safety and sound standpoint, you know, money funds look good. [There's also] a lot of volatility, so, we're seeing a lot of investors shorten up their duration, kind of hiding in cash. [In prior years], we've heard that 'cash is trash,' but that is out the window at least for this year. I think, bottom line, investors can enjoy significantly higher yields."
Finally, Tobin was asked about deposits vs. MMFs. He answers, "That is always the question. In a rising rate environment, what's going to happen to ... assets under management in the money market sector? So, I think the dynamic doesn't change here. If you think about last year, banks were very deposit heavy, a position they didn't want to be in. It was more beneficial for them to shed deposits. And all year last year, we saw that that was a tailwind to the inflows that we experienced."
Tobin explains, "I don't think the posture changes from the standpoint they're still long deposits.... We believe that bank deposit rates ... will move more slowly and they will under-perform money market funds or money market funds more broadly. And we will continue to have that tailwind."
But he adds, "If you look at Q1 for money fund balances, that story doesn't hold.... Government [MMFs] are down, but that's not unusual. If you go back over the last 20 years, there is a calendar effect. We typically bleed assets through Q1. Then what you'll see is in the second half, we'll begin to recoup that. But to answer the question, I believe bank deposit rates will underperform money funds. That will be something that persists all through this year, and we will see more assets by year end and again outperform."
The Securities and Exchange Commission's latest monthly "Money Market Fund Statistics" summary shows that total money fund assets decreased by $63.3 billion in April to $5.037 trillion after increasing in March but declining sharply in Jan. and Feb. The SEC shows that Prime MMFs decreased by $11.7 billion in April to $842.1 billion, Govt & Treasury funds decreased $57.1 billion to $4.095 trillion and Tax Exempt funds increased $5.5 billion to $100.2 billion. Taxable yields jumped again in April. The SEC's Division of Investment Management summarizes monthly Form N-MFP data and includes asset totals and averages for yields, liquidity levels, WAMs, WALs, holdings, and other money market fund trends. We review their latest numbers below. (Note: Register and make hotel reservations ASAP for our Money Fund Symposium, which takes place in just one month, June 20-22, in Minneapolis, Minn. We hope to see you at the big show next month!)
April's asset decrease follows an increase of $40.1 billion in March, decreases of $29.3 billion in February and $125.1 billion in January. Assets gained $122.9 billion in December, $53.7 billion in November, $7.9 billion in October, $19.9 billion in September and $24.9 billion in August. MMFs saw decreases of $39.9 billion in July and $86.9 billion in June. Assets increased $72.4 billion in May. Over the 12 months through 4/30/22, total MMF assets have decreased by $2.8 billion, according to the SEC's series. (Note that the SEC's series includes a number of internal money funds not tracked by ICI, though Crane Data includes most of these assets in its collections.)
The SEC's stats show that of the $5.037 trillion in assets, $842.1 billion was in Prime funds, down $11.7 billion in April. Prime assets were up $29.5 billion in March, down $2.7 billion in February, up $10.7 billion in January, and down $20.5 billion in December, $21 billion in November and $12.1 billion in October. This follows an increase of $2.6 billion in September, and a decrease of $8.1 billion in August and $19.4 billion in July. Prime funds represented 16.7% of total assets at the end of April. They've decreased by $87.2 billion, or -9.4%, over the past 12 months. (Month-to-date in May through 5/18, total MMF assets have fallen by $47.6 billion, according to our MFI Daily.)
Government & Treasury funds totaled $4.095 trillion, or 81.3% of assets. They decreased by $57.1 billion in April, increased $8.7 billion in March, decreased by $25.8 billion in February, $135.2 billion in January after increasing by $144.4 billion in December, $76.0 billion in November, $21.0 billion in October, $20.4 billion in Sept. and $32.8 billion in August. Govt & Treasury MMFs are up $89.0 billion over 12 months, or 2.2%. Tax Exempt Funds increased $5.5 billion to $100.2 billion, or 2.0% of all assets. The number of money funds was 309 in April, unchanged from the previous month and down 21 funds from a year earlier.
Yields for Taxable MMFs continued to surge higher in April while Tax Exempt MMFs saw a drop. The Weighted Average Gross 7-Day Yield for Prime Institutional Funds on April 30 was 0.44%, up 8 bps from the prior month. The Weighted Average Gross 7-Day Yield for Prime Retail MMFs was 0.50%, up 8 bps from the previous month. Gross yields were 0.40% for Government Funds, up 7 basis points from last month. Gross yields for Treasury Funds were up 12 bps at 0.46. Gross Yields for Tax Exempt Institutional MMFs were down 2 basis points to 0.44% in April. Gross Yields for Tax Exempt Retail funds were down 1 bp to 0.49%.
The Weighted Average 7-Day Net Yield for Prime Institutional MMFs was 0.40%, up 9 bps from the previous month and up 34 basis points from 4/30/21. The Average Net Yield for Prime Retail Funds was 0.21%, up 7 bps from the previous month, and up 19 bps since 4/30/21. Net yields were 0.19% for Government Funds, up 5 bps from last month. Net yields for Treasury Funds were also up 11 bps from the previous month at 0.25%. Net Yields for Tax Exempt Institutional MMFs were down 3 bps from March to 0.34%. Net Yields for Tax Exempt Retail funds were unchanged at 0.24% in April. (Note: These averages are asset-weighted.)
WALs and WAMs were mostly down in April. The average Weighted Average Life, or WAL, was 43.7 days (down 1.1 days) for Prime Institutional funds, and 43.7 days for Prime Retail funds (up 1.1 days). Government fund WALs averaged 72.4 days (down 2.3 days) while Treasury fund WALs averaged 75.7 days (down 5.0 days). Tax Exempt Institutional fund WALs were 9.8 days (down 2.1 days), and Tax Exempt Retail MMF WALs averaged 17.4 days (down 2.4 days).
The Weighted Average Maturity, or WAM, was 20.6 days (down 1.2 days from the previous month) for Prime Institutional funds, 19.2 days (down 3.5 days from the previous month) for Prime Retail funds, 26.0 days (down 1.0 days from previous month) for Government funds, and 35.1 days (down 2.2 days from previous month) for Treasury funds. Tax Exempt Inst WAMs were down 2.1 days to 9.7 days, while Tax Exempt Retail WAMs were down 2.6 days from previous month at 16.5 days.
Total Daily Liquid Assets for Prime Institutional funds were 52.1% in April (down 0.6% from the previous month), and DLA for Prime Retail funds was 33.0% (down 2.0% from previous month) as a percent of total assets. The average DLA was 80.1% for Govt MMFs and 97.2% for Treasury MMFs. Total Weekly Liquid Assets was 69.5% (up 2.9% from the previous month) for Prime Institutional MMFs, and 50.8% (up 0.7% from the previous month) for Prime Retail funds. Average WLA was 89.9% for Govt MMFs and 98.6% for Treasury MMFs.
In the SEC's "Prime Holdings of Bank-Related Securities by Country table for April 2022," the largest entries included: Canada with $83.7 billion, France with $64.2 billion, Japan with $59.3 billion, the U.S. with $40.7B, the Netherlands with $33.1B, Germany with $31.4B, the U.K. with $31.0B, Aust/NZ with $30.5B and Switzerland with $12.3B. The gainers among the "Prime MMF Holdings by Country" included: France (up $8.0B), Germany (up $3.8B), Aust/NZ (up $1.1B), the U.K. (up $0.4B) and Switzerland (up $0.4B). Decreases were shown by: Canada (down $10.7 billion), the U.S. (down $2.7B), Japan (down $1.8B) and the Netherlands (down $1.3B).
The SEC's "Prime Holdings of Bank-Related Securities by Region" table shows The Americas had $124.4 billion (down $13.3B), while Asia Pacific had $104.1B (down $1.3B). Eurozone subset had $142.4B (up $16.7B), while Europe (non-Eurozone) had $93.9B (up $21.9B from last month).
The "Prime MMF Aggregate Product Exposures" chart shows that of the $834.8B billion in Prime MMF Portfolios as of April 30, $317.1B (38.0%) was in Government & Treasury securities (direct and repo) (down from $366.1B), $211.6B (25.4%) was in CDs and Time Deposits (up from $176.2B), $151.5B (18.1%) was in Financial Company CP (down from $154.2B), $123.4B (14.8%) was held in Non-Financial CP and Other securities (up from $121.6B), and $31.2B (3.7%) was in ABCP (down from $32.5B).
The SEC's "Government and Treasury Funds Bank Repo Counterparties by Country" table shows the U.S. with $115.1 billion, Canada with $98.5 billion, France with $130.6 billion, the U.K. with $55.4 billion, Germany with $9.0 billion, Japan with $114.3 billion and Other with $23.5 billion. All MMF Repo with the Federal Reserve was up $12.2 billion in April to $1.670 trillion.
Finally, a "Percent of Securities with Greater than 179 Days to Maturity" table shows Prime Inst MMFs 6.0%, Prime Retail MMFs with 4.6%, Tax Exempt Inst MMFs with 0.2%, Tax Exempt Retail MMFs with 1.7%, Govt MMFs with 13.4% and Treasury MMFs with 13.5%.
Capital Advisors Group's Lance Pan asks in his latest commentary, "Will There Be a Renaissance for Prime Money Market Funds? He explains, "As the market's attention was drawn to the war in Ukraine, supply chain disruptions, runaway inflation, and higher interest rates, a significant deadline quietly passed. April 11 marked the end of the comment period for the new round of money market fund (MMF) reforms proposed by the Securities and Exchange Commission (SEC). As the Fed is poised to hike rates aggressively in coming meetings, institutional cash investors are keenly aware that their deposit rates are not likely to keep pace. Might prime MMFs be an alternative? Will the amendments alter the utility and attractiveness of prime funds to institutional cash investors? Should investors plunge in before the new rules take effect? (Note: See the SEC's "Comments on Money Market Fund Reforms" here.)
Pan tells us, "To answer these questions, we need to explore the pending SEC reform proposal. The short verdict is that the approval of the final rules and the associated implementation schedule may not occur until the end of the current interest rate cycle. Institutional prime funds are not likely to return to their previous status as the cash management vehicles of choice due to a reduced amount of yield advantage over government funds. An existential threat comes from the 'swing pricing' mechanism which, if approved, may result in some funds being shuttered or converted to government funds, creating challenges for shareholders who decide to remain in prime."
Capital Advisors also asks, "Will this round of rule revisions reinstate investor confidence in prime funds' cash-like functionality? Will institutional prime funds have a renaissance that rivals their golden age at the turn of the millennium? Unfortunately, we think that if the amendments are ratified as proposed, institutional prime funds will be less distinguishable from government funds and be more cumbersome to manage than ultra-short bond funds, thus making it unlikely that they once again become a popular cash management vehicle. However, if the industry can solve the swing factor puzzle, prime funds may offer some benefit to investors who desire credit exposure in a very low-duration shared-liquidity vehicle."
The piece comments, "If swing factor provisions survive the final rule, it is difficult to fathom how institutional prime funds will be able to thrive. As proposed, the amendments do not make enough economic sense for institutional prime funds to remain attractive to shareholders and funds sponsors alike. As noted earlier, the explicit concentration, liquidity and disclosure requirements offer robust shareholder protection when compared to similarly managed private liquidity and ultra-short bond funds. However, higher liquidity requirements put prime funds at a yield disadvantage compared to the two alternatives. In addition, liquidity investors are notoriously risk averse, especially to cash vehicles with esoteric features. Swing pricing will be a tough sell to this crowd."
Pan writes, "The fund industry and its intermediary partners are faced with a different set of challenges. After undergoing a long and arduous process of converting their systems to handle floating-NAVs and fees and gates, they have fresh decisions to make. Will they commit significant financial and human capital to design and implement a new system to accommodate more rule changes on a product with less cash-like utility while alternatives are available? We suspect that swing pricing may become the straw that breaks the camel's back to force some, if not all, fund sponsors to end prime fund offerings. Funds that decide to stay in the game must then contend with their smaller footprint in the short-term credit markets with less pricing power over commercial paper and Yankee CD issuers."
Finally, he adds, "Many factors will influence how this latest round of MMF reforms will impact liquidity investors. A divided Senate in a mid-term election year makes the fate of the two SEC Commissioner nominees uncertain. If they are confirmed, it is uncertain if either or both will support a final vote on all the amendments in the proposal. Overwhelming objection to swing pricing based on operational difficulty may persuade the SEC to find a different approach. The Commission may try to smooth out the transition by allowing a longer implementation window. All these factors lessen the chance of the new rules being approved and finalized within the next 18 months. While the waiting game is on, prime funds may gain some assets in the interim from opportunistic investors who may plan to move out of prime at the last minute. We continue to advocate for government funds for overnight and near-term cash needs while investing out on the yield curve in high quality government and corporate securities that offer better risk-adjusted return profiles."
In other news, we wrote Tuesday, "Money Fund Yield Break 0.50%; Fidelity Hikes Sweep Rate," which reviews the latest higher yields and rates on money funds and brokerage sweeps. We've since learned that brokerage Robinhood, which may be teetering on the edge of bankruptcy, announced a 1% rate on selected brokerage cash sweeps. A blog piece, titled, "Earn 1% Interest on Uninvested Brokerage Cash at Robinhood," explains the details. It says, "[W]e're introducing our revamped brokerage cash sweep program, which lets all eligible brokerage customers earn 1% interest on uninvested cash and helps them earn extra income. With brokerage cash sweep, customers can currently earn 16x more in interest than the national average and can invest or request to withdraw cash whenever they want."
