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Today, we excerpt from the March issue of Crane Data'​s new publication, Bond Fund Intelligence, which tracks the bond fund marketplace with a focus on the ultra-​short and most conservative segments. Our latest monthly "​profile" follows.... This month, Bond Fund Intelligence interviews Managing Director & Portfolio Manager Dave Martucci and Managed Reserves Investment Policy Committee Chairman and Risk Manager Saad Rehman from JPMorgan Asset Management. Martucci runs the $​6 billion JPMorgan Managed Income Fund, which is the largest fund we currently track in our Conservative Ultra Short Bond Fund category, and Rehman has been instrumental in the creation of our new "​Conservative" category. We discuss risk management, the growing demand for short-​term products, and conservative ultra short’​s place within a cash segmentation strategy, below.

BFI: How long have you been involved in the conservative ultra short bond space? Martucci: JPMorgan Chase & Co. has been managing money for corporations, governments, endowments, foundations, and individuals worldwide for well over a century. Currently, J.​P. Morgan Asset Management has $​1.​7 trillion in AUM, around 25% of which is in our Global Liquidity business, which we'​ve been in for over 30 years. Within the Global Liquidity business we manage cash and money market fund portfolios, as well as our conservative ultra short bond fund offering, which we call the Managed Reserves strategy.

The strategy dates back to 2004 and currently has $​43 billion in AUM. Of that, around $​9B is in mutual funds and the remainder is in separately managed accounts. Within the Managed Reserves strategy is the JPMorgan Managed Income Fund (​JMGIX), which was launched in 2010 and now has $​6B, an all-​time high. I'​m the lead portfolio manager and head of our Managed Reserves trading desk. I have 15 years of experience running liquidity strategies, and I'​ve also been a portfolio manager for short duration and intermediate portfolios.

Rehman: I am a Risk Manager and Chairman of the Managed Reserves Investment Policy Committee, which formulates and approves investment policies and procedures as they relate to credit, market, and other risks applicable to the investment management of these funds and accounts. I'​ve worked at JPM for 10 years.

BFI: How has the fund been received? Martucci: We'​ve seen a significant amount of interest recently, as clients continue to be challenged by the Fed'​s zero interest rate policy. Additionally, they now face the prospect of floating NAVs on the short end and rising rates on the long end. These clients are looking for some incremental return over money market funds, but they still want a conservative approach. Rehman: In the wake of the financial crisis, a lot of clients built up large cash positions on their balance sheets. This excess cash, combined with an effective segmentation strategy, has been driving growth in this space. A natural place to put a strategic cash position to work is in a conservative solution that offers an incremental return over money funds.

Martucci: This is where the Managed Reserves strategy comes in, as it was a natural extension of our well-​established money market fund platform, leveraging the best practices and procedures that we employ in that platform. For instance, an approved credit list that you typically find in a money market fund has been built upon and expanded, serving as a key piece of our Managed Reserves strategy. Since the strategy launched, these conservative foundations have enabled Managed Reserves to provide a strong track record of consistent returns over money market funds, with very limited volatility. Since inception, the Managed Reserves composite has had no period of rolling three-​month losses. Fund assets are at an all-​time high.

BFI: What are the biggest challenges for funds in the conservative space? Martucci: The main issue that we see is the variability of funds in this category. The issue comes from trying to define what that conservative ultra short space is. We'​re happy that industry leaders such as Crane and others are starting to focus on this and trying to establish it as a category of its own. Clearly, the space is somewhere between money market funds and short duration. We believe that the conservative ultra short space is not determined solely by interest rate duration, but also by spread duration, credit selection, the type of securities these funds can and do choose to hold and, most importantly, the volatility of performance. We address all these factors through robust risk management.

Rehman: What clients are looking for in this space is not just returns, but the risk associated with those returns. We have seen a period of low volatility over the past few years, which we think is masking some of the potential downside. We expect to see more volatility, potentially due to diverging central bank actions, regulations for money market funds and banks, as well as geopolitical risk. With volatility, we expect that we'​ll start to see divergence in performance for these conservative ultra short funds. One of the factors driving that divergence will be credit selection in these funds. For example, some funds in the ultra short space actively participate in below investment grade credit while others, like JPMorgan Managed Income, do not.

