MFI Distribution Survey

MFI Distribution Survey Sample Wells Fargo Securities' Garret Sloan and Vanessa Hubbard write in their latest "Daily Short Stuff," "Last week we commented on the significant week-over-week jump in the SIFMA index.... This week there has been another dramatic increase as the index reset 31 basis points higher yesterday, beating last week's move as the largest weekly climb since the end of 2008. All of the reasons we gave last week for the recent rise are still relevant, most notably end of year supply and liquidity dynamics. In the month of December, the weekly SIFMA index has gained 71 basis points over four short weeks. To put this move into perspective, from January 2017 to the first week in December, the index has climbed just 32 basis points. This 32 basis point move over 49 weeks withstood three Fed fund rate hikes of 25 basis points each. Year-end liquidity constraints are exasperating the upward trajectory in the weekly SIFMA index." They add, "Similarly, but not as dramatic, commercial paper rates have risen quickly over the past few weeks as well mostly attributed to end of year liquidity dynamics. The 5-day moving average for 30 day Tier-1 nonfinancial CP according to Fed data has risen by about 27 basis points in the month of December and the index for Tier-1 financial CP has risen by 24 basis points. Tier-2 CP rates have climbed in aggregate an average of 35 basis points over this same timeframe. Supply has also increased over this period with commercial paper outstanding on a seasonally adjusted basis growing from $1.05 trillion at the beginning of December to $1.08 trillion last week."

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MFI Distribution Survey News

Aug 07
 

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

MFI's "Money Fund Assets," article says, "Money market fund assets have been unusually strong in 2019, and the surge shows no signs of slowing. Quite the contrary. Assets jumped by $78.1 billion in July to a $3.622 trillion, according to Crane Data's latest totals. This is the highest level since March 2009 (Jan. 2009 was the record high) and follows gains of $42.3 billion in June, $81.2B in May and $113.3B in April. (April's numbers were inflated by the addition of the $108B American Funds Central Cash Fund.) Year-to-date, money fund assets have increased by $408.6 billion, or 12.7%, and over 12 months assets have jumped by $579.8 billion, or 19.1%."

It continues, "Year-to-date and over the past year, Prime money funds have led the gains, but Government & Treasury MMFs have grown faster over the past 3 months. Prime MMFs increased by $282.6 billion, or 38.8%, YTD, and they've grown by $327.7 billion, or 48.0%, over 12 months. Govt (& Treasury) funds have grown by $136.3 billion, or 5.8%, YTD and $247.2 billion, or 11.1%, over 1-year. The past 3 months, Prime MMFs have grown by $42.8B, or 4.4%, vs. $157.2B, or 6.8%, for Govt MMFs."

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

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

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

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

It continues, "It appears you don't need to be 'environmental' to be an 'ESG' fund, at least according to ​The Wall Street Journal. They write in 'Apple, JetBlue Buy Goldman ESG Cash Fund,' that, 'Apple Inc., JetBlue Airways Corp. and other U.S. corporations are parking cash in a new socially conscious offering managed by Goldman Sachs Group Inc. The $1.5 billion money-market fund helps corporate treasurers steer money to bond brokerages operated by minorities, women and veterans, reflecting a growing shift toward investing with environmental, social and governance, or ESG, principles."

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

Our July MFI XLS, with June 30, 2019, data, shows total assets rose by $78.1 billion in June to $3.622 trillion, after rising $40.0 billion in June, $91.1 billion in May and $105.7 billion in April (this included the addition of the $108 billion American Funds Central Cash Fund). Our broad Crane Money Fund Average 7-Day Yield fell to 1.98% during the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) was down 5 basis points to 2.13%.

On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA fell 3 basis points to 2.40% and the Crane 100 fell to 2.40%. Charged Expenses averaged 0.42% (unchanged) and 0.27% (unchanged), respectively for the Crane MFA and Crane 100. The average WAM (weighted average maturity) for the Crane MFA and Crane 100 was 29 and 31 days, respectively (up one day for both). (See our Crane Index or craneindexes.xlsx history file for more on our averages.)

Jul 08
 

The July issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Monday morning, features the articles: "Money Funds Gain vs Deposits Again: AFP Liquidity Survey," which reviews corporate investors shift from banks to MMFs; "Liquidity Flowing at 11th Money Fund Symposium," which reviews coverage of our recent big show; and, "Worldwide MMFs Break $6.1T: China, U.S. Lead Gains," which discusses the latest numbers on money funds outside the U.S. We've also updated our Money Fund Wisdom database with June 30 statistics, and sent out our MFI XLS spreadsheet Monday a.m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our July Money Fund Portfolio Holdings are scheduled to ship on Wednesday, July 10, and our July Bond Fund Intelligence is scheduled to go out Monday, July 15.

MFI's "MMFs vs Deposits," article says, "The Association for Financial Professionals released its '2019 AFP Liquidity Survey' recently, which shows that money market funds continue to regain market share from bank deposits among corporate investors. It tells us, 'The greatest share of allocations continues to be in bank products (46 percent) followed by Government money market funds (at 14 percent) and Treasury bills (six percent).'"