It explains, "After depositing funds or selling and settling a given stock, customers will currently earn 1% APY on that cash with the interest paid out monthly. This means that if a customer starts the year with $1,000 in uninvested brokerage cash and doesn't deposit or withdraw any funds for the entire year, they'll earn $10 provided the rate doesn't change. Customers can keep track of how much they've earned directly within the app."
Tech Crunch describes the announcement in "Robinhood aims to court users by offering attractive 1% interest rate on cash." It tells us, "Investing app Robinhood is on a roll with announcing new features as it looks to appeal to more customers amid dwindling transaction revenue. Less than a week after unveiling plans to allow users to lend out their stock, the company announced that it has introduced a 'revamped' brokerage cash sweep program that will be rolled out to customers today."
They continue, "What that means is that all 'eligible' Robinhood users will be able to earn 1% interest on cash sitting uninvested in their accounts (though the company did not define which customers are eligible).... Robinhood's brokerage cash sweep program used to offer an interest rate of 0.5% to customers that were enrolled for its Cash Management feature, according to the company. Those previously enrolled for that Cash Management program will be automatically transitioned into the new one and see their interest rate increase to 1%."
For more, see our previous Crane Data News updates: "N-MFP Portfolio Holdings Shows Repo Dominates; Robinhood Returns" (10/9/19), "Money Fund Assets Break $3.25 Trillion; More Arrows Hit Robinhood" (7/12/19), "Robinhood Withdraws Bank Says SFC" (12/3/19), "MarketWatch Has More on Robinhood" (1/3/19), "Robinhood Withdraws 3 Percent Offer; MF Assets Stay Over $3 Trillion" (12/21/18), "SIPC Concerns About Robinhood" (12/17/18) and "Robinhood Stealing Millennial's Cash" (12/14/18).
Today, we quote from the last of the 20 largest money fund managers' "Comments on Money Market Fund Reform" by reviewing letters from T. Rowe Price, HSBC and Western Asset, the 16th, 18th and 20th largest managers of money market funds. T. Rowe Price's Doug Spratley, Jonathan Siegel & Vicki Booth comment, "T. Rowe Price is a global investment adviser serving a broad array of clients, from individual savers to large institutions and funds, and has assets under management (AUM) of $1.54 trillion. We offer government money market funds to retail and institutional shareholders, and our prime and tax-exempt money market funds are offered to retail investors. Our money market funds are used by investors for a variety of purposes, such as supporting near- and longer-term savings, serving as an emergency fund for unexpected expenses and life changes, providing a safe haven from volatile markets, and being a low-risk vehicle for preserving capital coupled with some return potential. In addition, many of our products, including our proprietary mutual funds as well as many of our external client accounts, invest their excess cash in T. Rowe Price government money market funds that are not available for direct purchase by the public."
They explain, "We are writing to provide our perspectives on the SEC's December 2021 proposal to amend certain rules governing money market funds ('MMFs') under the Investment Company Act of 1940 (the 'Proposal'). As discussed in more detail below: We support the Proposal's removal of fees and gates from Rule 2a-7; We question the SEC's proposed increases to liquidity thresholds, especially in the case of retail MMFs; We do not believe swing-pricing is well-suited for MMFs, however if the SEC proceeds with this element of the Proposal in a final rule, we agree with the SEC that it should not apply to retail MMFs; We encourage the SEC to make certain refinements and clarifications to the Proposal's changes to stress testing as it relates to the role of the board and the frequency of reporting; and If a final rule is adopted, the compliance period should be 18-24 months."
HSBC Asset Management writes, "As members of the Investment Company Institute, our views are reflected in the comment letter submitted by that organization. In this comment letter, we will not focus on each aspect of the proposed reforms but instead add two specific comments. First, we believe the SEC should reconsider the proposed 'one-size-fits-all' approach to liquidity, in recognition that minimum liquidity levels are only one aspect of liquidity risk management. Instead, the SEC should consider linking minimum liquidity levels to individual investor concentration and/or investor type concentration with a minimum 'floor'. Second, we believe the proposed amendments, in particular the proposed swing pricing requirement, have the potential to limit new entrants to the market and to limit new product innovation to the detriment of investors and the stability of, and the competition within, the broader MMF industry."
They explain, "We agree that maintaining an understanding on how individual shareholders use a MMF can be helpful in managing liquidity risk and support Rule 2a-7's current 'know your client' requirement. In our view, however, there are limits to 'knowing your client.' Not only does it take time for fund managers to build an accurate profile of a MMF's shareholders and to understand an individual shareholder's liquidity preferences, but the use of 'omnibus accounts' masks individual shareholder activity and many investors, due to the nature of their business and their usage of MMFs, have unpredictable cash flow needs that even the investors cannot predict. 'Knowing your client' is certainly an imperfect science."
HSBC says, "A key tool we employ in the management of our MMFs globally, including for example our US 2a-7 MMFs and EU-domiciled USD Prime MMFs, to support liquidity risk management is through the monitoring and control of individual investor concentrations and investor type concentrations. For example, we seek to limit individual investor concentration in each MMF to a target maximum of 5% of the fund's assets. We also seek to limit aggregate investments from investors operating in two specific sectors that have historically shown greater volatility to a target maximum of 25% of the fund's assets."
They continue, "In our opinion, simply managing the liquidity profile of a fund's assets is only managing half of the risk. By monitoring and seeking to limit investor concentration, we are better able to manage the demand for liquidity plan accordingly. The current daily and weekly liquid asset requirements prescribed by Rule 2a-7 are a 'one-size-fits-all' approach that takes no direct consideration of the different levels of individual investor concentration or investor type concentration. The proposed reforms double down on this construct.... We believe the SEC should more carefully consider the impact of its proposals on industry concentration (which has increased over the last decade) and how such concentration will ultimately affect investors and the broader MMF industry in the long term."
Finally, Western states, "Western Asset strongly supports a number of the changes in the Proposing Release which we believe will strengthen the Rule 2a-7 framework and improve the resilience and transparency of money market funds. Specifically, we support: Revisions to existing liquidity fee and redemption gate provisions; Increases to daily liquid asset and weekly liquid asset minimum liquidity requirements from the current levels of 10% and 30%, but to levels of 20% and 40%, respectively (in place of the proposed levels of 25% and 50%), in combination with a thoughtfully constructed liquidity fee anti-dilutive mechanism; and Some of the amendments to reporting requirements on Form N-MFP and Form N-CR which improve the availability of information about money market funds."
They write, "At the same time, we are concerned that a number of the proposals will reduce the effective functioning of short-term funding markets, cause significant risks and unnecessary disruption to shareholders and the economy, and likely impair the usefulness of money market funds for both retail and institutional investors, without advancing the Commission's goals of improving the resilience and transparency of the product."
Western explains, "In particular, we do not support: The introduction of swing pricing requirements for institutional prime and tax-exempt funds; New requirements for fund companies to assess whether financial intermediaries are able to effect shareholder transactions at floating net asset values per share {NAVs) for retail and government money market funds, and to prohibit financial intermediaries from purchasing fund shares in nominee name should they be unable to do so; and Proposed time lines for conforming with rule changes, which do not realistically account for the complexity that would be involved with creating compliant systems and protocols and other related implementation challenges that will impact fund companies, intermediaries, service providers and other stakeholders."
They tell us, "Based on our assessment of the mechanics outlined within the Proposing Release, and feedback from our clients and industry participants, we see the likely outcome from the introduction of swing pricing to be sharp reductions in, if not substantial elimination of, the institutional prime and tax-exempt money market fund sectors with corresponding flows into bank deposits, government money market funds, ultra-short fixed income funds, separately managed accounts and direct securities."
Western adds, "In conclusion, we believe that the use of swing pricing is fundamentally counter to money market funds' utility as cash management products and their ability to support investors' primary objectives, namely capital preservation, availability of liquidity and competitive money market returns. We believe that the introduction of swing pricing is contrary to the best interests of shareholders in the products and overall may result in the elimination of the sector."
It's been almost 2 weeks since the Federal Reserve raised its Federal funds rate by another 50 basis points, and money market fund yields continue to climb higher after a big jump last week. While they've yet to reflect the full 50 basis point increase (and may not entirely due to the last of the fee waivers being reduced), yields have risen noticeably since the March 16 25 bps hike and the May 4 50 bps hike. Our flagship Crane 100 Money Fund Index started March 2022 at 0.02% (where is had been pinned for 2 years), rose to 0.13% the week following the March hike, and has jumped to 0.52% as of Friday, 5/13. Brokerage sweep rates have also started to move. Our latest Brokerage Sweep Intelligence shows most brokerages still paying 0.01% yields (on FDIC insured deposits), but several brokerages raised rates this week. We review the latest money fund and brokerage sweep yields below. (Note: Thanks to those who participated in SIFMA's AMA Roundtable in Phoenix! We hope to see you again next month at our Money Fund Symposium in Minneapolis, June 20-22.)
The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 674), shows a 7-day yield of 0.41%, up 16 basis points in the week through Friday. The Crane Money Fund Average is up 31 bps from 0.10% at the beginning of April. Prime Inst MFs were up 22 bps to 0.59% in the latest week, and up 35 bps over the course of May. Government Inst MFs rose by 18 bps to 0.48%, they are up 31 bps MTD. Treasury Inst MFs rose by 14 bps to 0.42%, and were up 23 bps in May. Treasury Retail MFs currently yield 0.22%, (up 9 bps for the week, and up 16 bps in May), Government Retail MFs yield 0.21% (up 10 bps for the week, and up 17 bps in May), and Prime Retail MFs yield 0.42% (up 18 bps for the week, and up 28 bps for May), Tax-exempt MF 7-day yields rose by 14 bps to 0.32%, they were up 18 bps in May.
Our Crane Brokerage Sweep Index, the average rate for brokerage sweep clients (all of which are swept into FDIC insured accounts), inched higher to 0.02%, following 2 straight years stuck at 0.01%. It had been at 0.12% at the end of 2019 and at 0.28% at the end of 2018. The latest Brokerage Sweep Intelligence, with data as of May 13, shows several rate changes over the past week (with 2 changes the week prior).
Among brokerage rates, Fidelity hiked its FCash brokerage account rates to 0.25% across all tiers, according to our Brokerage Sweep Intelligence publication. (Rates on its default sweep Cash Management Account remain at 0.01%.) Raymond James increased rates from 0.01% to 0.02% for balances under $25K, to 0.03% for balances under $100K, to 0.05% for balances under $500K and to 0.08% for balances $500K to $2.5 million. RW Baird increased its sweep rates from 0.03% to 0.10%. All of the other major brokerages still offer rates of 0.01% for balances of $100K (and most other tiers). These include: Ameriprise, E*Trade, Merrill Lynch, Morgan Stanley, Schwab, TD Ameritrade, and UBS. (Wells moved its rates to 0.02% last week.)
According to Monday's Money Fund Intelligence Daily, with data as of Friday (5/13), just 93 funds (out of 821 total) yielded 0.00% or 0.01% with total assets of $81.2 billion, or 1.6% of total assets. (This compares to 593 funds with $2.623 trillion at the beginning of the year.) There were 48 funds yielding between 0.02% and 0.09%, totaling $52.5B, or 1.1% of assets; 61 funds yielded between 0.10% and 0.19% with $42.8 billion, or 0.9% of assets; 321 funds yielded between 0.20% and 0.49% with $1.755 trillion in assets, or 35.6%; 281 funds yielded between 0.50% and 0.79% with $2.710 trillion in assets, or 54.9%; and just 17 funds yielded 0.80% or higher with $295.0 billion in assets or 6.0%; no funds yielded over 0.93% (yet).
In other news, ICI released its latest monthly "Money Market Fund Holdings" summary, which reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds.
The MMF Holdings release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in April, prime money market funds held 30.4 percent of their portfolios in daily liquid assets and 50.8 percent in weekly liquid assets, while government money market funds held 87.7 percent of their portfolios in daily liquid assets and 94.6 percent in weekly liquid assets." Prime DLA was up from 30.0% in March, and Prime WLA was up from 49.0%. Govt MMFs' DLA increased from 85.9% in March and Govt WLA increased from 92.2% the previous month.
ICI explains, "At the end of April, prime funds had a weighted average maturity (WAM) of 19 days and a weighted average life (WAL) of 57 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM 29 days and a WAL of 74 days." Prime WAMs were three days shorter than March, while WALs were one day longer from the previous month. Govt WAMs were one day shorter and WALs were three days shorter than March, respectively.
Regarding Holdings by Region of Issuer, the release tells us, "Prime money market funds’ holdings attributable to the Americas declined from $193.01 billion in March to $150.61 billion in April. Government money market funds' holdings attributable to the Americas declined from $3,772.27 billion in March to $3,694.66 billion in April."
The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $150.6 billion, or 36.8%; Asia and Pacific at $79.7 billion, or 19.5%; Europe at $175.1billion, or 42.8%; and, Other (including Supranational) at $4.0 billion, or 0.9%. The Government Money Market Funds by Region of Issuer table shows Americas at $3.695 trillion, or 92.0%; Asia and Pacific at $106.9 billion, or 2.7%; Europe at $188.8 billion, 4.7%, and Other (Including Supranational) at $25.8 billion, or 0.6%.
