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MFI Custom Reports News

Jun 07

The June issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Friday morning, features the articles: "Consolidation's Slow March Resumes in Cash Space," which reviews recent mergers and changes among money fund families; "Morgan Stanley Ultra Short Income Fund's Kolk & Wachs," a profile of MSIM's conservative ultra-short bond fund offering; and, "Fin-Tech Invasion Targets Low Bank Deposit Rates," which looks at new entrants challenging the savings and "cash" space. We've also updated our Money Fund Wisdom database with May 31 statistics, and sent out our MFI XLS spreadsheet Friday a.m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our June Money Fund Portfolio Holdings are scheduled to ship on Tuesday, June 11, and our June Bond Fund Intelligence is scheduled to go out Friday, June 14.

MFI's "Consolidation," article says, "Consolidation and changes continue to slowly spread through the money fund space. As we've written, change paused following the adoption of Money Fund Reforms in October 2016 and the end of the zero rate environment. Last year, we saw some fund liquidations, particularly 'sweep' money funds. But we've seen a little pickup of late in the form of a couple of bigger deals. (See our Nov. 2018 MFI, "Money Fund Consolidation & Liquidations, Slight Return.")

It continues, "The latest involves a deal for Federated to buy PNC's fund assets, and the one before this was the Invesco and Oppenheimer funds merger, which was just completed. We review these latest changes, and list the liquidations and mergers over the past decade."

Our Morgan Stanley profile reads, "This month, we interview Morgan Stanley Investment Management CIO & Co-Head of Global Liquidity Jonas Kolk and Global Head of Liquidity Products Scott Wachs. We discuss MSIM's Ultra Short Income Fund, which recently broke above $15 billion in assets and had its 3-year anniversary, and talk about the fund's history, its investment strategies and a number of other topics in the near-cash and 'beyond cash' space. Our Q&A follows. (Note: We'll be publishing more of this interview in our upcoming June Bond Fund Intelligence too.)

MFI says, "Tell us about the Firm's history. Kolk responds, "We were one of the first in the money market business, launching our first fund in 1975. Given our history and some of the dynamics that we've gone through from a regulatory, and rate, standpoint, we viewed the ultra-short bond space as really a natural addition to our business. We thought that the conservative ultra-short space was a perfect opportunity to leverage our core capabilities and extend our product line."

Wachs says of MS Ultra Short Income, "The fund itself is by design a very, very conservative fund on the conservative end of the ultra-short fund spectrum. It's focus and objectives are very familiar to conservative liquidity investors, namely capital preservation, liquidity and yield. But we think the fund is very differentiated in the space for a number of reasons. One is the high credit quality of the portfolio. The investments in our fund are limited to high-quality money market instruments. Ninety-five percent of the portfolio holdings must be rated A1-P1, which is of course the highest rating for short-term obligations."

Our "Fin-Tech" update says, "In May, Investment News featured the article, 'Fintechs find new focus helping clients with cash management.' Subtitled, 'Robo-advisers, lenders and stock trading apps are all launching high-​yield savings accounts,' it explains that, 'Cash management is suddenly one of the hottest trends in financial technology. Since Wealthfront launched Federal Deposit Insurance Corp.-insured high-yield savings accounts in February, the digital adviser said clients have deposited more than $1 billion, generating $2.5 million in interest. With that success, Wealthfront is increasing interest rates on the cash accounts to 2.29%."

The latest MFI also includes the News Brief, "MMF Assets Break $3.5 Trillion," which says, "Assets jumped in May, rising $91.1 billion to $3.511 trillion according to Crane Data. ICI's latest stats show that MMF assets rose for the 7th week in a row, increasing by $119.7 billion, or 3.9%, since April 17. Money fund assets have increased by $115 billion, or 3.8%, year-​to-​date. Over 52 weeks, ICI's money fund asset series has increased by $285 billion, or 9.9%, with Retail MMFs rising by $192 billion (18.6%) and Inst MMFs rising by $93 billion (5.0%)."