There are many ways you can analyze the risk and returns of funds in the ultra short space. For example, when you look at the average monthly returns of these funds they are somewhat clustered tightly around a mean -- whereas there'​s a much wider range when you look at the volatility of those returns. Another way to get a general sense of how risky a fund'​s returns are is to compare the percentage of negative monthly returns over a period, such as the past 12 or 36 months. You can see that the percentage for some funds is almost double that of others in the space. (​Note: Watch for more excerpts from our latest BFI "​profile" in coming days, or contact us to see the full issue of our new Bond Fund Intelligence.)

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Crane Data released its March Money Fund Portfolio Holdings late yesterday, and our latest collection of taxable money market securities, with data as of Feb. 28, 2015, shows a jump in Repo and CP, and drops in VRDNs, Agencies, Treasuries, CDs, and Other. Money market securities held by Taxable U.​S. money funds overall (​those tracked by Crane Data) decreased by $​52.​1 billion to $​2.​473 trillion in February, after increasing by $​5.​6 billion in January, $​68.​3 billion in December, $​11.​5 billion in November, and $​4.​7 billion in October. CDs remained in the top spot as the largest portfolio segment among taxable money market funds, ahead of Repos. CP moved into third place, jumping ahead of Treasuries. Agencies were fifth, followed by Other (​Time Deposits) and VRDNs. Money funds' European-​affiliated securities represented 29.​1% of holdings, down from 29.​3% the previous month, while the Americas' market share fell slightly to 58.​5% from 58.​8%. Below, we review our latest Money Fund Portfolio Holdings statistics.

Among all taxable money funds, Certificates of Deposit (​CDs) were down $​7.​4 billion (​1.​3%) to $​549.​0 billion, or 22.​2% of assets, after increasing $​28.​0 billion in January and dropping $​34.​8 billion in December. Repurchase agreements (​repo) increased $​10.​8 billion (​2.​1%) to $​531.​7 billion, or 21.​5% of assets, after dropping $​141.​5 billion in January and increasing $​140.​3 billion in December. Commercial Paper (​CP) moved up to the third largest segment, jumping $​8.​2 billion (​2.​1%) to $​397.​4 billion, or 16.​1% of assets.

Treasury holdings, the fourth largest segment, dropped $​8.​2 billion (​2.​0%) to $​395.​4 billion, or 16% of assets, while Government Agency Debt remained in fifth, decreasing $​42.​9 billion (​11.​1%) to $​342.​3 billion, or 13.​8% of assets. Other holdings, which include primarily Time Deposits, dropped $​2.​4 billion to $​236.​7 billion, or 9.​6% of assets. VRDNs held by taxable funds decreased by $​10.​3 billion to $​20.​0 billion (​0.​8% of assets).

Among Prime money funds, CDs still represent over one-​third of holdings with 35.​6% (​up from 35.​3% a month ago), followed by Commercial Paper (​25.​8%). The CP totals are primarily Financial Company CP (​15.​7% of holdings) with Asset-​Backed CP making up 5.​5% and Other CP (​non-​financial) making up 4.​6%. Prime funds also hold 5.​1% in Agencies (​down from 6.​3%), 4.​4% in Treasury Debt (​up from 4.​2%), 4.​3% in Other Instruments, and 6.​2% in Other Notes. Prime money fund holdings tracked by Crane Data total $​1.​540 trillion (​down from $​1.​577 trillion last month), or 62.​3% of taxable money fund holdings' total of $​2.​525 trillion.

Government fund portfolio assets totaled $​468 billion in February, down from $​472 billion in January, while Treasury money fund assets totaled $​465 billion in February, down from $​476 billion at the end of January. Government money fund portfolios were made up of 55.​8% Agency Debt, 22.​4% Government Agency Repo, 2.​6% Treasury debt, and 18.​7% in Treasury Repo. Treasury money funds were comprised of 67.​8% Treasury debt, 31.​0% Treasury Repo, and 1.​2% in Government agency, repo and investment company shares.

European-​affiliated holdings fell $​19.​9 billion in February to $​719.​0 billion (​among all taxable funds and including repos); their share of holdings fell to 29.​1% from 29.​3% the previous month. Eurozone-​affiliated holdings fell $​10.​8 billion to $​399.​3 billion in February; they now account for 16.​2% of overall taxable money fund holdings. Asia & Pacific related holdings increased by $​5.​8 billion to $​305.​8 billion (​12.​4% of the total). Americas related holdings plunged $​38.​0 billion to $​1.​445 trillion, and now represent 58.​5% of holdings.