Crane Data's latest MFI International shows that assets in European or "offshore" money market mutual funds continued falling over the past month to $959.2 billion. European MMF assets have declined during the first 4 1/2 months of 2022, after hitting a record high of $1.101 trillion in mid-December. These U.S.-style money funds, domiciled in Ireland or Luxembourg but denominated in US Dollars, Pound Sterling and Euros, decreased by $27.2 billion over the 30 days through 5/12. They're down $103.8 billion (-9.8%) year-to-date. Offshore US Dollar money funds are down $10.7 billion over the last 30 days and are down $33.3 billion YTD to $501.2 billion. Euro funds dropped E6.9 billion over the past month. YTD they're down E29.8 billion to E128.5 billion. GBP money funds decreased L6.4 billion over 30 days; they are down by L15.5 billion YTD to L231.6B. U.S. Dollar (USD) money funds (191) account for over half (52.3%) of the "European" money fund total, while Euro (EUR) money funds (93) make up 15.2% and Pound Sterling (GBP) funds (127) total 32.6%. We summarize our latest "offshore" money fund statistics and our Money Fund Intelligence International Portfolio Holdings (which went out to subscribers Friday), below. (Note: For those attending our Money Fund Symposium, June 20-22 in Minneapolis, Minn, make your hotel reservations soon! Our discounted rate expires this week.)
Offshore USD MMFs yield 0.59% (7-Day) on average (as of 5/12/22), up from 0.34% a month earlier. Yields averaged 0.03% on 12/31/21, 0.05% on 12/31/20, 1.59% on 12/31/19 and 2.29% on 12/31/18. EUR MMFs yield -0.64% on average, up from -0.80% on 12/31/21. They averaged -0.71% at year-end 2020, -0.59% at year-end 2019 and -0.49% at year-end 2018. Meanwhile, GBP MMFs yielded 0.74%, up 21 bps from a month ago, and up from 0.01% on 12/31/21. Sterling yields were 0.00% on 12/31/20, 0.64% on 12/31/19 and 0.64% on 12/31/18. (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 March MFII Portfolio Holdings, with data as of 4/30/22, show that European-domiciled US Dollar MMFs, on average, consist of 22% in Commercial Paper (CP), 15% in Certificates of Deposit (CDs), 21% in Repo, 24% in Treasury securities, 17% in Other securities (primarily Time Deposits) and 1% in Government Agency securities. USD funds have on average 50.8% of their portfolios maturing Overnight, 9.5% maturing in 2-7 Days, 6.8% maturing in 8-30 Days, 10.6% maturing in 31-60 Days, 9.1% maturing in 61-90 Days, 10.8% maturing in 91-180 Days and 2.5% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (36.1%), France (15.6%), Japan (9.2%), Canada (9.1%), Sweden (7.3%), the Netherlands (3.9%), Australia (3.5%), Germany (3.2%), the U.K. (3.1%) and Switzerland (1.6%).
The 10 Largest Issuers to "offshore" USD money funds include: the US Treasury with $125.3 billion (24.1% of total assets), Credit Agricole with $21.1B (4.1%), BNP Paribas with $20.0B (3.8%), Fixed Income Clearing Corp with $18.2B (3.5%), Federal Reserve Bank of New York with $14.6B (2.8%), Sumitomo Mitsui Banking Corp with $14.4B (2.8%), RBC with $13.8B (2.7%), Skandinaviska Enskilda Banken AB with $12.5B (2.4%), Nordea Bank with $11.5B (2.2%) and Societe Generale with $11.0B (2.1%).
Euro MMFs tracked by Crane Data contain, on average 41% in CP, 23% in CDs, 23% in Other (primarily Time Deposits), 11% in Repo, 2% in Treasuries and 0% in Agency securities. EUR funds have on average 25.4% of their portfolios maturing Overnight, 15.5% maturing in 2-7 Days, 16.0% maturing in 8-30 Days, 10.7% maturing in 31-60 Days, 19.2% maturing in 61-90 Days, 11.7% maturing in 91-180 Days and 1.6% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (31.6%), Japan (11.0%), the U.S. (9.9%), the U.K. (6.6%), Sweden (6.0%), Switzerland (5.4%), Germany (5.1%), Canada (4.9%), Netherlands (4.8%) and Austria (4.2%).
The 10 Largest Issuers to "offshore" EUR money funds include: Credit Agricole with E8.0B (6.6%), Societe Generale with E6.1B (5.0%), BNP Paribas with E5.0B (4.1%), BPCE NA with E4.9B (4.1%), Barclays PLC with E4.3B (3.6%), ING Bank with E3.9B (3.2%), Natixis with E3.8 (3.1%), Svenska Handelsbanken with E3.7B (3.0%), Zürcher Kantonalbank with E3.6B (3.0%) and DZ Bank AG with E3.5B (2.9%).
The GBP funds tracked by MFI International contain, on average (as of 4/30/22): 37% in CDs, 21% in CP, 20% in Other (Time Deposits), 21% in Repo, 1% in Treasury and 0% in Agency. Sterling funds have on average 4.4% of their portfolios maturing Overnight, 43.7% maturing in 2-7 Days, 13.7% maturing in 8-30 Days, 10.3% maturing in 31-60 Days, 13.9% maturing in 61-90 Days, 7.8% maturing in 91-180 Days and 6.2% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: France (18.7%), the U.K. (15.6%), Japan (14.9%), Canada (14.5%), Australia (6.7%), the Netherlands (4.6%), Sweden (4.5%), the U.S. (4.4%), Germany (4.1%) and Spain (2.1%).
The 10 Largest Issuers to "offshore" GBP money funds include: UK Treasury with L13.1B (6.6%), Mitsubishi UFJ Financial Group Inc with L8.5B (4.3%), BNP Paribas with L8.4B (4.2%), Toronto-Dominion Bank with L7.9B (4.0%), Bank of Nova Scotia with L7.6B (3.8%), Barclays PLC with L7.5B (3.8%), Mizuho Corporate Bank Ltd with L6.9B (3.5%), RBC with L6.7B (3.4%), National Australia Bank Ltd with L6.4B (3.2%) and Sumitomo Mitsui Banking Corp with L6.0B (3.0%).
In other news, The Wall Street Journal wrote earlier this week that, "A Deposit Rate Shopping Spree Might Be Kicking Off." The article states, "The Federal Reserve's most recent move to raise rates is surely beginning to catch the attention of people who have money deposited in banks earning minuscule interest. The prospect of inflation is likely to make people even more attuned to their cash, too. A recent survey of about 2,000 U.S. consumers, published by Morgan Stanley analysts on Monday, found that concern about inflation was the highest ever in their survey history. Over 40% of respondents said they would consider opening a new savings account for a rate of 1%, and over 60% would consider it for 2%."
It tells us, "The initial reaction of some banks might be to tell consumers to go for it. Deposits across U.S. commercial banks are about 40% higher than they were at this point in 2019, following a pandemic surge in Fed balance sheet growth and consumer and business savings. Many big banks have even struggled with their size, facing tighter capital constraints, and could be eager to let certain deposits leave, such as ones that don't usually lead to other business."
The Journal adds, "But in addition to the temptation of rising rates on vehicles such as money-market funds outside of bank deposits, the pace at which the Fed is shrinking its balance sheet via quantitative tightening also may have the effect of pressuring the growth of deposits in the system—which could at some point push banks to compete more.... `It is still early in the rate cycle, but investors in banks, brokerages and asset managers should be watching weekly tracking figures, online savings rates and even window stickers in bank branches very closely."
The May issue of our Bond Fund Intelligence, which was sent to subscribers Friday morning, features the lead story, "BlackRock's Fink, Federated's Donahue on Bond Funds in Q1," which reviews discussions of bond fund sectors on recent earnings calls; and, "Baird's Mary Ellen Stanek Wins Morningstar PM Award," which quotes from a press release on the ultra-short manager. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns continued sharply lower while yields rose for the 7th straight month. We excerpt from the new issue below. (Contact us if you'd like to see our latest Bond Fund Intelligence and BFI XLS spreadsheet, or our Bond Fund Portfolio Holdings data.) (See also The Wall Street Journal's, "Crash of TerraUSD Shakes Crypto. 'There Was a Run on the Bank'" and editorial "Warnings From the Crypto Crash.")
Our "BlackRock, Federated" piece reads, "During the latest round of quarterly earnings calls, both BlackRock and Federated Hermes discussed demand for bond funds, the recent bond market turmoil and a number of other issues. BlackRock CFO Gary Shedlin comments, "In fixed income ETFs, we generated $8 billion in net inflows for the quarter. Similar to equity ETFs, we are seeing more investors adopt and use fixed income ETFs to gain market exposure and for tactical positioning within their fixed income exposures."
He explains, "We saw demand for Treasury, Short Duration, Inflation-Linked, Sustainable Munis and broad-based market exposures, [which] more than offset risk-off sentiments in areas like High Yield and Emerging Markets. Our growth in fixed income ETFs highlight the diversity of our fixed income ETF product range and our ability to deliver the market qualities clients expect in stressed markets."
Our "Baird's Stanek" piece states, "A press release entitled, '`Mary Ellen Stanek Receives Morningstar Outstanding Portfolio Manager Award,' tells us, 'Employee-owned Baird announced today that Mary Ellen Stanek, CFA, President of Baird Funds and Co-Chief Investment Officer of Baird Advisors received Morningstar's Outstanding Portfolio Manager Award. The award is one of the 2022 U.S. Morningstar Awards for Investing Excellence."
It explains, "The Morningstar Awards for Investing Excellence recognize portfolio managers and asset-management firms that demonstrate excellent investment skill, the courage to differ from the consensus to benefit investors, and an alignment of interests with the strategies' investors. Morningstar's manager research analysts conduct in-depth qualitative analyses in order to select nominees and, subsequently, vote to determine the award winner. Stanek is being recognized as the Co-Chief Investment Officer of the team that manages Baird Ultra Short Bond Fund (BUBIX), Baird Short-Term Bond Fund (BSBIX), Baird Intermediate Bond Fund (BIMIX), Baird Aggregate Bond Fund (BAGIX) and Baird Core Plus Bond Fund (BCOIX)."
Our first News brief, "Returns Slide for 4th Month; Losses Accelerating," says, "Bond fund returns fell sharply again while yields rose for the 7th straight month in April. Our BFI Total Index fell 2.39% over 1-month and fell 5.49% over 12 months. The BFI 100 returned –2.71% in April and –5.80% over 1-year. Our BFI Conservative Ultra-Short Index was down 0.07% for 1-month and down 0.68% for 1-year; Ultra-Shorts declined 0.28% and 1.28%, respectively. Short-Term decreased 0.86% and 3.60%, and Intm-Term fell 3.20% in April and fell 7.26% over 1-year. BFI's Long-Term Index fell 4.64% and 9.00%r. High Yield fell 2.58% in April and 3.22% over 1-year."
We also quote Barron's on "The Exodus From Bond Funds Is Creating Bargains." The piece explains, "Investors are fleeing corporate bond funds en masse. That means bonds in some sectors, including banks, look cheap. Withdrawals from investment-grade corporate bond funds have totaled $28 billion, on net, over the past 21 weeks, according to Refinitiv Lipper. That is about 1.6% of the total assets that were invested in the market before the selling began."
A third News brief is headlined, "The NY Times on 'How to Endure the Big Decline in Bonds,' explains, "It's been a horrible start of the year for the bond market, the worst in decades. If you hold bonds in a mutual fund or exchange-traded fund, it's highly likely that your quarterly statement next month will show that you have lost money."
Yet another News brief, "P&I Posts 'Vanguard reduces fees on 4 large bond ETFs," says, "Vanguard Group on Friday reported expense ratio reductions on four bond exchange-traded funds, including its biggest bond ETF — the Vanguard Total Bond Market ETF, a Vanguard spokesman said."
Also, a BFI sidebar, "William Blair Liquidates BFs," tells us, "A filing for William Blair Funds says, 'Upon recommendation of the Adviser, the Board of Trustees of William Blair Funds determined that it was in the best interests of each of the William Blair Bond Fund, William Blair Short Duration Bond Fund, and William Blair Ultra-Short Duration Bond Fund to redeem all the shares of the Funds on or before April 15, 2022, and then terminate the Funds. Shareholder approval of the liquidation is not required. The Funds will be closed to new investors effective Feb. 14, 2022 but will remain open for investment until Feb. 28, 2022 for existing shareholders."
Finally, another sidebar, "WSJ on Bond Beating," explains, "The Wall Street Journal writes 'It's the Worst Bond Market Since 1842. That's the Good News.' The column asks, 'How much more of a beating can bond investors take? So far in 2022, with inflation raging, bonds have lost 10% -- among the worst returns in U.S. history. On Wednesday, the Federal Reserve raised interest rates by 0.5 percentage points, the sharpest increase in 22 years. Yet, just as your body begins healing from an injury before you can feel any improvement, the worst for bond investors might already be ending. Those who dump bonds now might be making a mistake by selling low after buying high."
UBS Asset Management distributed a PDF entitled, "Liquidity Perspectives: Sustainability in Liquidity & Cash Management," which tells us, "Sustainability has become an increasingly important requirement for companies, investors, and society. UBS Asset Management’s liquidity and cash management strategies are no exception. Many UBS AM money market funds, low duration and ultra-low duration solutions are ESG (environmental, social, governance) integrated -- meaning incorporating ESG considerations are part of a holistic approach to issuer research, analysis and portfolio construction. UBS AM also offers liquidity and cash management strategies that are ‘Sustainability Focused,’ that have specific sustainable goals incorporated into the investment strategy."
The piece explains, "Nonetheless, there is often confusion regarding what Sustainable Investing entails. The terminology can be confusing to many, as terms such as Green, ESG and SRI (socially responsible investing) are often used interchangeably. For example, some investors view Sustainable Investing as a process of excluding certain industries viewed as harmful to individuals’ health, the environment or to society as a whole from one’s portfolio (e.g., coal producers, tobacco, etc.). On the other end of the spectrum, some investors expect only 'green' companies in sustainable portfolios, such as companies involved in wind and solar energy adoption, energy efficiency, pollution controls or sustainable farming."