Our June MFI XLS, with May 31, 2019, data, shows total assets rose by $91.1 billion in May to $3.511 trillion, after rising $105.7 billion in April (this included the addition of the $108 billion American Funds Central Cash Fund), falling $10.2 billion in March and gaining $56.4 billion in February. Our broad Crane Money Fund Average 7-Day Yield fell to 2.07% during the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) was down 4 basis points to 2.22%.

On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA fell 3 basis points to 2.49% and the Crane 100 fell to 2.48%. Charged Expenses averaged 0.42% (unchanged) and 0.27% (unchanged), respectively for the Crane MFA and Crane 100. The average WAM (weighted average maturity) for the Crane MFA and Crane 100 was 30 and 31 days, respectively (up one bp and unchanged, respectively). (See our Crane Index or craneindexes.xlsx history file for more on our averages.)

May 07

The May issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Tuesday morning, features the articles: "Prime Comeback Strengthens; Crane Data Hits Lucky 13 Yrs," which reviews the explosive recent growth in the Prime and particularly Prime Retail sector; "ICI's 2019 Fact Book Goes Global w/MMF Commentary," which excerpts from the Investment Company Institute's annual compilation; and, "More Green MMFs: SSGA Files for ESG Money Fund," which reviews the filing for the industry's third environmentally-correct money fund. We've also updated our Money Fund Wisdom database with April 30 statistics, and sent out our MFI XLS spreadsheet Tuesday a.m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our May Money Fund Portfolio Holdings are scheduled to ship on Thursday, May 9, and our May Bond Fund Intelligence is scheduled to go out Tuesday, May 12.

MFI's "Prime Comeback," article says, "While talk of a recovery in Prime money funds was mostly wishful thinking in the first year and a half following 2016's Money Fund Reforms, that's no longer the case. Prime is back, bigtime. Prime MMFs have grown by $119.7 billion, or 16.4%, YTD, and $190.1 billion, or 28.9%, over 12 months (through 4/30/19). (Note: This is after we removed the addition of the new $108 billion American Funds Central Cash Fund.)"

It continues, "Prime Retail MMFs led the charge last year, but Prime Inst MMFs have since joined in. Prime Retail assets have increased by $41.9 billion (12.3%) YTD to $382.6 billion, and they've exploded by $125.6 billion (48.9%) over the past 12 months. Prime Inst have gained $77.8 billion year-to-date (or 20.1%) to $573.7 billion. (The total includes the new American fund but the gain figures do not.)"

Our ICI Fact Book piece reads, "The Investment Company Institute released its '2019 Investment Company Fact Book,' an annual compilation of statistics and commentary on the mutual fund industry. Subtitled, 'A Review of Trends and Activities in the Investment Company Industry,' the latest edition reports that equity funds again saw outflows, bond fund inflows slowed, and money market funds had their strongest inflows in almost 10 years in 2018 ($159 billion). Overall, money funds assets were $3.037 trillion at year-end 2018, making up 17% of the $17.7 trillion in overall mutual fund assets. Retail investors held $1.187 trillion, while institutional investors held $1.850 trillion. We excerpt from the latest 'Fact Book' below."

ICI writes, "Worldwide net sales of money market funds totaled $78 billion in 2018, a decrease from the $598 billion in net sales in 2017, driven mostly by a sharp decrease in net sales in the Asia-Pacific region. Money market funds in the Asia Pacific region had net outflows of $99 billion in 2018 after experiencing $404 billion in net inflows in 2017." (See pages 18-21 in the PDF Fact Book.)

They explain, "Investor demand for Chinese money market funds accounts for much of the net sales of money market funds in the Asia-Pacific region. Eighty percent of Asia-Pacific's total net assets in money market funds were held in funds domiciled in China at year-end 2018. Demand for money market funds in China weakened substantially in 2018 as the spread between money market fund yields and those on bank savings deposits narrowed from 3.1 percent at year-end 2017 to 1.9 percent at year-end 2018. In 2018, money market funds in the Asia-Pacific region saw net outflows of $99 billion compared with net inflows of $404 billion in 2017."