The overall taxable fund Repo totals were made up of: Treasury Repurchase Agreements (​up $​19.​2 billion to $​286.​7 billion, or 11.​6% of assets), Government Agency Repurchase Agreements (​down $​5.​0 billion to $​157.​8 billion, or 6.​4% of total holdings), and Other Repurchase Agreements (​down $​3.​3 billion to $​87.​1 billion, or 3.​5% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (​up $​9.​8 billion to $​241.​2 billion, or 9.​8% of assets), Asset Backed Commercial Paper (​down $​5.​7 billion to $​85.​4 billion, or 3.​5%), and Other Commercial Paper (​up $​4.​2 billion to $​70.​8 billion, or 2.​9%).

The 20 largest Issuers to taxable money market funds as of Feb. 28, 2015, include: the US Treasury ($​396.​2 billion, or 16.​0%), Federal Home Loan Bank ($​203.​6B, 8.​2%), Federal Reserve Bank of New York ($​160.​9B, 6.​5%), BNP Paribas ($​69.​3B, 2.​8%), Wells Fargo ($​69.​1B, 2.​8%), Credit Agricole ($​69.​0B, 2.​8%), JP Morgan ($​57.​8B, 2.​3%), Bank of Tokyo-​Mitsubishi UFJ Ltd ($​55.​5B, 2.​2%), RBC ($​55.​2B, 2.​2%), Federal Home Loan Mortgage Co ($​54.​2B, 2.​2%), Bank of Nova Scotia ($​53.​4B, 2.​2%), Bank of America ($​47.​6B, 1.​9%), Natixis ($​45.​6B, 1.​8%), Sumitomo Mitsui Banking Co ($​45.​1B, 1.​8%), Toronto-​Dominion Bank ($​43.​3B, 1.​7%), Federal Farm Credit Bank ($​42.​1B, 1.​7%), Barclays PLC ($​41.​9B, 1.​7%), Federal National Mortgage Association ($​39.​8B, 1.​6%), Credit Suisse ($​38.​9B, 1.​6%), and DnB NOR Bank ASA ($​38.​7B, 1.​6%).

In the repo space, Federal Reserve Bank of New York'​s RPP program issuance (​held by MMFs) remained the largest program with $​160.​9B, or 30.​3% of the repo market, down fractionally from 30.​6% a month ago. Of the $​160.​9B, $​117.​7 billion, or 73.​2%, was in Overnight Repo, while $​43.​1 billion, or 26.​8% was in Term Repo. The 10 largest Repo issuers (​dealers) (​with the amount of repo outstanding and market share among the money funds we track) include: Federal Reserve Bank of New York ($​160.​9B, 30.​3%), Bank of America ($​38.​5B, 7.​2%), BNP Paribas ($​37.​9B, 7.​1%), Wells Fargo ($​34.​1B, 6.​4%), Credit Agricole ($​30.​0B, 5.​7%), Societe Generale ($​28.​1B, 5.​3%), JP Morgan ($​22.​8B, 4.​3%), Barclays PLC ($​21.​1B, 4.​0%), Citi ($​20.​2B, 3.​8%), and Credit Suisse ($​19.​3B, 3.​6%).

The 10 largest issuers of CDs, CP and Other securities (​including Time Deposits and Notes) combined include: Bank of Tokyo-​Mitsubishi UFJ Ltd ($​48.​9B, 4.​6%), Sumitomo Mitsui Banking Co ($​45.​1B, 4.​3%), Credit Agricole ($​39.​0B, 3.​7%), DnB NOR Bank ASA ($​38.​7B, 3.​7%), RBC ($​38.​6B, 3.​7%), Toronto-​Dominion Bank ($​38.​3B, 3.​6%), Bank of Nova Scotia ($​37.​9B, 3.​6%), Natixis ($​37.​6B, 3.​6%), Wells Fargo ($​34.​9B, 3.​3%), and JP Morgan ($​34.​6B, 3.​3%).

The 10 largest CD issuers include: Bank of Tokyo-​Mitsubishi UFJ Ltd ($​38.​6B, 7.​1%), Toronto-​Dominion Bank ($​37.​4B, 6.​9%), Sumitomo Mitsui Banking Co ($​37.​0B, 6.​8%), Bank of Nova Scotia ($​31.​5B, 5.​8%), Mizuho Corporate Bank Ltd ($​29.​5B, 5.​4%), Bank of Montreal ($​26.​3B, 4.​8%), Wells Fargo ($​26.​1B, 4.​8%), Rabobank ($​24.​9B, 4.​6%), Natixis ($​20.​7B, 3.​8%), and Sumitomo Mitsui Trust Bank ($​19.​5B, 3.​6%).