It continues, "While these approaches of exclusion or impact investing are indeed common, we incorporate ESG analysis as part of our credit research and assessment process which provides portfolio managers with hard data and greater insights on ESG factors to make informed portfolio management decisions and therefore provides us the opportunity to invest in a way that is expected to have a positive and measurable impact on society and/or the environment. Evidence suggests that a significant driver of outperformance in sustainable portfolios is avoiding negative event risk, or so-called 'blow-ups.' Over the past several years, the oil spill in the Gulf of Mexico and the automotive emissions scandals are two well-publicized events where companies with poor sustainability profiles experienced significant ‘tail risk’ events that resulted in rating downgrades."
UBS writes, "Liquidity and cash management solutions with ESG integration or those seeking sustainable objectives are becoming more widely available. With a variety of implementation styles, it is important to consider the type of solution best suited to your goals. ESG analysis across most of UBS-AM’s Fixed Income and Liquidity capabilities has been integrated in the investment process for a number of years, with issuer-level ESG analysis as guided by UBS-AM’s approach to ESG research and evaluation methodology. This has involved developing a proprietary ESG risk dashboard that combines scores and data points from several external research providers together with our internal ESG score. Our credit research teams monitor individual issuers to assure high credit quality, and partner closely with our dedicated Sustainable and Impact Investing Research team to maintain focused ESG integration in the research process. The ‘integration’ process also screens for specific ESG factors either promoting or removing issuers albeit within the available investment universe. UBS Asset Management is dedicated to delivering Sustainable Investment solutions for client portfolios, and currently manages over USD 136bn in Sustainability Focused and USD 454bn in ESG integrated strategies globally (as of Sept. 30, 2021)."
They also comment, "Treasury and government money market funds generally aren’t offered as Sustainability Focused products as a market standard given their restricted issuer universe (e.g., US Treasuries and US agency securities). For prime style money market funds, issuers are assessed on environmental, social and governance factors, however since the majority of eligible short-term investments are financial issuers, governance factors may have a greater relevance. Ultra-short or low duration bond funds can have greater flexibility to incorporate environmental factors over and above an ESG score, including targeting a Sustainable Focus (or goal or objective) due to a broader available investment universe, while potentially generating returns in excess of pure money market funds."
Finally, UBS adds, "The EU has taken the lead in setting clear regulatory guidelines with the Sustainable Finance Disclosure Regulation (SFDR), which has been put in place to provide investors with transparency in comparing ESG characteristics across funds. Many money market and short/low duration funds are registered as Article 8 which is defined as: a fund which promotes environmental or social characteristics, or a combination of those characteristics, provided that the companies in which the investments are made follow good governance practices. In the US, ESG money market funds are gaining traction with industry assets of USD 77 Billion at 30 November 2021 (according to Crane Data). Unlike the EU, there are currently no ESG-specific regulations or rules in the United States, however the US securities regulators continue to focus on this issue. Asset managers are also offering share classes sharing a proportion of revenue to non-profit or other charitable organizations focusing on ESG and diversity goals."
In related news, Federated Hermes posted a market piece entitled, "Introducing SDG Shares," which tells us, "The new SDG Shares offer investors a unique opportunity to invest in our Federated Hermes Government Obligations Fund while also promoting environmental, social and governance (ESG) progress through support for organizations that we believe are aligned with the UN Sustainable Development Goals (UNSDGs). Your investment in the SDG Shares can lead to Federated Hermes providing contributions to an organization(s) working to improve society."
They write, "Federated Hermes is committed to putting the interest of our clients first and acting with consideration for our community as we execute our mission of providing investors with the means to pursue their long-term goals. As a firm and as global citizens, we believe we can make a positive difference in society through our individual and collective efforts. With this in mind, Federated Hermes expects to make charitable donations to organizations we believe are aligned to one or more of the UNSDGs. These donations will be 5% of the quarterly management fee and administrative fee revenue attributable to the SDG Shares net of any waivers. We are taking a multi-dimensional approach to focus on reducing inequality (UNSDG #10), while also considering the goals for quality education (UNSDG #4) and decent work and economic growth (UNSDG #8 ). Currently, donations will go to the Hispanic Heritage Foundation (HF)."
The piece adds, "The Hispanic Heritage Foundation is a national nonprofit focused on education, workforce, innovative leadership, and culture to meet the Latino community’s and America’s priorities, through a unique cycle of leadership built on a high-profile, year-round continuum of sustainable programs.... Over time, Federated Hermes may change or expand donations to other organizations which promote progress on the UNSDGs"
Crane Data currently tracks 39 Social, ESG, Minority or Veteran-affiliated MMFs with $82.9 billion (as of 4/30/22), representing 1.7% of the total $4.979 trillion in taxable MMFs. (The Social & ESG MMF total is down from $87.8 billion as of 12/31/21.) Social or "Impact" MMFs (all Govt MMFs) total $33.3 billion and include: BlackRock Liq FedTust Inst (TFFXX, $6.0B), Dreyfus Govt Sec Cash Instit (DIPXX, $3.6B), Federated Hermes Govt Ob Tax-M IS (GOTXX, $6.2B), Goldman Sachs FS Fed Instr Inst (FIRXX, $3.4B) and Morgan Stanley Inst Liq Govt Sec Inst (MUIXX, $14.1B). ESG MMFs (All Prime) total $10.5B and include: BlackRock LEAF Direct (LEDXX, $1.2B), BlackRock Wealth LEAF Inv (PINXX, $1.4B), DWS ESG Liquidity Inst (ESGXX, $630M), Morgan Stanley Inst Liq ESG MMP I (MPUXX, $4.2B), State Street ESG Liq Res Prem (ELRXX, $1.7B) and UBS Select ESG Prime Inst Fund (SGIXX, $1.5B).
Social and Veteran-Affiliated MMF Share Classes (Prime and Govt) total $39.1B and include: BlackRock Lq FedFund Mischler (HUAXX, $1.8B), Dreyfus Govt Cash Mgmt BOLD (DBLXX, $972M), Federated Hermes Govt Obligs SDG (GPHXX, n/a), Goldman Sachs FS Govt Drexel Hamilton (VETXX, $5.6B), Goldman Sachs FS Prm Ob Drexel Hamilton (VTNXX, $51M), Invesco Govt & Agency Cavu (CVGXX, $5.0B), Invesco Liquid Assets Cavu (CVPXX, $1M), Invesco Treasury Cavu (CVTXX, $611M), JPMorgan 100% US Trs MM Academy (JACXX, $100M), JPMorgan 100% US Trs MM Empower (EJTXX, $30M), JPMorgan Prime MM Academy (JPAXX, $1.3B), JPMorgan Prime MM Empower (EJPXX, $465M), JPMorgan US Govt MM Academy (JGAXX, $10.9B), JPMorgan US Govt MM Empower (EJGXX, $3.6B), JPMorgan US Trs Plus MM Academy (JPCXX, $1M), JPMorgan US Trs Plus MM Empower (EJUXX, $113M), Morgan Stanley Inst Liq ESG MMP CastleOak (OAKXX, $250M), Morgan Stanley Inst Liq Govt CastleOak (COSXX, $285M), Morgan Stanley Inst Liq Govt Impact (IMPXX, $1M), Northern Instit Govt Select SWS (WCGXX, $5.3B) and State Street Inst US Govt Bancroft (VTGXX, $400M). (State Street Inst US Govt also has Opportunity, Blaylock and Cabrera shares with $1M each.)
For more on ESG and "Social" MMFs, see these Crane Data News pieces: "Dreyfus Announces New BOLD D&I Share Class with Howard University" (3/1/22), "SSGA Debuts Opportunity Class; BlackRock Bancroft, Cabrera Shares Live" (11/17/21); "More D&I: State Street Files for Blaylock Van Shares; WSJ Hits Tether" (10/27/21); "BlackRock Expands ESG Lineup; Files for New Bancroft, Cabrera Shares" (8/19/21); "Northern Renames Diversity Shares Siebert Williams; Safened Platform" (4/20/21); "Morgan Stanley Files for CastleOak Shares; Bond Fund Symposium Today" (3/25/21); "JP Morgan Launches 'Empower' Share Class to Support Minority Banks" (2/24/21); "Mischler Financial Joins 'Impact' or Social Money Market Investing Wave" (12/5/19); and "Dreyfus Launches 'Impact' or Diversity Government Money Market Fund" (11/21/19). Click here to see the Federal Home Loan Bank Office of Finance's list of D&I or diversity and inclusion, dealers.
Crane Data's May Money Fund Portfolio Holdings, with data as of April 30, 2022, show that Treasuries plunged again last month while Other (mostly Time Deposits) jumped. Money market securities held by Taxable U.S. money funds (tracked by Crane Data) decreased by $55.2 billion to $4.884 trillion in April, after decreasing $40.9 billion in March, increasing $2.9 billion in February and decreasing $108.3 billion in January. Assets rose $114.1 billion in December, $46.4 billion in November and $72.4 billion in October. But they decreased $26.0 billion in Sept., increased $47.4 billion in August and decreased $89.1 billion in July. Repo remained the largest portfolio segment, while Treasuries remained in the No. 2 spot. (Though overall Repo fell, MMF holdings of Fed repo inched higher to $1.662 trillion.) Agencies were the third largest segment, CP remained fourth, ahead of Other/Time Deposits, CDs and VRDNs. Below, we review our latest Money Fund Portfolio Holdings statistics. (Note: For those planning on attending our upcoming Money Fund Symposium conference, which is June 20-22 in Minneapolis, Minn, make your hotel reservations soon!)
Among taxable money funds, Repurchase Agreements (repo) decreased $9.9 billion (-0.4%) to $2.350 trillion, or 48.1% of holdings, in April, after increasing $100.9 billion in March and $10.7 billion in February. Repo decreased $234.4 billion in January, but increased $228.0 billion in December and $113.6 billion in November. Treasury securities fell $78.6 billion (-4.5%) to $1.672 trillion, or 34.2% of holdings, after decreasing $79.2 billion in March and $17.0 billion in February. T-bills increased $40.0 billion in January and $19.9 billion in December, but they declined $52.6 billion in November. Government Agency Debt was down $1.0 billion, or -0.3%, to $385.8 billion, or 7.9% of holdings, after decreasing $4.3 billion in March, increasing $1.5 billion in February and decreasing $6.9 billion in January. Repo, Treasuries and Agency holdings totaled $4.407 trillion, representing a massive 90.2% of all taxable holdings.
Money fund holdings of Other (mainly Time Deposits) and CDs jumped in April, while CP holdings inched lower. Commercial Paper (CP) decreased $0.1 billion (-0.1%) to $224.2 billion, or 4.6% of holdings, after decreasing $7.2 billion in March but increasing $2.9 billion in February and $11.8 billion in January. Certificates of Deposit (CDs) increased $7.3 billion (6.7%) to $116.1 billion, or 2.4% of taxable assets, after decreasing $5.7 billion in March and $6.9 billion in February (but increasing $12.6 billion in January). Other holdings, primarily Time Deposits, increased $28.2 billion (31.7%) to $117.1 billion, or 2.4% of holdings, after decreasing $47.4 billion in March but increasing $9.5 billion in February and $69.0 billion in January. VRDNs fell to $19.8 billion, or 0.4% of assets. (Note: This total is VRDNs for taxable funds only. We will post our Tax Exempt MMF holdings separately Wednesday afternoon.)
Prime money fund assets tracked by Crane Data fell to $819 billion, or 16.8% of taxable money funds' $4.884 trillion total. Among Prime money funds, CDs represent 14.2% (up from 13.0% a month ago), while Commercial Paper accounted for 27.4% (up from 26.9% in March). The CP totals are comprised of: Financial Company CP, which makes up 18.4% of total holdings, Asset-Backed CP, which accounts for 3.7%, and Non-Financial Company CP, which makes up 5.3%. Prime funds also hold 4.8% in US Govt Agency Debt, 10.0% in US Treasury Debt, 20.4% in US Treasury Repo, 2.0% in Other Instruments, 11.7% in Non-Negotiable Time Deposits, 6.0% in Other Repo, 2.0% in US Government Agency Repo and 1.1% in VRDNs.
Government money fund portfolios totaled $2.808 trillion (57.5% of all MMF assets), down from $2.871 trillion in March, while Treasury money fund assets totaled another $1.257 trillion (25.7%), up from $1.234 trillion the prior month. Government money fund portfolios were made up of 12.3% US Govt Agency Debt, 9.5% US Government Agency Repo, 26.0% US Treasury Debt, 51.7% in US Treasury Repo, 0.4% in Other Instruments. Treasury money funds were comprised of 68.3% US Treasury Debt and 31.6% in US Treasury Repo. Government and Treasury funds combined now total $4.065 trillion, or 83.2% of all taxable money fund assets.
European-affiliated holdings (including repo) increased by $52.9 billion in April to $491.5 billion; their share of holdings rose to 10.1% from last month's 8.9%. Eurozone-affiliated holdings increased to $330.8 billion from last month's $317.1 billion; they account for 6.8% of overall taxable money fund holdings. Asia & Pacific related holdings inched higher to $195.3 billion (4.0% of the total) from last month's $192.5 billion. Americas related holdings fell to $4.193 trillion from last month's $4.304 trillion, and now represent 85.9% of holdings.
The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (up $25.4 billion, or 1.3%, to $2.018 trillion, or 41.3% of assets); US Government Agency Repurchase Agreements (down $36.0 billion, or -11.3%, to $282.7 billion, or 5.8% of total holdings), and Other Repurchase Agreements (up $0.7 billion, or 1.4%, from last month to $49.1 billion, or 1.0% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (down $1.9 billion to $150.8 billion, or 3.1% of assets), Asset Backed Commercial Paper (down $1.1 billion to $30.0 billion, or 0.6%), and Non-Financial Company Commercial Paper (up $2.9 billion to $43.3 billion, or 0.9%).
