Press Releases Archives: February, 2010

Dow Jones writes "Amendments To Money-Market-Fund Rules Effective May 5". The article says, "Amendments meant to make the $3.3 trillion money-market fund industry more resilient will take effect May 5. The Securities and Exchange Commission posted the final amendments, which it says offer additional shareholder protections, to its Web site Tuesday with the effective spring date. However, the posting also lists various compliance dates for the amendments, giving funds extra time to meet some requirements, such as disclosing certain portfolio information on a public Web site and to the commission. In staggering the compliance dates, the SEC appears to be making an effort to accommodate the funds's normal schedule of meetings and oversight, said Peter Crane, president of Crane Data LLC." Crane says, "There was some speculation that the maturity and liquidity provisions would be pushed out to later this year to coincide with potential interest rate hikes, but this means that most of the changes will likely go into effect before the Fed starts hiking rates. So money funds could feel that bite a little bit." They must be able to process transactions at prices other than a stable $1 net asset value no later than Oct. 31, 2011, says DJ, quoting Crane, "Systems personnel will be pleased that they have a little time to deal with that nasty issue." Overall, money funds aren't likely to be surprised by the schedule, he said. "They were gearing up for it anyhow. I think money funds are resigned to their fate at this point." See also, WSJ's "Treasury Program Mixes Up Money Markets".

This weekend, the Associated Press wrote "Don't count out money market mutual funds" (here in the Boston Globe). The article says, "It's hard to market any investment when its annual yield starts with a zero. Take money-market mutual funds. Yields for the safest of safe-harbor investments have been creeping close to zero for more than a year.

It continues, "Normally you'd expect money funds to earn 2 percent to 4 percent a year, but now the average yield is down to around 0.03 percent -- a few hundredths of a penny for each dollar put in. That's a record low since money funds emerged as alternatives to bank accounts for keeping money safe and quickly accessible. Typically, you get a slightly higher yield from a money fund than from an interest-bearing bank account offering comparable check-writing privileges.

AP writes, "Bank or money fund, yields are just plain low now because interest rates are near zero. But with money funds, there could be even more shrinkage soon. Last week the Securities and Exchange Commission approved new rules to make money funds safer. With investing, more safety means lower returns, and money funds are no exception. Don't expect any big drop -- yields don't have much lower to go. And most managers have been running their funds more conservatively for months now in anticipation of the new rules."

They add, "Still, if yields may become even slightly smaller, why stick with money funds? Why not join the crowd that has pulled some $700 billion out of money funds since their assets peaked at $3.9 trillion a year ago? Well, look before you leap, even if money funds stink now. Once interest rates rise from their current near-zero levels, they could come out looking pretty good. Keep in mind, it's only a matter of when rates will rise."

The article, written by Mark Jewell, quotes Peter Crane of "fund industry researcher Crane Data, publisher of the newsletter Money Fund Intelligence," "The risk of rising rates is that it tends to blow up bonds."

Finally, the piece says, "What if you face an unexpected medical bill, or find that house you've been looking to buy, and need a down payment, pronto?" It quotes Crane, "Liquidity isn't important, until you need it."

In other news, see the release, "SEC Charges State Street for Misleading Investors About Subprime Mortgage Investments," which involves losses in an ultra-short bond portfolio. (See our Crane Data News Aug. 29, 2007, "State Street Limited Duration Bond Incorrectly Called Enhanced Cash".) Robert Khuzami, Director of the SEC's Division of Enforcement, says, "State Street led investors to believe that their investments were more diversified than a typical money market portfolio, when instead they were invested almost entirely in subprime investments that ultimately caused hundreds of millions of dollars in losses."

SmartMoney's "For Better Yields, It's Bank -- Not Brokerage". It says, "Cash held at brokerage houses is typically deposited in so-called 'sweep' accounts. These accounts offer convenience and liquidity, with features like check-writing capabilities, a debit card and free ATM withdrawals. Some brokerages call them cash or financial management accounts, and others have even branded them 'savings accounts.' The problem is that the yields these accounts deliver are paltry these days.... There are no hard numbers on the amount of cash lying around in sweep accounts these days, and chances are that with the stock market's recovery from its 2009 lows and the Federal Reserve's rock-bottom rate policy, some investors are moving it into equities or higher-yielding bank accounts. Still, the assets parked in sweep accounts could add up to $600 billion, according to Peter Crane, president of Crane Data LLC, which tracks money-market mutual funds." The article adds, "These days, sweep accounts pay an average 0.05%, according to Crane Data, but depending on the brokerage, you could be earning as little as 0.01% and rarely more than 0.07%." Note that the piece contains a data table with rates excerpted from Crane Data's weekly Brokerage Sweep Intelligence. See also, NY Times' and AP's "4 Tips on Shopping for Money-Market Mutual Funds".

Today's Wall Street Journal Fund Track column writes "Money Funds Exhale After SEC Rules; Should They?. The article says, "Some big players in the $3.3 trillion money-market fund industry are breathing sighs of relief after regulators amended the rules governing the funds. There's a chance that relief may prove premature: The Securities and Exchange Commission, in making the changes last week, said it is still assessing the need for more fundamental reforms."

Reporter Daisy Maxey continues, "Federated Investors, which manages $313.3 billion in money-market assets, welcomed the enacted changes 'not so much for what was done, but for what wasn't done.' It was pleased that the SEC opted to retain $1 net-asset-value pricing, rather than establishing a regime where $1 invested could fall below that value, said Debbie Cunningham, chief investment officer at Federated, in a statement on the firm's Web site."

The Journal piece summarizes the rules, then says, "While some in the industry aren't happy with some of the restrictions, in general 'money funds aren't all that upset one way or another,' said Peter Crane, president of Crane Data LLC."

They continue, "Federated doesn't believe that requiring money funds to regularly disclose the underlying value of their assets per share on a delayed basis will undermine the way funds currently operate using net asset value, Ms. Cunningham said.... Overall, the changes may lower money fund yields 'a couple of basis points,' or hundredths of a percentage point, she said. Much of the industry, including Federated, has already been trending toward such changes, so much of the change is already reflected in funds' yields, she said."

The WSJ also says, "Vanguard Group, which manages about $180 billion in money-market fund assets, believes the SEC struck a balance between investor protection and the efficient management of money-market funds, a spokesman said.... The rule change won't fundamentally affect Vanguard's approach, the spokesman said."

But, the Journal continues, "In announcing approval of the amendments, SEC Chairman Mary Schapiro said they're only a first step. The SEC will continue to pursue more fundamental changes, including a floating NAV; real-time disclosure of shadow NAV; and a private liquidity facility to provide liquidity to money-market funds in times of stress among other options, she said."

They conclude, "That's worrisome for some in the industry." They quote Crane, "It's like, 'You mean we're not done?' ... Still, he expects that a floating-rate NAV, capital requirements or a liquidity exchange bank for money funds are unlikely to be required." Crane tells the Journal, "The benefits of a floating-rate NAV have not been shown."