The 10 largest CP issuers (​we include affiliated ABCP programs) include: JP Morgan ($​23.​9B, 7.​1%), Commonwealth Bank of Australia ($​17.​5B, 5.​2%), Westpac Banking Co ($​16.​7B, 5.​0%), RBC ($​15.​9B, 4.​8%), Lloyds TSB Bank PLC ($​14.​3B, 4.​3%), National Australia Bank Ltd ($​11.​9B, 3.​5%), Australia & New Zealand Banking Group Ltd ($​10.​6B, 3.​2%), Toyota ($​10.​1B, 3.​0%), BNP Paribas ($​9.​6B, 2.​9%), and Barclays PLC ($​9.​0B, 2.​7%).

The largest increases among Issuers include: Wells Fargo (​up $​9.​6B to $​69.​1B), Lloyds TSB Bank PLC (​up $​8.​5B to $​27.​0B), Skandinaviska Enskilden Banken AB (​up $​3.​0B to $​31.​5B), Goldman Sachs (​up $​2.​9B to $​13.​4B), Bank of America (​up $​2.​5B to $​47.​6B), Sumitomo Mitsui Trust Bank (​up $​2.​4B to $​21.​0B), Norinchukin Bank (​up $​2.​3B to $​12.​6B), Canadian Imperial Bank of Commerce (​up $​2.​3B to $​18.​3B), ING Bank (​up $​2.​2B to $​28.​9B), and Sumitomo Mitsui Banking Co. (​up $​2.​0B to $​45.​1B).

The largest decreases among Issuers of money market securities (​including Repo) in February were shown by: Federal Home Loan Bank (​down $​24.​5B to $​203.​6B), Federal National Mortgage Association (​down $​9.​1B to $​39.​8B), Federal Home Loan Mortgage Co. (​down $​8.​2B to $​54.​2B), Nordea Bank (​down $​7.​9B to $​20.​6B), US Treasury (​down $​7.​4B to $​396.​2B), Citi (​down $​7.​3B to $​33.​8B), Svenska Handelsbanken (​down $​6.​5B to $​23.​5B), Standard Chartered Bank (​down $​5.​1B to $​15.​9B), KBC Group NV (​down $​5.​0B to $​9.​5B), and Natixis (​down $​4.​4B to $​45.​6B).

The United States remained the largest segment of country-​affiliations; it represents 49.​3% of holdings, or $​1.​219 trillion (​down $​44B). France (​10.​3%, $​255.​4B) stayed in second, followed by Canada (​9.​0%, $​222.​8B) in third. Japan (​7.​5%, $​186.​4B) remained in fourth, while the U.​K. (​4.​9%, $​121.​5B) was fifth. Sweden (​4.​3%, $​105.​6B) was sixth, followed by Australia (​3.​6%, $​89.​9B) in seventh. The Netherlands (​3.​0%, $​75.​0B), Switzerland (​2.​2%, $​53.​8B), and Germany (​2.​1%, $​50.​6B) round out the top 10 among country affiliations. (​Note: Crane Data attributes Treasury and Government repo to the dealer'​s parent country of origin, though money funds themselves "​look-​through" and consider these U.​S. government securities. All money market securities must be U.​S. dollar-​denominated.)

As of Feb. 28, 2015, Taxable money funds held 25.​5% of their assets in securities maturing Overnight, and another 15.​1% maturing in 2-​7 days (​40.​6% total matures in 1-​7 days). Another 19.​9% matures in 8-​30 days, while 12.​3% matures in 31-​60 days. Note that almost three-​quarters, or 72.​7% of securities, mature in 60 days or less, the dividing line for use of amortized cost accounting under the new pending SEC regulations. The next bucket, 61-​90 days, holds 11.​6% of taxable securities, while 12.​0% matures in 91-​180 days and just 3.​7% matures beyond 180 days.

Crane Data'​s Taxable MF Portfolio Holdings (​and Money Fund Portfolio Laboratory) were updated Tuesday, and our MFI International "​offshore" Portfolio Holdings and Tax Exempt MF Holdings will be released later this week. Visit our Content center to download files or visit our Portfolio Laboratory to access our "​transparency" module. Contact us if you'​d like to see a sample of our latest Portfolio Holdings Reports or our new Holdings Reports Issuer Module.

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