It continues, "AFP says, 'The share of funds allocated to Prime Funds has increased, almost equaling the share in T-bills. Bank relationships continue to be core to a company's operating cash investment mix. Banks are the primary source that treasury and finance professionals turn to for information. Most organizations' cash holdings are held in bank deposits; practitioners value their bank-​related investments differently than they do other investment vehicles.'"

Our MF Symposium recap reads, "Two weeks ago Crane Data hosted its 11th annual Money Fund Symposium conference in Boston, and the record 584 attendees were feeling little pain after a decade of ultra-low interest rates and dramatic regulatory and product shifts. But though asset flows and revenue streams are extremely healthy now, the threat of falling rates again cast a shadow over the proceedings."

Host Peter Crane comments, "Last year, you saw a surge in retail money market fund assets and prime retail assets in particular.... Then this year institutions joined in. If you look at the latest [ICI] numbers … they're pushing $3.2 trillion. Over 52 weeks ... assets are up 13%.... I believe money funds will be up 20 percent in 2019."

He adds, "The most amazing thing is that they're up during the weakest seasonal period of the year.... Assets in the second half are always super strong. So I'm expecting a mother of inflows in this second half of the year. If you look at the SEC's statistics, their numbers are over $3.5 trillion.... But no matter which series you look at, the numbers are surging ... and the prime numbers are spectacular.... Prime assets are up 50% year-over-year. They're over $1 trillion now if you look at the SEC's or Crane Data's stats."

Our "Worldwide" update says, "The Investment Company Institute's latest 'Worldwide Regulated Open-​Fund Assets and Flows, First Quarter 2019' shows that money fund assets globally rose by $83.7 billion, or 1.4%, in Q1'19, to break above the $6.1 trillion level ($6.160T). The increase was led by big gains in Chinese and U.S.-based money funds. Money fund assets in Ireland fell. MMF assets worldwide have increased by $62.1 billion, or 1.0%, the past 12 months, and money funds in the U.S. continue to represent exactly 50.0% of worldwide assets."

The latest MFI also includes the News Brief, "MMF Assets Blasting Off." It explains, "Money fund assets broke through the $3.2 trillion level as Institutional MMFs surged to $2.0 trillion in ICI's latest data series, their 11th week in a row of gains. Over the past 52 weeks, ICI shows assets increasing by $417 billion, or 14.8%, with Retail MMFs rising by $206 billion (20.0%) and Inst MMFs rising by $210 billion (11.8%)."

Our July MFI XLS, with June 30, 2019, data, shows total assets rose by $40.0 billion in June to $3.541 trillion, after rising $91.1 billion in May, $105.7 billion in April (this included the addition of the $108 billion American Funds Central Cash Fund) and falling $10.2 billion in March. Our broad Crane Money Fund Average 7-Day Yield fell to 2.03% during the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) was down 4 basis points to 2.18%.

On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA fell 4 basis points to 2.44% and the Crane 100 fell to 2.45%. Charged Expenses averaged 0.41% (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 28 and 30 days, respectively (down one day for both). (See our Crane Index or craneindexes.xlsx history file for more on our averages.)

Jun 25
 

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 “beyond cash” space. Our Q&A follows. (Note: The following is reprinted from the June issue of Money Fund Intelligence, which was published on June 7. Contact us at info@cranedata.com to request the full issue or to subscribe.)

MFI: Tell us about the Firm's history. Kolk: 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.

MFI: Talk about MS Ultra Short Income. Wachs: 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. Also, as important as what the fund can invest in is, what it cannot invest in. For example, our fund cannot invest in derivatives or high yield securities and it can't invest in mortgage-backed securities, all of which a number of ultra-short funds can and do invest in.

A distinguishing factor of the fund is its short duration profile. Ultra-short funds can have weighted average maturities of up to a year, and many of them do. Our fund's maximum WAM is 90 days and its maximum weighted average life is 180 days. It also has a maximum maturity of any security of 397 days. This is a very short duration profile. These characteristics that I just described -- the high quality investments, the short duration profile, etc. -- this very conservative investment approach and has to date resulted in very minimal fluctuations in its NAV. Of course, it's a bond fund, so it does have an NAV that floats. But to-date it has floated very, very minimally. The volatility as compared to the competition is extremely low.

Another important characteristic that differentiates us is who we have managing the fund. Jonas's team is a specialized and very experienced liquidity team that also manages our large money market fund complex. A lot of funds in the ultra-short space are managed by a broader fixed income team. Jonas and his team's entire focus is on the very short end of the market and on very short-term money market type securities. As part of their DNA, they are also very focused on preservation of capital and liquidity.