The 20 largest Issuers to taxable money market funds as of April 30, 2022, include: the US Treasury ($1,671.6 trillion, or 34.2%), Federal Reserve Bank of New York ($1.662T, 34.0%), Federal Home Loan Bank ($230.6B, 4.7%), Federal Farm Credit Bank ($104.3B, 2.1%), BNP Paribas ($102.2B, 2.1%), RBC ($81.4B, 1.7%), Fixed Income Clearing Corp ($66.4B, 1.4%), Sumitomo Mitsui Banking Co ($53.4B, 1.1%), Barclays ($44.0B, 0.9%), JP Morgan ($43.7B, 0.9%), Mitsubishi UFJ Financial Group Inc ($40.5B, 0.8%), Societe Generale ($36.3B, 0.7%), Citi ($35.9B, 0.7%), Credit Agricole ($35.3B, 0.7%), Bank of America ($34.9B, 0.7%), Goldman Sachs ($27.9B, 0.6%), Toronto-Dominion Bank ($26.9B, 0.6%), Federal National Mortgage Association ($25.8B, 0.5%), Canadian Imperial Bank of Commerce ($24.9B, 0.5%) and Bank of Montreal ($24.7B, 0.5%).
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: Federal Reserve Bank of New York ($1.662T, 70.7%), BNP Paribas ($92.0B, 3.9%), Fixed Income Clearing Corp ($66.4B, 2.8%), RBC ($66.2B, 2.8%), Sumitomo Mitsui Banking Corp ($42.8B, 1.8%), JP Morgan ($39.6B, 1.7%), Bank of America ($33.1B, 1.4%), Citi ($32.6B, 1.4%), Societe Generale ($30.3B, 1.3%) and Mitsubishi UFJ Financial Group Inc ($28.2B, 1.2%). The largest users of the $1.651 trillion in Fed RRP include: Fidelity Govt Money Market ($125.6B), JPMorgan US Govt MM ($127.8B), Vanguard Federal Money Mkt Fund ($116.4B), Goldman Sachs FS Govt ($111.7B), Fidelity Govt Cash Reserves ($111.1B), Morgan Stanley Inst Liq Govt ( $77.7B), BlackRock Lq FedFund ($73.6B), Dreyfus Govt Cash Mgmt ($58.8B), Federated Hermes Govt ObI ($57.0B) and Fidelity Inv MM: Govt Port ($53.2B).
The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: Credit Agricole ($18.2B, 4.7%), Barclays PLC ($17.1B, 4.4%), Toronto-Dominion Bank ($15.5B, 4.0%), RBC ($15.2B, 3.9%), Skandinaviska Enskilda Banken AB ($15.0B, 3.8%), Bank of Montreal ($13.2B, 3.4%), Bank of Nova Scotia ($13.2B, 3.4%), Mizuho Corporate Bank Ltd ($13.0B, 3.3%), Svenska Handelsbanken ($12.4B, 3.2%) and Mitsubishi UFJ Financial Group Inc ($12.3B, 3.2%).
The 10 largest CD issuers include: Mitsubishi UFJ Financial Group Inc ($9.1B, 7.8%), Sumitomo Mitsui Banking Corp ($8.3B, 7.2%), Canadian Imperial Bank of Commerce ($7.9B, 6.8%), Landesbank Baden-Wurttemberg ($7.5B, 6.5%), Sumitomo Mitsui Trust Bank ($6.7B, 5.8%), Bank of Nova Scotia ($6.5B, 5.6%), Toronto-Dominion Bank ($6.4B, 5.5%), Barclays PLC ($6.3B, 5.4%), Svenska Handelsbanken ($5.3B, 4.5%) and Bank of Montreal ($5.2B, 4.5%).
The 10 largest CP issuers (we include affiliated ABCP programs) include: RBC ($10.8B, 5.8%), BNP Paribas ($7.9B, 4.2%), Toronto-Dominion Bank ($7.6B, 4.1%), Bank of Montreal ($7.4B, 4.0%), UBS AG ($7.2B, 3.9%), National Australia Bank Ltd ($6.7B, 3.6%), Bank of Nova Scotia ($6.7B, 3.6%), Societe Generale ($6.0B, 3.3%), Bayern LB ($5.8B, 3.1%) and Credit Agricole ($5.1B, 2.8%).
The largest increases among Issuers include: Barclays PLC (up $16.9B to $44.0B), Credit Agricole (up $12.5B to $35.3B), Federal Reserve Bank of New York (up $11.7B to $1.662T), Federal Home Loan Bank (up $10.5B to $230.6B), Swedbank AB (up $6.4B to $7.7B), Goldman Sachs (up $6.1B to $27.9B), Svenska Handelsbanken (up $5.4B to $12.4B), Skandinaviska Enskilda Banken AB (up $5.1B to $15.0B), Nordea Bank (up $4.4B to $10.8B) and JP Morgan (up $2.8B to $43.7B).
The largest decreases among Issuers of money market securities (including Repo) in April were shown by: the US Treasury (down $78.6B to $1.672), Fixed Income Clearing Corp (down $28.7B to $66.4B), Federal National Mortgage Association (down $9.9B to $25.8B), RBC (down $9.8B to $81.4B), Bank of America (down $4.9B to $34.9B), Toronto-Dominion Bank (down $3.9B to $26.9B), Bank of Montreal (down $2.6B to $24.7B), Canadian Imperial Bank of Commerce (down $2.5B to $24.9B), Federal Home Loan Mortgage Corp (down $2.5B to $22.5B) and Mitsubishi UFJ Financial Group Inc (down $2.0B to $40.5B).
The United States remained the largest segment of country-affiliations; it represents 82.0% of holdings, or $4.005 trillion. France (4.1%, $201.4B) was in second place, while Canada (3.9%, $188.2B) was No. 3. Japan (3.6%, $177.3B) occupied fourth place. The United Kingdom (1.8%, $86.2B) remained in fifth place. Netherlands (1.0%, $46.9B) was in sixth place, followed by Sweden (1.0%, $46.5B) Germany (0.8%, $39.8B), Australia (0.7%, $33.4B) and Switzerland (0.4%, $19.2B). (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. Note too: U.S. money funds have never been allowed to invest in Russian debt or holdings, so there is no doubt no direct exposure there.)
As of April 30, 2022, Taxable money funds held 58.5% (up from 58.0%) of their assets in securities maturing Overnight, and another 10.3% maturing in 2-7 days (up from 7.9%). Thus, 68.8% in total matures in 1-7 days. Another 6.8% matures in 8-30 days, while 8.7% matures in 31-60 days. Note that over three-quarters, or 84.4% of securities, mature in 60 days or less, the dividing line for use of amortized cost accounting under SEC regulations. The next bucket, 61-90 days, holds 5.2% of taxable securities, while 7.9% matures in 91-180 days, and just 2.6% matures beyond 181 days. (Visit our Content center to download, or contact us to request our latest Portfolio Holdings reports.)
Crane Data's latest monthly Money Fund Portfolio Holdings statistics will be sent out Tuesday, and we'll be writing our regular monthly update on the April 30 data for Wednesday's News. But we also uploaded a separate and broader Portfolio Holdings data set based on the SEC's Form N-MFP filings on Monday. (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 April 30, includes holdings information from 999 money funds (down 1 fund from last month), representing assets of $5.028 trillion (down from $5.089 trillion). Prime MMFs now total $834.8 billion, or 16.6% of the total. We review the new N-MFP data, and we also look at our revised MMF expense data, which shows charged expenses moving higher again as fee waivers continued to shrink in April, below.
Our latest Form N-MFP Summary for All Funds (taxable and tax-exempt) shows Repurchase Agreement (Repo) holdings in money market funds inched lower to $2.369 trillion (down from $2.377 trillion), or 47.1% of all assets. Treasury holdings totaled $1.674 trillion (down from $1.766 trillion), or 33.3% of all holdings, and Government Agency securities totaled $402.6 billion (down from $403.4 billion), or 8.0%. Holdings of Treasuries, Government agencies and Repo (almost all of which is backed by Treasuries and agencies) combined total $4.446 trillion, or a massive 88.4% of all holdings.
Commercial paper (CP) totals $231.0 billion (down from $232.2 billion), or 4.6% of all holdings, and the Other category (primarily Time Deposits) totals $158.4 billion (up from $130.1 billion), or 3.1%. Certificates of Deposit (CDs) total $116.1 billion (down from $108.8 billion), 2.3%, and VRDNs account for $76.6 billion (up from $71.5 billion last month), or 1.5% of money fund securities.
Broken out into the SEC's more detailed categories, the CP totals were comprised of: $151.5 billion, or 3.0%, in Financial Company Commercial Paper; $30.5 billion or 0.6%, in Asset Backed Commercial Paper; and, $49.0 billion, or 1.0%, in Non-Financial Company Commercial Paper. The Repo totals were made up of: U.S. Treasury Repo ($2.015 trillion, or 40.1%), U.S. Govt Agency Repo ($304.4B, or 6.1%) and Other Repo ($49.6B, or 1.0%).
The N-MFP Holdings summary for the Prime Money Market Funds shows: CP holdings of $228.4 billion (down from $227.4 billion), or 27.2%; Repo holdings of $234.8 billion (down from $269.1 billion), or 28.1%; Treasury holdings of $88.4 billion (down from $102.3 billion), or 10.6%; CD holdings of $116.1 billion (up from $108.8 billion), or 13.9%; Other (primarily Time Deposits) holdings of $115.5 billion (up from $87.8 billion), or 13.8%; Government Agency holdings of $42.9 billion (down from $43.0 billion), or 5.1% and VRDN holdings of $9.7 billion (up from $11.0 billion), or 1.2%.
The SEC's more detailed categories show CP in Prime MMFs made up of: $151.5 billion (down from $154.2 billion), or 18.1%, in Financial Company Commercial Paper; $30.5 billion (down from $31.6 billion), or 3.7%, in Asset Backed Commercial Paper; and $45.4 billion (up from $42.7 billion), or 5.0%, in Non-Financial Company Commercial Paper. The Repo totals include: U.S. Treasury Repo ($169.3 billion, or 20.3%), U.S. Govt Agency Repo ($16.5 billion, or 2.0%), and Other Repo ($49.0 billion, or 5.9%).
In related news, money fund charged expense ratios (Exp%) rose again in April (after surging in March) to 0.29% from 0.26% the prior month. Charged expenses hit a record low of 0.06% in May 2021 but remained at 0.07% for most the second half of 2021. Our Crane 100 Money Fund Index and Crane Money Fund Average were 0.22% and 0.29%, respectively, as of April 30, 2022. Crane Data revises its monthly expense data and gross yield information after the SEC updates its latest Form N-MFP data the morning of the 6th business day of the new month. (They posted this info Monday morning, so we revised our monthly MFI XLS spreadsheet and historical craneindexes.xlsx averages file to reflect the latest expenses, gross yields, portfolio composition and maturity breakout yesterday.) Visit our "Content" page for the latest files.
Our Crane 100 Money Fund Index, a simple average of the 100 largest taxable money funds, shows an average charged expense ratio of 0.22%, 2 basis points higher than last month's level (and 16 bps higher than May's record low 0.06%). The average is still down from 0.27% on Dec. 31, 2019, so we estimate that funds are now waiving just 5 bps, or 18.5% of normally charged expenses. The Crane Money Fund Average, a simple average of all taxable MMFs, showed a charged expense ratio of 0.29% as of April 30, 2022, 3 bps higher than the month prior but still down from 0.40% at year-end 2019.
Prime Inst MFs expense ratios (annualized) average 0.27% (up 2 bps from last month), Government Inst MFs expenses average 0.22% (up 1 bp from previous month), Treasury Inst MFs expenses average 0.27% (up 3 bps from last month). Treasury Retail MFs expenses currently sit at 0.38%, (up 8 bps from last month), Government Retail MFs expenses yield 0.33% (up 4 bps from last month). Prime Retail MF expenses averaged 0.39% (up 4 bps). Tax-exempt expenses were flat at 0.34% on average.
Gross 7-day yields rose again during the month ended April 30, 2022 (after jumping on the first Fed hike in March). (Yields should jump even more this month too in reaction to the Fed's 50 bps move last week.) The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 744), shows a 7-day gross yield of 0.44%, up 8 bps from the prior month. The Crane Money Fund Average is down from 1.72% at the end of 2019 and up from 0.15% the end of 2020. Our Crane 100's 7-day gross yield was up 7 bps, ending the month at 0.43%.
According to our revised MFI XLS and Crane Index numbers, we now estimate that annualized revenue for all money funds is approximately $10.984B billion (as of 4/30/22). Our estimated annualized revenue totals increased from $10.331B last month and from $5.858B two months ago, and they are now more than triple May's record low $2.927B level. Annualized MMF revenues have now surpassed the $10.642 billion level at the end of 2019 (and are approaching their record $11.996 level from April 2020). Charged expenses and gross yields are driven by a number of variables, but revenues should continue rising in coming months as the Federal Reserve continues raising interest rates.
Crane Data's latest monthly Money Fund Market Share rankings show assets decreased among the vast majority of the largest U.S. money fund complexes in April. Money market fund assets decreased $74.6 billion, or -1.5%, last month to $4.972 trillion. Assets decreased by $69.4 billion, or -1.4%, over the past 3 months; they've decreased by $20.9 billion, or -0.4%, over the past 12 months through April 30. The only increases among the 25 largest managers last month were seen by Invesco, BlackRock, Goldman Sachs, SEI and HSBC, which grew assets by $13.5 billion, $12.3B, $6.3B, $3.1B and $0.3B, respectively. The largest declines in April were seen by Fidelity, Northern, Federated Hermes, Dreyfus and Allspring, which decreased by $38.5 billion, $17.9B, $9.2B, $8.9B and $7.6B, respectively. Our domestic U.S. "Family" rankings are available in our MFI XLS product, our global rankings are available in our MFI International product. The combined "Family & Global Rankings" are available to Money Fund Wisdom subscribers. We review the latest market share totals, and look at money fund yields, which rose again in April, below.