Our "SSGA ESG" update says, "As we reported via our Daily News recently, State Street Global Advisors (SSGA) has filed to launch State Street ESG Liquid Reserves Fund, which will soon become the third environmental or 'green' money market fund in the marketplace. This follows the conversion of a DWS MMF into DWS ESG Liquidity Fund late last year and the launch of BlackRock Liquid Environmentally Aware Fund (LEAF) earlier this year. (Note: We just added LEAF to MFI this month.) The pending Prime Institutional SSGA fund will have the following share classes: Institutional Class ($25M minimum), Administration Class ($1K), Investment Class ($25M), Investor Class ($10M), Premier Class ($250M)."

The latest MFI also includes the sidebar, "SEI N-CR Filing Minor," which says, "The first 'Form N-CR' filing of 2019 was recently disclosed for the SEI Daily Income Trust Treasury Fund, which received a 'Capital Contribution' from adviser SEI Investments Management Corporation. The March 2019 filing is in the nominal amount of $56,455, and explains the reason as, 'The support, in the form of a capital contribution, related to the Treasury Fund's historical losses. While the amount of the losses did not increase recently, more recent redemptions in the Treasury Fund have caused the historical losses to become more material to the net asset value than when the Fund had greater assets."

Our April MFI XLS, with April 30, 2019, data, shows total assets rose by $105.7 billion in April to $3.412 trillion (this includes the addition of a new $108 billion fund, American Funds Central Cash), after falling $10.2 billion in March, gaining $56.4 billion in February, and gaining $14.4 billion in January. Our broad Crane Money Fund Average 7-Day Yield rose to 2.10% during the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) was down 1 basis points to 2.26%.

On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA fell 1 basis point to 2.52% and the Crane 100 fell to 2.53%. Charged Expenses averaged 0.43% (unchanged) and 0.27% (unchanged), respectively for the Crane MFA and Crane 100. The average WAM (weighted average maturity) for the Crane MFA and Crane 100 was 29 and 31 days, respectively (down 1 and 2 bps, respectively). (See our Crane Index or craneindexes.xlsx history file for more on our averages.)

Apr 05

The April issue of our flagship Money Fund Intelligence newsletter, which was sent to subscribers Friday morning, features the articles: "Ultra-Short Bond Funds Big; Highlights from BF Symposium," which reviews our recent conference and developments in the short-term bond fund sector; "BFS Keynote: Schneider & Mejzak; Fidelity's Pope," which quotes from a couple of featured conference sessions; and, "Worldwide MF Assets at $6T; US Jumps, China Drops in Q4," which talks about the about money fund markets beyond the U.S. We've also updated our Money Fund Wisdom database with March 31 statistics, and sent out our MFI XLS spreadsheet Friday a.m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our March Money Fund Portfolio Holdings are scheduled to ship on Tuesday, April 9, and our March Bond Fund Intelligence is scheduled to go out Friday, April 12.

MFI's "Ultra-Short Bond Funds Big; Highlights from BF Symposium," article says, "Crane's Bond Fund Symposium, our event focusing on the 'enhanced cash' and ultra-short bond fund space, took place recently in Philadelphia, and all signs indicate that the party is still going strong in this sector of the marketplace. Crane Data's Bond Fund Intelligence shows Conservative Ultra-Short Bond Funds grew by 48% (vs. 3% for all bond funds) in the 12 months through 2/28/19, the fastest growth among any bond fund category. We review some of the highlights our recent event below, and we take a closer look at the growth of ultra-short bond fund assets."

It continues, "We also review BFS's 'Senior Portfolio Manager Perspectives' session, which featured PGIM MD of Fixed Income Joseph D'Angelo and J.P. Morgan Asset Management Portfolio Manager & Head of Managed Reserves Dave Martucci. The pair discussed ultra-short funds and investment strategies."