We also think that investors, particularly in this space, are extremely interested in transparency. So we are very focused on transparency. That's best evidenced by how often we make our holdings reports available. While many competitors in this space make their holdings available monthly, we make ours available on our website on a weekly basis. I think this approach has resonated well with investors of many different types -- those that are seeking incremental yield from their liquid investments without stretching. In terms of your question, 'What are you happier about, breaking $15 billion, which is a great milestone, or hitting the three year anniversary?' I guess both.

Kolk: We are obviously proud of the track record and the performance of the fund, and we now have a 3-year demonstrated history. We're also very proud of bringing in $15 billion in AUM. When we were thinking about what type of product to bring to the marketplace and brainstorming what the product would look like, we identified a gap in the market. If you told us then that three years forward we’d have $15 plus billion in AUM, we would have viewed that as an excellent result. The fact that we reached that is a testament to the concept, and how very well received this product has been in the marketplace.

As you launch a fund and you think about how you can attract AUM to that fund, you have to get to a certain scale. You have to get to a certain critical mass, particularly on the institutional side of that marketing effort, for those institutional clients who pay attention. If they're going to invest they need the fund to be of a certain size and scale so their investment does not occupy too large of a percentage of the overall fund. So, they really do go hand-in-hand.

Wachs: As we were thinking about coming out of reform, we were pretty confident that you were going to see a huge transmission of AUM out of Prime and into Government funds. And that's what happened. Against that backdrop, we wanted a fund that filled that void and was able to capitalize on some of those supply demand imbalances. We wanted to do it in a construct that was familiar to potential investors. So, creating a fund with all those characteristics was really key in having the success that we've had. If you think about the conceptual leap ... to move into this fund if you were an investor ... it's a small step; it's not a giant leap. Since this is a bond fund, it's not subject to the fees and gates that a Prime money market fund is subject to now under the new rule. That is also an important component for some investors.

MFI: What is your biggest challenge? Kolk: On the investment side, it's not finding enough product to buy. This is happening because of the macro outlook, the interest rate environment. It's happening particularly of late with the Fed pivot and going from a regime where you're actively pricing in Fed hikes to a regime where the Fed's really done a 180 and tightening is off the table. The Fed's communicated a pause, and now the market is starting to get really worried about some macro factors, whether it be China, trade and global growth, Brexit or tensions in the Middle East. You've rapidly gone from one Fed policy stance to a market that's pricing in a significant amount of easing at some point in the not too distant future. The biggest challenge on the investment side is managing all those different crosscurrents from a macro standpoint and navigating the changing interest rate environment.

Wachs: On the client side, it's really educating the market on the investment guidelines of the fund. What we invest in is very familiar to liquidity investors. It's a very familiar investment universe and a very familiar in-depth approach. It's just beyond a money market fund, so it shouldn't be a big step in terms of what this fund does and what this fund doesn't do.

We also face a challenge particularly with institutional clients, in terms of 'What does their investment policy say about what they can invest in?' Can they invest in ultra-short bond funds or conservative ultra-short bond funds? Do they need to make amendments to their investment policies to be able to invest in this type of fund? The fact that the fund has similarities to what is in clients' investment policies, which has been helpful in building a case internally to add this fund to their investment policy.

MFI: What do you buy that money funds don't? Kolk: It's at the margins, a little bit here and a little bit there. We do have a small allocation to some A2-P2, Tier 2 credits, because they're great diversifiers in the portfolio. Much of what's issued in the very front end of the money market space is financial. So in that Tier 2 bucket, we're doing largely brand name corporates.... We do not view them as lower credit investments, they just happen to be lower rated because that is where they choose to be in their capital structure. From an investment perspective, they give us the ability to better diversify the portfolio.

The other main place that that you see differentiation and that we are able to add some alpha is at the portfolio level. We can have slightly longer weighted average maturity and weighted average life, so we pick up a little bit of incremental yield there without changing the overall risk profile of the portfolio. We're also utilizing nontraditional repo and term nontraditional repo in some creative structures that we can add yield over similar unsecured investments. As a bond fund, you're obviously not subject to the fees and gates regulations that are part of the 2016 reforms. As a large, very well diversified bond fund with both a retail and institutional shareholder base, we don't need to hold the same degree of daily and weekly liquidity -- either from a regulatory or from just a fiduciary prudence standpoint.

MFI: What about your outlook? Kolk: Because of the way we structured this product from both an investment guidelines and an investment process standpoint, it's a fund that has a tremendous amount of versatility. It's also a fund that should be attractive and consistent across interest rate and credit cycles. We have a great proof of concept in terms of how the fund performed from a yield and a volatility standpoint in 2018. Particularly in the fourth quarter where you had hikes throughout the year and a fairly dynamic market in terms of volatility and spread widening.

I think that the fund performed exactly how we wanted it to and anticipated it would. If you extrapolate that out to a flat interest rate cycle or a cycle of declining interest rates, this as a fund that has a lot of versatility and a lot of consistency across credit and rate cycles. Wachs: To be able to have a fund of significant size and scale in all of the important cases in the broader liquidity space is very advantageous and is appreciated by our clients.

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.)