Over the past year through April 30, 2022, Invesco (up $40.9B, or 51.8%), Morgan Stanley (up $21.3B, or 8.6%), Goldman Sachs (up $19.0B, or 5.2%), American Funds (up $18.0B, or 11.6%) and SSGA (up $16.3B, or 11.6%), were the largest gainers. American Funds, Invesco, Goldman Sachs, SSGA and BlackRock had the largest asset increases over the past 3 months, rising by $29.0B, $25.0B, $16.8B, $12.8B and $2.7B, respectively. The largest decliners over 12 months were seen by: Federated Hermes (down $42.0B), Vanguard (down $27.0B), UBS (down $18.0B), BlackRock (down $17.1B) and Schwab (down $16.4B). The largest decliners over 3 months included: Northern (down $34.0B), Federated Hermes (down $22.9B), Fidelity (down $18.8B), Dreyfus (down $15.0B) and Allspring (down $13.1B).
Our latest domestic U.S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $896.4 billion, or 18.0% of all assets. Fidelity was down $38.5B in April, down $18.8 billion over 3 mos., and up $6.7B over 12 months. BlackRock ranked second with $529.5 billion, or 10.6% market share (up $12.3B, up $2.7B and down $17.1B for the past 1-month, 3-mos. and 12-mos., respectively). Vanguard ranked third with $458.4 billion, or 9.2% market share (down $3.2B, down $1.2B and down $27.0B). JPMorgan ranked in fourth place with $452.4 billion, or 9.1% of assets (down $1.1B, down $10.1B and up $3.1B), while Goldman Sachs was the fifth largest MMF manager with $382.9 billion, or 7.7% of assets (up $6.3B, up $16.8B and up $19.0B for the past 1-month, 3-mos. and 12-mos.).
Federated Hermes was in sixth place with $305.5 billion, or 6.1% (down $9.2B, down $22.9B and down $42.0B), while Morgan Stanley was in seventh place with $270.0 billion, or 5.4% of assets (down $3.2B, down $11.7B and up $21.3B). Dreyfus ($230.5B, or 4.6%) was in eighth place (down $8.9B, down $15.0B and up $3.2B), followed by Northern ($173.4B, or 3.5%; down $17.9B, down $34.1B and up $6.6B). American Funds was in 10th place ($172.5B, or 3.5%; up $0.0B, up $29.0B and up $18.0B).
The 11th through 20th-largest U.S. money fund managers (in order) include: Allspring (formerly Wells Fargo) ($169.8B, or 3.4%), SSGA ($156.7B, or 3.2%), Schwab ($140.0B, or 2.8%), First American ($122.2B, or 2.5%), Invesco ($119.8B, or 2.4%), T. Rowe Price ($48.7B, or 1.0%), UBS ($40.3B, or 0.8%), HSBC ($37.6B, or 0.8%), DWS ($36.9B, or 0.7%) and Western ($31.7B, or 0.6%). Crane Data currently tracks 62 U.S. MMF managers, unchanged from 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 are the same as the domestic list, except JPMorgan moves up to the No. 3 spot and Goldman moves to the No. 4 spot (ahead of Vanguard), and SSGA takes American Funds' spot at number 10. 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 ($907.0 billion), BlackRock ($704.4B), JP Morgan ($635.5B), Goldman Sachs ($513.7B) and Vanguard ($458.4B). Morgan Stanley ($319.3B) was in sixth, Federated Hermes ($313.0B) was seventh, followed by Dreyfus/BNY Mellon ($254.2B), Northern ($199.8B) and SSGA ($188.1B), which round out the top 10. These totals include "offshore" U.S. Dollar money funds, as well as Euro and Pound Sterling (GBP) funds converted into U.S. dollar totals.
The May issue of our Money Fund Intelligence and MFI XLS, with data as of 4/30/22, shows that yields rose again in April for our Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 744), rose to 0.14% (up 4 bps) for the 7-Day Yield (annualized, net) Average, the 30-Day Yield increased to 0.12% (up 6 bps). The MFA's Gross 7-Day Yield rose to 0.40% (up 4 bps), and the Gross 30-Day Yield also moved up to 0.38% (up 6 bps). (Gross yields will be revised Monday afternoon, though, once we download the SEC's Form N-MFP data for 4/30/22. We expect the revised expense and gross data to increase again.)
Our Crane 100 Money Fund Index shows an average 7-Day (Net) Yield of 0.21% (up 6 bps) and an average 30-Day Yield at 0.19% (up 10 bps). The Crane 100 shows a Gross 7-Day Yield of 0.42% (up 6 bps), and a Gross 30-Day Yield of 0.40% (up 10 bps). Our Prime Institutional MF Index (7-day) yielded 0.22% (up 3 bps) as of April 30. The Crane Govt Inst Index was at 0.15% (up 3 bps) and the Treasury Inst Index was at 0.19% (up 8 bps). Thus, the spread between Prime funds and Treasury funds is 3 basis points, and the spread between Prime funds and Govt funds is 7 basis points. The Crane Prime Retail Index yielded 0.13% (up 4 bps), while the Govt Retail Index was 0.04% (up 2 bps), the Treasury Retail Index was 0.02% (up 2 bps from the month prior). The Crane Tax Exempt MF Index yielded 0.14% (down 1 bp) as of April 30.
Gross 7-Day Yields for these indexes to end April were: Prime Inst 0.48% (up 4 bps), Govt Inst 0.36% (up 3 bps), Treasury Inst 0.42% (up 7 bps), Prime Retail 0.48% (up 4 bps), Govt Retail 0.32% (up 1 bp) and Treasury Retail 0.36% (up 3 bps). The Crane Tax Exempt Index remained at 0.43%. The Crane 100 MF Index returned on average 0.02% over 1-month, 0.02% over 3-months, 0.02% YTD, 0.03% over the past 1-year, 0.57% over 3-years (annualized), 0.94% over 5-years, and 0.52% over 10-years.
The total number of funds, including taxable and tax-exempt, rose by 3 in April to 894. There are currently 744 taxable funds, up 3 from the previous month, and 150 tax-exempt money funds (unchanged from last month). (Contact us if you'd like to see our latest MFI XLS, Crane Indexes or Market Share report.)
The May issue of our flagship Money Fund Intelligence newsletter, which was sent to subscribers Friday morning, features the articles: "Comments to SEC on MMF Reforms Support Liquidity Fee," which discusses the feedback on pending regulatory changes; "Fidelity Letter Blasts SEC on Swing Pricing, Negative Yields," which quotes from the largest fund manager's feedback to the Commission; and, "Earnings Reports Show Fee Waivers Retreating in Q1'22," which reviews the latest reports on the return of fees in MMFs. We also sent out our MFI XLS spreadsheet Friday morning, and we've updated our database with 4/30/22 data. Our May Money Fund Portfolio Holdings are scheduled to ship on Tuesday, May 10, and our May Bond Fund Intelligence is scheduled to go out on Friday, May 13. (Note: Our MFI, MFI XLS and Crane Index products are all available to subscribers via our Content center.)
MFI's "Comments article says, "The big news over the past month was the release of most of the major 'Comments on Money Market Fund Reform' sent to the SEC in response to its Money Fund Reform Proposal. Following the April 11 deadline, dozens of letters were posted, including entries from 17 of the 20 largest managers of MMFs. Click on the name for comments from each of the managers here: Fidelity (see article), BlackRock, Vanguard, J.P. Morgan, Federated Hermes, Morgan Stanley, Dreyfus, Northern, Allspring, SSGA, American Funds, Schwab, First American, Invesco, T. Rowe Price, HSBC and Western. (Goldman Sachs, UBS and DWS didn't submit letters.)
It continues, "ICI's letter, which reflects most fund managers' thoughts, tells us, 'Any new reforms for money market funds should be measured and appropriately calibrated, taking into account data, the costs and benefits these funds provide to investors, the economy, and the short-term funding markets.... We strongly disagree with the proposed swing pricing requirement (and the related proposed disclosure and reporting requirements). Swing pricing fails to reflect how money market funds are managed, would not advance the SEC's goals of enhancing money market fund resiliency and by extension financial stability, would likely strip money market funds of features that are key to investors ... and would impose excessive costs to overcome unnecessary and complex structural challenges. Indeed, swing pricing will fundamentally alter the product and its appeal ..., cause fund sponsors to stop offering the product, and is neither supported by the data nor necessary."
Our "Fidelity Letter" excerpts explain, "Fidelity's comment, written by Chief Legal Officer Cynthia Lo Bessette, tells us, 'Fidelity Investments appreciates the opportunity to provide comments to the Securities and Exchange Commission on its proposed rule and form amendments relating to money market funds.... [S]tresses highlighted certain vulnerabilities in segments of the money market fund industry as well as the need to reconsider certain aspects of Rule 2a-7. Fidelity is encouraged that the SEC has sought to solve for these vulnerabilities in the Proposal by bolstering liquidity requirements and by reevaluating its prior support for temporary suspensions of redemptions (commonly referred to as 'gates')."
It continues, "Fidelity is also encouraged that the SEC did not propose other, more pernicious, reform options that would significantly disrupt the money market fund industry and, in turn, the smooth functioning of the capital markets. It is evident that the SEC, at least in portions of the Proposing Release, accounted for the feedback provided by the industry in response to the report of the President's Working Group on Financial Markets (the 'PWG') on potential reform options for money market funds."
Our "Earnings" piece states, "The latest batch of quarterly earnings calls and reports offers a glimpse into the state of fee waivers, which have begun falling precipitously (and should be almost gone in the current quarter). BlackRock CFO Gary Shedlin comments, 'We incurred approximately $75 million of gross discretionary yield support waivers in the first quarter. However, waivers for our flagship funds were essentially removed following rate hikes ... in March. Recall that approximately 50% of gross fee waivers are generally shared with distributors, so the benefit to base fees is partially offset by higher distribution expense."
Shedlin also tells us, "BlackRock's cash management platform saw net outflows of $27 billion, driven by redemptions from offshore prime and U.S. government MMFs, in line with the broader industry. BlackRock has steadily grown our share of the cash management industry by leveraging our scale and delivering innovative distribution and risk management solutions for clients."
MFI also includes the News brief, "Fed Hikes by 50 Bps; MMF Yields Poised to Surge Towards 1.0%." It quotes the Fed's Statement, "[T]he Committee decided to raise the target range for the federal funds rate to 3/4 to 1 percent and anticipates that ongoing increases in the target range will be appropriate." Our Crane 100 Index yields 0.21%, but should move over 0.50% within days and towards 0.70% in weeks.
Another News brief, "April Portfolio Holdings: Fed Repo Jumps; Treasuries, TDs Plunge," tells us, "Our March 31 data shows that Repo jumped while Treasuries and Other (Time Deposits) plunged last month. Repo remained the largest segment, while Treasuries remained No. 2. (MMF holdings of Fed repo surged to $1.651 trillion.) Agencies were the third largest segment, CP remained fourth, ahead of CDs, Other/Time Deposits and VRDNs."
Finally, a sidebar, "WSJ: Managers Shift to Cash," explains, "The Wall Street Journal writes about 'cash' in 'Wall Street Finds New Value in Cash as Global Fears Weigh on Markets.' The article says, 'Worries about the war in Ukraine, China's Covid-19 outbreak, a U.S. or European recession and surging global inflation are making a long-spurned asset increasingly popular with Wall Street's top money managers these days: cash. As stock and bond prices have retreated from records in the tumult of headlines, more asset managers said they are looking to move funds into low-risk, cash-like assets."
Our May MFI XLS, with April 30 data, shows total assets decreased $74.3 billion to $4.974 trillion, after increasing $24.1 billion in April, decreasing $34.6 billion in February and decreasing $128.1 billion in January. Assets increased $104.6 billion in December, $49.7 billion in November and $20.5 billion October. MMFs also increased $878 million in September and $27.9 billion in August. Our broad Crane Money Fund Average 7-Day Yield was up 5 bps to 0.14%, and our Crane 100 Money Fund Index (the 100 largest taxable funds) was up 6 bps to 0.21%. (Yields should jump today and begin reflecting Wednesday's Fed hike.)
On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA and the Crane 100 both were both higher at 0.40% and 0.42%, respectively. Charged Expenses averaged 0.26% and 0.20% for the Crane MFA and the Crane 100. (We'll revise expenses Monday once we upload the SEC's Form N-MFP data for 4/30/22.) The average WAM (weighted average maturity) for the Crane MFA was 26 days (down 2 days from previous month) while the Crane 100 WAM fell to 26 days. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
The Independent Adviser for Vanguard Investors writes about "Money Market or Cash in the Bank" in its May 2022 newsletter. They ask, "Did your invite to Vanguard's new Cash Deposit option get lost in the mail along with mine? Don't worry. This isn't a party you need to show up early for. In the middle of April, Vanguard quietly rolled out a new settlement fund option for your cash (or at least, for some investors' cash). Settlement (also called sweep) accounts are the place where cash goes to rest in your brokerage account unless you actively choose to put it somewhere else. For most Vanguard investors, your sweep account is Federal Money Market. The new, invitation-only option is called Vanguard Cash Deposit. And as I said, Vanguard is keeping it under wraps. No marketing campaign, no press release, no hoopla as far as I can tell. I only heard about the program through an updated SEC form that Vanguard was required to send me." (Note: Please join us for our Money Fund Symposium conference, June 20-22 in Minneapolis, Minn.)