Our BFS Keynote, reads, "This month, BFI quotes from the keynote at our recent Bond Fund Symposium, 'Ultra-Shorts vs. SMAs: Round II,' which featured Rich Mejzak, Managing Director at BlackRock, and Jerome Schneider, Managing Director at PIMCO. Moderator Pete Crane commented, 'We want to talk about both [SMAs and ultra-short funds], since separately managed accounts are a big chunk of the enhanced cash, beyond-money fund marketplace.'"

Schneider commented, "For PIMCO for much of the past 40 years, we were one of the first in the mutual fund space for short term in the ultra-short space and we've evolved that over the past few decades.... The bulk of the $300 billion that we manage is quite honestly in the ultra-short and short term and low duration space. For us, the focal point has always been trying to find client solutions ... products that more precisely fit the demand functions that we're seeing from clients."

He explained, "These include the products that we've introduced over the past decade or so, including our short term ETF MINT which is the largest actively managed ETF.... It's about $12 billion now in size. [Also] our Short Asset Investment Fund, they've really been focused on providing risk adjusted returns, and more importantly a nuanced allocation. So as an example, no derivatives in MINT is something that's actually been a focal point of marketing.... I think the key thing is trying to find the balance between risk and return, and sometimes those are very different things to different people."

Our "Worldwide MF" update says, "The Investment Company Institute released its 'Worldwide Regulated Open-Fund Assets and Flows, Fourth Quarter 2018' late last month, and the most recent data collection on mutual funds in other countries (as well as the U.S.) shows that money fund assets globally rose by $97.1 billion, or 1.6%, in Q4'18, to retake the $6.0 trillion level ($6.076T). The increase was led by big gains in U.S. and Luxembourg-based money funds. Money fund assets in China and France fell sharply. MMF assets worldwide have increased by $176.4 billion, or 3.0%, the past 12 months, and money funds in the U.S. moved up to represent 50.0% of worldwide assets."

The latest MFI also includes the sidebar, "MMF Expenses Up in '18," which reviews a 'Research Perspective' entitled, 'Trends in the Expenses and Fees of Funds, 2018.' It tells us, "The average expense ratios for money market funds rose 1 basis point to 0.26 percent in 2018.... The report shows stock fund expenses averaging 0.55% and bond funds averaging 0.48%." It adds, "Their section on 'Money Market Funds' states, 'The average expense ratio of money market funds rose for the third consecutive year to 0.26 percent in 2018 <b:>`_... The past three years have generally been a reversal from the historical trend in which money market fund expense ratios had remained steady or fallen each year since 1997.'"

A News brief, entitled, "Kiplinger's Says Avoid Sweep Yields," states, 'Kiplinger's Retirement,' says, 'Retirees, Avoid Sweep Accounts With Low Yields,' They write, 'Many major brokerage firms in recent years have eliminated higher-yielding money-market funds as a sweep option, pushing customers into lower-yielding bank sweep accounts.' It adds, 'Brokerage firm Edward Jones eliminated its money-fund sweep option for new brokerage customers in February <b:>`_.'"

Our March MFI XLS, with March 31, 2019, data, shows total assets fell by $10.2 billion in March to $3.292 trillion, after gaining $56.4 billion in February, $14.4 billion in January, and $41.9 billion in December. Our broad Crane Money Fund Average 7-Day Yield rose 2 bps to 2.09% during the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) was up 2 basis points to 2.27% (its highest level since Oct. 2008).

On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA rose 1 basis point to 2.52% and the Crane 100 rose to 2.54%. Charged Expenses averaged 0.43% (unchanged) and 0.27% (unchanged), respectively for the Crane MFA and Crane 100. The average WAM (weighted average maturity) for the Crane MFA and Crane 100 was 31 and 32 days, respectively (unchanged). (See our Crane Index or craneindexes.xlsx history file for more on our averages.)

Mar 19

This month, MFI interviews Marty Margolis, CIO of PFM Asset Management, and Jeffrey Rowe, Co-Head of PFM Asset Management's money market portfolio management team. We ask them about their firm, which is based in Harrisburg, Pa., and about recent developments in the money markets and the LGIP, local government investment pool, marketplace. Our Q&A follows. (Note: The following is reprinted from the March issue of Money Fund Intelligence, which was published on March 7. Contact us at to request the full issue or to subscribe.)

MFI: Give us a little history. Margolis: We began managing LGIPs in Pennsylvania in 1981, and we now manage 17 state-specific pools with total assets approaching $35 billion, as of 12/31/2018. They range in size and are across the country, and they're part of our fixed-income strategies, which total about $85 billion. Our strength over this long period has been in the short-intermediate, fixed-income market. We've always been focused on bringing value to the public sector, and more recently as we’ve grown, we found relevance and interest in the broader institutional marketplace. We are an institutional-only manager, and cash, enhanced cash, and short-intermediate duration remains the area that we have the most resources devoted to.

I started the business that eventually became PFM Asset Management in 1978. I'd been on the staff of the Governor of Pennsylvania at that point for about five or six years. His second term was running out and I needed a job.... So, I went off with a colleague and we started a public sector financial advisory business in the attic of his house in Harrisburg. When we opened the first LGIP in Pennsylvania in 1981, the first trade was a repo done at a level of 18% and change.

Rowe: My background is a bit less interesting than Marty's. I've spent my entire 14 year career here at PFM. After majoring in finance, I started out as a trader and had the privilege of learning from Marty and others. I earned the CFA designation early on in my career, and have just been growing with PFM ever since.

MFI: What's your main focus now? Margolis: The best thing I can say is, 'We're minding our business.' That may sound like a smart comment, but we've got a lot of success built around managing cash, managing short-intermediate fixed-income, and we've expanded a bit beyond the public sector. We are working really hard to serve existing clients in the public-sector space, where we have this long track record and client loyalty. We learned a lot during the Great Recession -- as observers -- not participants in the debacle. We escaped unscathed, I'm happy to say.

There are a couple of things we've done since then. As we've grown, we've really expanded our capabilities in the last 10 years; first in credit and more recently in the structured space to support our core strategies. And as these efforts matured, we expanded our client base and our investment lineup. We're now managing broad investment-grade and stable value portfolios, as well as cash and short/intermediate separate accounts.

Rowe: Before SEC money market reform, we sponsored a 2a-7 Prime fund, as well as a 2a-7 Government fund. What we found with our client base is that there wasn't a significant appetite for a money market fund with fees, gates, and floating NAVs.... So the Prime fund merged into the Government fund, and that's the 2a-7 offering we have today. Most of our clients have found better alternatives to a 2a-7 Prime fund, whether it be in liquidity SMAs that we manage, or our local government investment pools.

MFI: What's your biggest challenge? Rowe: There are always challenges in the front end; there's always something new facing us that we have to deal with. [That's] one of the things I enjoy most about being a fixed-income portfolio manager. As we sit here today in early 2019, the main challenge of managing short-term portfolios is simply the current environment we have with a very flat yield curve and tight credit spreads. There's not many compelling investment opportunities at the moment.

As an active manager, we prefer market conditions with a little bit of volatility, and the opportunities that typically come with that. Last year was characterized by an active FOMC, steep money market curve, and credit spread volatility -- this provided a ripe opportunity to actively add value. But again, the challenges are always changing. Looking back a few years, we had to deal with significant regulatory changes and a zero interest-rate environment in the post financial crisis period. We just have to be able to adapt as markets change.