The brief continues, "Vanguard Cash Deposit is currently available by invitation only.... So, what is this new Cash Deposit? And should we all seek an invitation to change our settlement funds from Federal Money Market? Short answer: No. Cash Deposit is a way for the cash in your settlement fund to earn interest in an FDIC-insured bank account. Vanguard has partnered with Valley National Bank and NexBank, their 'Program Banks,' to participate in the initiative. For the chosen invitees, Vanguard automatically sweeps your cash into an account at one or both of those banks. So, you still access your money through your Vanguard account but in effect it's like having the cash in a bank account rather than a money market fund. One reason you might prefer Cash Deposit over Federal Money Market would be for that FDIC insurance. But given that Federal Money Market holds U.S. government debt, I'm not sure how much of an upgrade it is to get FDIC insurance. Plus, while there is no limit on how much cash you can hold in Cash Deposit, there is a limit to how much will be insured by the FDIC."
It says, "As for the interest rate you'll earn on Cash Deposit ... the most recent rate for the program that I can find on Vanguard's website is 0.25% dating to March 22. At the time, that was nearly two times the 0.13% yield on Federal Money Market. Since then, the money fund's yield has risen to 0.25%. I have no idea if the rate on Cash Deposit has changed over the past month or not and Vanguard isn't saying. My initial conclusion was that over time the two settlement options would offer a similar yield. Vanguard only goes so far as to say the program will offer 'a different rate of return.' But, after more digging, I think it may pay to wait and see how things play out as the Fed continues hiking interest rates.... It appears the banks may have been boosting profits over boosting yields. We can only hope that Vanguard has negotiated a better deal with its Program Banks to avoid this scenario. If not, Federal Money Market will remain the easy choice."
The newsletter adds, "Maybe this is why Vanguard's not promoting Cash Deposit -- they want to work out the inevitable kinks on a small client base before rolling it out to a wider audience? So, what's in it for Vanguard? They aren't offering this service for free. Vanguard keeps a small slice of the interest you earn on the cash held in those bank accounts. Maybe Vanguard is tired of waiving fees on its money market funds every time the Fed cuts rates to zero. With Cash Deposit they'll keep earning a 'fee' as long as those Program Banks keep their interest rates above zero. If Vanguard gets this right, I suppose you could switch between the two options and chase the higher yield. But in most instances, I believe we’ll be talking basis points—not the stuff that's going to make or break your ability to achieve investment success."
Fund news source ignites writes about the news in "Vanguard Pilots Bank Sweep Option for Brokerage Clients." They explain, "Vanguard is offering a new bank sweep option for certain brokerage clients, marketing materials show. Vanguard Cash Deposit, which automatically transfers the uninvested portion of a brokerage account into an account at a participating bank, is available by invitation only, the program literature states. However, it is not open to mutual fund, college savings or other accounts. There is no minimum balance requirement. The pilot program began late last year, a Vanguard spokesperson said. The Independent Adviser for Vanguard Investors first reported on the pilot in its May newsletter."
They tell us, "The Securities and Exchange Commission recently floated a requirement that it says would help money market funds prepare for potential negative interest rates. The agency would require that government and retail money funds certify that their intermediaries, including brokerages, can process purchases and redemptions if the products' net asset values were to fluctuate. Those funds currently operate with $1.00-per-share stable net asset values. The bank sweep program could be a 'hedge' against this potential regulation's coming to pass, said Peter Crane, chief executive of Crane Data. Vanguard's spokesperson declined to comment on whether the SEC's proposed regulation has any bearing on its new bank sweep option."
The article says, "Fidelity, the largest money market fund sponsor, warned the SEC in April that the proposed requirement could drive assets out of government money market funds, which 'could negatively impact both the Treasury Department's exercise of fiscal policy (with government funds holding close to 30% of outstanding Treasury debt) and the Federal Reserve's conduct of monetary policy.' Fidelity had $937 billion in money fund assets as of March 31, Crane Data reported.... The two most-popular Fidelity funds offered as sweep options together hold more than $450 billion in sweep assets."
It adds, "The average yield across bank sweep accounts was 1 bp as of April 29, according to Crane Data. Schwab and other brokerages have shifted sweep options to bank accounts in recent years because they are more lucrative for those institutions than money market funds. 'Brokerages have found that they can earn a higher return on the sweeps,' Crane said. 'That's why everybody is doing it. They're not doing it because customers like FDIC insurance.'"
Finally, ignites writes, "The higher yields that money funds can offer brokerage clients when interest rates are not at rock bottom has in the past been a point of competition. Fidelity, for example, in 2019 touted its higher sweep returns for brokerage clients, noting that customers would get 47 times more with the firm than if they put their money with TD Ameritrade, 10 times more than with Schwab and 27 times more than with E*Trade."
In other news, the Federal Reserve Board hiked short-term interest rates by 50 basis points to a range of 0.75-1.00%. The FOMC statement says, "Although overall economic activity edged down in the first quarter, household spending and business fixed investment remained strong. Job gains have been robust in recent months, and the unemployment rate has declined substantially. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures."
It explains, "The invasion of Ukraine by Russia is causing tremendous human and economic hardship. The implications for the U.S. economy are highly uncertain. The invasion and related events are creating additional upward pressure on inflation and are likely to weigh on economic activity. In addition, COVID-related lockdowns in China are likely to exacerbate supply chain disruptions. The Committee is highly attentive to inflation risks."
The statement tells us, "The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With appropriate firming in the stance of monetary policy, the Committee expects inflation to return to its 2 percent objective and the labor market to remain strong. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 3/4 to 1 percent and anticipates that ongoing increases in the target range will be appropriate. In addition, the Committee decided to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities on June 1, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet that were issued in conjunction with this statement."
They add, "In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments."
With the weather getting warmer and the conference business rebounding, Crane Data is ramping up preparations for its big show. Crane's Money Fund Symposium, the largest gathering of money market fund managers and cash investors in the world, will take place June 20-22, 2022 at The Hyatt Regency Minneapolis, in Minneapolis, Minn. (Note that we're starting on the Juneteenth Holiday, but we're unable to move the dates.) The agenda is all set and registrations are still being taken. Money Fund Symposium attracts money fund managers, marketers and servicers, cash investors, money market securities dealers, issuers, and regulators for 2 1/2 days of sessions, socializing and networking. We review the latest agenda, as well as Crane Data's other 2022 conferences, below.
Our MF Symposium Agenda kicks off on Monday, June 20 with a "Keynote: The Brave New World in Liquidity" featuring Joe Sullivan and Yeng Felipe Butler of Allspring Global Investments (formerly Wells Fargo Funds). The rest of the Day 1 Agenda includes: "Strategists Speak '22: Fed, Rates & Reforms," with Vanessa Hubbard McMichael of Wells Fargo Securities and Priya Misra of TD Securities; a "Corporate Investors, Portals, D&I Discussion" with Laurie Brignac of Invesco, Tory Hazard of Institutional Cash Distributors and Tom Hunt of AFP; and, a "Major Money Fund Issues 2022" panel with moderator Peter Crane of Crane Data, Deborah Cunningham of Federated Hermes, John Tobin of Dreyfus and Peter Yi of Northern Trust AM. (The evening's reception is sponsored by Nearwater Capital.)
Day 2 of Money Fund Symposium 2022 begins with "Treasury Issuance & Fed Repo Update," which features Mark Cabana of BofA Securities, Dina Marchioni of the Federal Reserve Bank of NY and Tom Katzenbach of the U.S. Deptartment of the Treasury; followed by a "Senior Portfolio Manager Perspectives" panel with Linda Klingman of Charles Schwab I.M., Nafis Smith of Vanguard and Jeff Plotnik of U.S. Bancorp Asset Mgmt. These sessions are followed by "Government Money Fund & Repo Issues," with Joseph Abate of Barclays, Mike Bird of Allspring Funds and Geoff Gibbs of DWS. The morning concludes with a "Muni & Tax Exempt Money Fund Update," featuring Colleen Meehan of Dreyfus, John Vetter of Fidelity and Sean Saroya and David Elmquist of J.P. Morgan Securities.
The Afternoon of Day 2 (after a Dreyfus-sponsored lunch) features the segments: "Dealer's Choice: Supply, New Securities & CP" with Rob Crowe of Citi Global Markets, John Kodweis of J.P. Morgan and Stewart Cutler of Barclays; "Ratings Focus: Governance, Global & LGIPs" with Robert Callagy of Moody's Investors Service, Greg Fayvilevich of Fitch Ratings, and Michael Masih of S&P Global Ratings; "Ultra-Short Bond & European MMF Update," with Rob Sabatino of UBS Asset Mgmt., Teresa Ho of J.P. Morgan and Dennis Gepp of Federated. The day's wrap-up presentation is "Brokerage Sweeps, AMAs & Deposit Issues" involving Chris Melin of Ameriprise Financial and Michael Berkowitz of Citi Treasury & Trade Solutions. (The Day 2 reception is sponsored by Barclays.)
The third day of the Symposium features the sessions: "The State of the Money Fund Industry" with Peter Crane of Crane Data, Michael Morin of Fidelity Investments and Pia McCusker of SSGA; "Regulations: Money Fund Reforms Round III," with Brenden Carroll of Dechert LLP and Clair Pagnano of K&L Gates LLP; a session, "FICC Repo Update & Repo Trading Platforms with Jeff Sowell of State Street and Sal Giglio of GLMX; and lastly, a session on "Money Fund Statistics, Software & Disclosures.
Visit the MF Symposium website at www.moneyfundsymposium.com) for more details. Registration is $750, and discounted hotel reservations are still available. We hope you'll join us in Minneapolis in June! E-mail us at info@cranedata.com to request the full brochure.)
We are also starting preparations for our next European Money Fund Symposium, which is scheduled for Sept. 27-28, 2022, in Paris, France. European Money Fund Symposium offers "offshore" money fund portfolio managers, and money market investors, issuers, dealers and service providers a concentrated and affordable educational experience, as well as an excellent and informal networking venue. Our mission is to deliver the best possible conference content at an affordable price. Attendee registration for our 2022 European Money Fund Symposium is $1,000 (USD). (We're still looking for speakers and sponsors for this event, so contact us for details.)
Also, mark your calendars for our next Crane's Money Fund University, which will be held in Boston, Mass., December 15-16, 2022. Money Fund University covers the history of money funds, interest rates, regulations (Rule 2a-7), ratings, rankings, money market instruments such as commercial paper, CDs and repo, and portfolio construction and credit analysis. We also include segments on offshore money funds and ultra-short bond funds. Money Fund University's comprehensive program is good for both beginners and experienced professionals looking for a refresher.
Finally, our Bond Fund Symposium 2023 will also be held in Boston, Mass., on March 23-24, 2023. (Click here to see the agenda.) Bond Fund Symposium is the only conference devoted entirely to bond mutual funds, bringing together bond fund managers, marketers, and professionals with fixed-income issuers, investors and service providers. The majority of the content is aimed at the growing ultra-short and conservative ultra-short bond fund marketplace.
Let us know if you'd like more details on any of our events, and we hope to see you in in Minneapolis in June, in Paris in September or in Boston in December (or in March 2023). Thanks to all of our speakers and sponsors and for your patience and support over the past two rough years!
The SEC recently released its latest quarterly "Private Funds Statistics" report, which summarizes Form PF reporting and includes some data on "Liquidity Funds," or pools which are similar to but not money market funds. The publication shows overall Liquidity fund assets were lower in the latest reported quarter (Q3'21) to $302 billion (down from $319 billion in Q2'21 and down from $323 billion in Q3'20). The SEC's "Introduction" tells us, "This report provides a summary of recent private fund industry statistics and trends, reflecting data collected through Form PF and Form ADV filings. Form PF information provided in this report is aggregated, rounded, and/or masked to avoid potential disclosure of proprietary information of individual Form PF filers. This report reflects data from Fourth Calendar Quarter 2019 through Third Calendar Quarter 2021 as reported by Form PF filers." (Note: Crane Data believes the largest portion of these liquidity fund assets are securities lending reinvestment pools.)
The tables in the SEC's "Private Funds Statistics: Third Calendar Quarter 2021," with the most recent data available, show 77 Liquidity Funds (most of which are "Section 3 Liquidity Funds," which are Liquidity Funds from advisers with over $1 billion total in cash), up 1 from last quarter and up 8 from a year ago. (There are 57 Section 3 Liquidity Funds out of the 76 Liquidity Funds.) The SEC receives Form PF reports from 37 Liquidity Fund advisers (24 of which are Section 3 Liquidity Fund advisers), the same number as last quarter and down one from a year ago.
The SEC's table on "Aggregate Private Fund Net Asset Value" shows total Liquidity Fund assets at $302 billion, down $17 billion from Q2'21 and down $21 billion from a year ago (Q3'20). Of this total, $300 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 $310 billion, down $20 billion from Q2'21 and down $19 billion from a year ago (Q3'20). Of this total, $308 billion in is Section 3 (large manager) Liquidity Funds.
A table on "Beneficial Ownership for Section 3 Liquidity Funds" shows $101 billion is held by Other (33.8%), $50 billion is held by Unknown Non-U.S. Investors (16.7%), $50 billion is held by Private Funds (16.5%), $27 billion is held by SEC-Registered Investment Companies (8.9%), $7 billion in held by Pension Plans (2.4%), $9 billion is held by Insurance Companies (3.2%), $3 billion is held by Non-Profits (1.1%) and $1 billion is held by State/Muni Govt. Pension Plans (0.4%).