MFI: What are you buying? Rowe: There are a number of key things on our mind, such as new structures that we, and other market participants, are evaluating here in early 2019. Two notable ones would be SOFR-based floaters, and opportunities related to the evolution of the repo market -- FICC-sponsored repo comes to mind. On the SOFR topic, like other investors in the front end, we're watching and selectively participating in SOFR-based instruments.... With just over $50 billion in issuance so far, there seems to be wide participation on the investor side. GSEs have really led the way here with about 80% of the issuance of SOFR-based securities thus far. We're seeing these GSE-syndicated deals being very well received, two to three times oversubscribed, and driven by strong 2a-7 Government fund demand.

It makes sense to us that a government fund would be interested in SOFR-based floaters since it's a close substitute for short-term bills, discount notes and repo. I think the challenge we and other participants may face going forward is looking at SOFR-based instruments from the perspective of a credit investor. Credit products tied to a risk-free reference rate can present a challenge. We haven't seen it thus far in the six or nine months that SOFR based bonds have been in existence. But in an environment where credit is under pressure, you could see, of course, SOFR-linked bonds significantly underperform as credit spreads widen.

MFI: What are customers asking about? Margolis: I would say in the pool space, rates above zero have been a great eye-opener for many clients. After years of assets being stable, when rates got up to 1%, 1.5% and north of 2%, investors started paying attention to cash. The result of that has been more growth in our cash-based strategies, particularly in the LGIPs, in the last two years or so. I think the second thing is for clients who were used to using Prime money market funds. Post-2016 with the money market fund reforms, they've been doing a reassessment of alternatives for investing cash.

As you know, LGIPs generally may offer a stable NAV, and that's been a real advantage. We've been very diligent about working with clients in tailoring the accounting in the LGIPs to GASB requirements, because our client base within LGIPs is basically governments. We also think that clients are really concerned about safety, particularly cyber-security safety. So we've mounted a big effort this year to enhance protections related to our investors moving money in and out of funds we administer and receiving secure investment reports.

MFI: What about fees and waivers? Margolis: We waived fees in some of the funds when rates were hovering around zero; we're not in that situation at this point. The fees for the LGIPs we manage are generally in line with the fees for large institutional money market funds that are a offered as alternatives to the LGIPs. Some of our funds have significant cash-management services that are included within the fund expense ratio. Bearing the cost of these services was challenging during the zero interest-rate environment; it's less challenging now. For insight into fees in the LGIP space, you can look at ... the S&P LGIP Index returns for gross and net yields for local government funds. We're right where I think our investor clients want us to be on that scale.

MFI: Are cash flows seasonal? Rowe: Absolutely. Each one of our LGIPs is unique, not only in permitted investments, which is primarily driven by state statute, but in the seasonal liquidity pattern. It's not uncommon to have a fund that doubles in size over the course of the year. We, of course, factor this into our strategy on the trading desk.... We have a rich history with LGIPs -- we've been managing the funds for 20+ years. So we have a keen insight into what those flows typically are, and can incorporate likely seasonal effects into our strategy.

MFI: Are clients using SMAs? Margolis: One of the things about the funds is that, for smaller investors, that's the place that they rely on. I would say there's been a fair amount of interest in SMAs for investors that are larger, public and not-for-profit investors that had been using Prime money market funds. Today our SMA business is bigger than our pool business. In the short duration SMA area, we have approximately $40 billion of assets under management. AUM has grown in the high single digits in each of the last several years, so we're pretty happy with the success of our SMA business.

MFI: What about your outlook? Rowe: Looking into 2019, investors are faced with a much different landscape. It's not only a question of, 'When will the Fed next move?' which was of course the question for the last several years, but 'In which direction?' So, our base case is the Fed is going to be patient here.... So with that, at least for the first half of the year, we think rates are going to be range-bound in the front end, and there's not going to be a whole lot of rate volatility.

Margolis: As Jeff observed we think rates are going to be confined to a pretty narrow range here no matter what the news.... We're positioned, as Jeff said, with the view that there's not going to be an imminent change in short-term rates. This has been a good market for cash and short-intermediate strategies. The cash market has experienced very solid growth going on four years now. As soon as rates got above zero, investors started paying attention to their cash and will continue to do so.