The tables also show that 68.6% of Section 3 Liquidity Funds have a liquidation period of one day, $278 billion of these funds may suspend redemptions, and $245 billion of these funds may have gates. WAMs average a short 42 days (49 days when weighted by assets), WALs are 59 days (65 days when asset-weighted), and 7-Day Gross Yields average 0.20% (0.10% asset-weighted). Daily Liquid Assets average about 50% (46% asset-weighted) while Weekly Liquid Assets average about 60% (60% asset-weighted).
Overall, these portfolios appear shorter with a heavier Treasury exposure than money market funds in general; almost half of them (42.1%) are fully compliant with Rule 2a-7. When calculating NAVs, 77.2% are "Stable" and 22.8% are "Floating." For more, see our Jan. 27 News, "SEC Proposes Amendments to Form PF Large Liquidity Fund Reporting," and see the SEC's recent proposal "Private Fund Advisers; Documentation of Registered Investment Adviser Compliance Reviews."
In other news, law firm Dechert LLP also submitted an entry to the SEC's "Comments on Money Market Fund Reform" page. They explain, "We appreciate the opportunity to respond to the request by the U.S. Securities and Exchange Commission for comments regarding the above-referenced release. In the Proposing Release, the SEC proposed amendments to Rule 2a-7 under the Investment Company Act of 1940, as amended, which governs money market funds, and related amendments to Form N-MFP, Form N-CR and Form N-1A. The Proposed Amendments would, among other things: (i) remove liquidity fee and redemption gate provisions from Rule 2a-7; (ii) impose a new swing pricing regime for non-government institutional money funds (i.e., institutional prime and institutional tax-exempt money funds); (iii) substantially raise minimum liquidity levels for all money funds; and (iv) amend certain reporting and disclosure requirements in Form N-MFP, Form N-CR and Form N-1A."
Dechert continues, "In addition, the SEC indicated in the Proposing Release that, in a negative interest rate environment, it may be inappropriate for a stable net asset value ('NAV') money fund with a gross negative yield to continue to seek to maintain a stable NAV. Relatedly, the Proposed Amendments would: (i) require a stable NAV money fund to determine that its financial intermediaries can continue to process its share transactions in the event that the fund converts to a floating NAV and (ii) prohibit a stable NAV money fund from seeking to maintain a stable NAV per share by reducing the number of its shares outstanding (including through a 'reverse distribution mechanism')."
They write, "We oppose a mandatory swing pricing regime for non-government institutional money funds for the following reasons: Swing Pricing Poses Significant Operational Challenges. We believe that swing pricing would pose significant operational challenges that would fundamentally alter the utility of these funds for investors and further exacerbate the trend of outflows that these funds have recently experienced. Swing Pricing Was Previously Rejected as Inappropriate for Money Funds. When adopting the voluntary swing pricing regime for open-end investment companies in Rule 22c-1 under the 1940 Act, the SEC stated that swing pricing would be inappropriate for money funds due to their unique minimum liquid investment requirements and their investors' sensitivity to volatility of principal. We believe these concerns remain relevant. Swing Pricing May Have Unintended Dilutive Costs. We believe that swing pricing as set forth in the Proposed Amendments may itself result in dilution for these money funds, inasmuch as share purchase transactions at a money fund's NAV that has been adjusted downward by swing pricing would give rise to dilutive costs that are not clearly allocated away from the fund by the Proposed Amendments. We believe these concerns have not been sufficiently addressed by the SEC."
Dechert states, "We believe these concerns remain relevant for money funds and their investors. We acknowledge that the SEC is proposing to remove the liquidity fee provisions from Rule 2a-7. However, the SEC could decide in the final rule that a type of liquidity fee may be a more appropriate liquidity risk management tool for money funds than swing pricing, as it appeared to believe at the time of adopting Rule 22c-1. We urge the SEC to carefully consider money funds' unique liquidity profiles and their shareholders' sensitivity to principal volatility before adopting the proposed swing pricing regime."
They say, "We urge the Commission to consider the effect of the Proposing Release on unregistered money funds that currently conform to the requirements of Rule 12d1-1 under the 1940 Act. These unregistered money funds serve as valuable cash management vehicles for many registered investment companies. Through Rule 12d1-1, the SEC has provided registered investment companies with the ability to invest in unregistered money funds that comply with Rule 2a-7. However, we believe the swing pricing requirement is inappropriate for these unregistered money funds because these funds do not face the same perceived concerns as other non-government institutional money funds due to the nature of their primary shareholder base of registered investment companies. Accordingly, we ask that the Commission specify in the final rule that the swing pricing requirement, if adopted, is not applicable to unregistered money funds that serve as cash management vehicles for registered investment companies."
Dechert adds, "The SEC proposed to require a government or retail money fund (or the fund's principal underwriter or transfer agent on its behalf) to determine that financial intermediaries that submit orders to purchase or redeem the fund's shares have the capacity to redeem and sell the fund's shares at prices that do not correspond to a stable price per share (i.e., if the fund converts to a floating NAV). If this determination cannot be made, the fund must prohibit such an intermediary from purchasing the fund's shares in nominee name.... We oppose the proposed requirement for stable NAV money funds to determine that each financial intermediary has the capacity to redeem and sell securities issued by a fund if the fund converts to a floating NAV."
They comment, "We note that implementing this requirement would be extremely expensive for many financial intermediaries, while the benefits are speculative. It is our understanding that certain financial intermediary platforms, most notably sweep platforms that operate on a 'dollar in, dollar out' infrastructure, currently cannot accommodate transacting in stable NAV money fund shares at a price other than $1.00 per share. These platforms are designed to process extremely large volumes of transactions that automatically 'sweep' cash in and out of money funds. We understand that overhauling the infrastructure used in sweep platforms to accommodate a floating NAV would impose a significant cost on financial intermediaries. Under current Rule 2a-7, if a stable NAV money fund decides to convert to a floating NAV, some financial intermediaries may submit redemption orders for shares during the period that the fund is floating its NAV rather than incur the costs associated with overhauling such systems. Such intermediaries could reinvest in these funds if and when the fund converts back to a stable NAV."
Finally, they tell the SEC, "We oppose the proposed prohibition on the use of an RDM or reverse stock split. As noted above, the SEC indicated in the Proposing Release that it may be inappropriate for a stable NAV money fund that experiences gross negative yields to use amortized cost and/or penny-rounding accounting methods to maintain its stable share price, and a fund's board could determine under such circumstances to convert the fund to a floating share price. We do not agree that converting to a floating NAV is the only allowable response to a negative yield environment under the rule (although a fund's board of directors could certainly choose to float a fund’s NAV)."
Federated Hermes hosted its Q1'22 quarterly earnings call on Friday, which contained comments on money fund fee waivers, swing pricing, rising rates and more. CEO Chris Donahue comments, "Moving to money markets, assets declined about $27 billion in Q1 compared to Q4 totals, as money market fund assets decreased by $33 billion, and our separate account money market assets increased by about $6 billion. Our total money market assets at the end of Q1 were just above the total that we had at the end of the first quarter of '21. Seasonal trends impacted both money market funds and separate accounts. Rising interest rates and competitive pressure also impacted money market fund asset levels. Our money market fund market share, including sub-advised funds, was about 6.9% at the end of Q1, down from about 7.4% at the end of 2021." (Note: See also The Wall Street Journal's "Making Your Cash Work Harder as Interest Rates Rise.")
He explains, "Now, with the first Fed hike last month, and a series of additional increases expected, money market fund minimum yield related fee waivers decreased in Q1. Tom will update us on our yield waiver outlook. Market expectations are that the Fed will increase the pace of interest rate hikes. While we welcome higher money market yields, we believe that measured increases would be better for money market funds compared to direct investments. However, though more rapid rate increases may initially favor direct investments, we believe that higher short-term rates will benefit money market funds over time, particularly compared to deposit rates, and we've noted."
Donahue continues, "We said during the last quarter, that during the last Fed increase cycle that began in Q4 of '16, through the last rate hike in Q4 of '18, after an initial decline, our money market fund managed assets increased by 15%. The industry followed a similar pattern, with an initial decline, followed by a growth of 11% over that same timeframe. The higher rates helped us continue to grow these assets by an additional 22% through the third quarter of '19 when the Fed began to ease. Industry money market fund assets also grew in this period, showing a 14% increase."
He tells the call, "Now, on the regulatory front, we recently filed two comment letters with the SEC on their proposed money market fund rule changes, including a primary comment letter of 115 pages, and a separate 45-page letter on the deviance of swing pricing. Our comments and those from others note that swing pricing is not a workable alternative for institutional prime and muni money market funds. We believe that most institutions would not use these products if swing pricing were to be imposed. In addition to uncertainty around redemption proceeds, from a client's point of view, large-scale systems changes would be required by money fund managers, intermediaries, and investors, to even enable swing pricing to function. In our view, few, if any, will undertake these efforts. As a result, we expect that most of the assets currently in institutional, prime and municipal money market funds, would shift to government money funds, as many did with the last round of changes in 2016, or move to products like our private prime liquidity fund that are not subject to money market mutual fund regulation under 2a-7."
Donahue adds, "We have approximately $8 billion in client assets in this category of institutional prime and municipal funds that we believe would be impacted if swing pricing were to be imposed, as the SEC is proposing. We also commented that the SEC's proposed requirement that stable NAV money market funds convert to a floating NAV, if future market conditions resulted in negative money market fund yields, would lead to material outflows from US government money funds to bank deposits, or again, other non-regulated investment products. Now, taking a look at recent asset totals, managed assets were approximately $617 billion, including $413 billion in money markets, $87 billion in equities, $91 billion in fixed income, $22 billion in alternative private markets, and $4 billion in multi-asset. Money market mutual fund assets were $269 billion."
CFO Tom Donahue states, "Total revenue for the quarter increased 1% from the prior quarter, due mainly to lower money market fund minimum yield-related waivers, an increase of $34.3 million, and $2 million from higher average money market assets, offset by lower average equity assets, reducing revenue by $17.4 million, fewer days in the quarter, reducing revenue by $9.3 million, lower carried interest and performance fees of $3.6 million, and lower average fixed income assets, reducing revenue by $2.4 million. Q1 carried interest and performance fees were $100,000 compared to $3.7 million in Q4."
He comments, "Higher distribution expense resulted mainly from lower money market fund minimum yield waivers. Advertising and promotional expense decreased due mainly to the timing of our ad campaigns. With short-term rates higher in Q1, the negative impact on operating income for minimum yield waivers on money market funds decreased to about $18 million compared to $38 million in Q4. We expect the Q2 negative impact to decrease to about $1 million."
During the Q&A, Federated was asked about potential flows from deposits into money market funds. Money Market CIO Debbie Cunningham responds, "I think ... that deposit products, number one, don't follow interest rates in an upward fashion on a one-on-one basis. The deposit beta for the last time interest rates rose, was about 20%, meaning that for every 1% the Fed raises rates, deposits went up 20 basis points. The other side of that equation ... is that banks have more cash than they actually need at this point or want, and the demand for that cash is not high. So, they have no real incentive to attract cash by increasing their rates more quickly than they otherwise would. I think both of those pose to be problematic for those that are offering deposit-type products."
She explains, "On the other hand, when we look at what the yield curve is providing us with right now, what it may provide us with as investment opportunities next week after the Fed meets, we think that those are pretty substantial at this point.... You're going to see the return on money market funds following those Fed increases quite quickly.... But generally speaking, in a rising rate, as long as it's fairly well telegraphed ... you end up with money market funds following quite quickly in the path of rising rates and reflecting those higher returns back to customers."
On market share and the rate cycle, Chris Donahue says, "On the competitive thing, there have been several features. One is the normal amount of money that goes out for taxes. And I think we have more than the average bear. So, that was a factor. Another factor is, of course, the competitive landscape where others are waiving more than us, and our yields are where they are. That's what we've talked about before in terms of competitive situation. But overall, as you know, we don't end up losing clients on that score.... What we've seen is that when the rates get big and real, and they get caught up, ... the banks don't want the money and ... you get a spring back on the money fund assets."
Tom Donahue answers, "I don't have the '90s data, but back in '04 ... mid '04, the Fed raised by 25, and then a series of 50 basis point hikes through the next two years. Our assets initially decreased at that time. The fund assets went into that up-rate cycle at about $123 billion, went about $10-plus billion. Then came out of that with the last Fed movement up 50 basis points in mid '06, we were up pushing $150 billion. So, the cycle was about the same back in that timeframe."
Cunningham adds, "I'd warn against comparing to the '94 cycle, just simply because it was a very different Fed back in 1994, number one. But number two, there were a lot of other things going on in the market during that timeframe when there were unexpected 75 and 100 basis point increases in rates, and they were basically derivatives floating rate securities that were in the marketplace. Inverse floaters were what was happening then, 10-year CMT floaters, non-dollar-based LIBOR floaters. All of those things were causing angst in the money markets, and they've all been purged at this point. So, I think I would hesitate to compare to that time."
Responding to a question on consolidation, Chris Donahue says, "We like to look at it in terms of market share of revenues as another feature, not just market share of the assets, although market share of the assets is important. And so, when you talk about consolidation, my suspicion is, you'll have more of it, whether -- especially when you have the higher rates. People traditionally look at these things so long, and then they throw in the towel at some point. And as I've said here a lot of times, we're a warm and loving home for anyone who wants to get out of the money market fund business. I think we are well appreciated in the marketplace for that when people think it's time to throw in the towel on that."
Finally, Cunningham tells us, "One additional kind of positive aspect, what Chris was mentioning initially in the regulatory response to the proposed rule 2a-7 changes for the two most problematic proposals, those being swing pricing for institutional prime and muni, and FNAV for all products, including government and retail, the industry was pretty much joined in a voice saying, both of those things are not workable. I mean, there were a few outliers, but very few. I think that's a positive in that we attempt to work together for things that are really product and market-changing."
