Money Fund Intelligence XLS

Money Fund Intelligence XLS Sample

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Money Fund Intelligence XLS News

Dec 12
 

Crane Data released its December Money Fund Portfolio Holdings late yesterday, and our most recent collection of taxable money market securities, with data as of Nov. 30, 2017, shows a drop in Repo and Treasuries, but increases in CP, Agencies and CDs. Money market securities held by Taxable U.S. money funds overall (tracked by Crane Data) increased by $18.4 billion to $2.856 trillion last month, after increasing $77.7 billion in October, $8.5 billion in September, and $58.6 billion in August. Repo remained the largest portfolio segment, followed by Treasuries and Agencies. CP moved into fourth place ahead of CDs, Other/Time Deposits and VRDNs. Below, we review our latest Money Fund Portfolio Holdings statistics. (Visit our Content center to download the latest files, or contact us if you'd like to see our latest Money Fund Portfolio Holdings reports.)

Among all taxable money funds, Repurchase Agreements (repo) decreased $16.4 billion (-1.7%) to $939.2 billion, or 32.9% of holdings, after decreasing $3.9 billion in October and $4.4 billion in September but increasing $65.1 billion in August. Treasury securities fell $3.0 billion (-0.4%) to $736.3 billion, or 25.8% of holdings, after rising $66.0 billion in October and $27.8 billion in September but falling $32.7 billion in August. Government Agency Debt increased $10.5 billion (1.6%) to $675.3 billion, or 23.6% of all holdings, after falling $2.2 billion in October, rising $1.2 billion in September, and falling $11.2 billion in August. Repo, Treasuries and Agencies total $2.351 trillion, representing a massive 82.3% of all taxable holdings.

CP, CDs and Other (mainly Time Deposits) securities jumped in the latest month. Commercial Paper (CP) was up $14.9 billion (8.2%) to $196.7 billion, or 6.9% of holdings (after increasing $3.3 billion in October, decreasing $4.4 in September, and increasing $16.2 billion in August). Certificates of Deposits (CDs) increased $8.9 billion (4.8%) to $193.5 billion, or 6.8% of taxable assets (after increasing $14.1 billion in October, decreasing $7.3 billion in September, and increasing $3.4 billion in August). Other holdings, primarily Time Deposits, rose by $3.7 billion (3.6%) to $106.4 billion, or 3.7% of holdings. VRDNs held by taxable funds decreased by $0.2 billion (-2.2%) to $8.2 billion (0.3% of assets).

Prime money fund assets tracked by Crane Data increased to $655 billion (up from $632 billion last month), or 22.9% (up from 22.3%) of taxable money fund holdings' total of $2.856 trillion. Among Prime money funds, CDs represent just under a third of holdings at 29.5% (up from 29.2% a month ago), followed by Commercial Paper at 29.9% (up from 28.7%). The CP totals are comprised of: Financial Company CP, which makes up 18.9% of total holdings, Asset-Backed CP, which accounts for 6.1%, and Non-Financial Company CP, which makes up 4.9%. Prime funds also hold 1.9% in US Govt Agency Debt, 8.7% in US Treasury Debt, 5.9% in US Treasury Repo, 2.2% in Other Instruments, 13.2% in Non-Negotiable Time Deposits, 4.6% in Other Repo, 1.9% in US Government Agency Repo, and 1.0% in VRDNs.

Government money fund portfolios totaled $1.549 trillion (54.2% of all MMF assets), up from $1.541 trillion in October, while Treasury money fund assets totaled another $651 billion (22.8%), up from $664 billion the prior month. Government money fund portfolios were made up of 42.5% US Govt Agency Debt, 19.4% US Government Agency Repo, 15.6% US Treasury debt, and 22.3% in US Treasury Repo. Treasury money funds were comprised of 67.2% US Treasury debt, 32.5% in US Treasury Repo, and 0.3% in Government agency repo, Other Instrument, and Investment Company shares. Government and Treasury funds combined now total $2.200 trillion, or 77.0% of all taxable money fund assets, down from 77.7% last month.

European-affiliated holdings increased $20.8 billion in November to $654.1 billion among all taxable funds (and including repos); their share of holdings increased to 22.9% from 22.3% the previous month. Eurozone-affiliated holdings increased $14.5 billion to $447.7 billion in November; they account for 15.7% of overall taxable money fund holdings. Asia & Pacific related holdings increased by $13.1 billion to $227.9 billion (8.0% of the total). Americas related holdings decreased $25.6 billion to $1.972 trillion and now represent 69.1% of holdings.

The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements, which decreased $16.8 billion, or -2.7%, to $595.3 billion, or 20.8% of assets; US Government Agency Repurchase Agreements (down $0.7 billion to $313.7 billion, or 11.1% of total holdings), and Other Repurchase Agreements ($30.2 billion, or 1.1% of holdings, up $1.1 billion from last month). The Commercial Paper totals were comprised of Financial Company Commercial Paper (up $11.1 billion to $123.9 billion, or 4.3% of assets), Asset Backed Commercial Paper (up $2.2 billion to $40.3 billion, or 1.4%), and Non-Financial Company Commercial Paper (up $1.5 billion to $32.5 billion, or 1.1%).

The 20 largest Issuers to taxable money market funds as of Nov. 30, 2017, include: the US Treasury ($736.3 billion, or 25.8%), Federal Home Loan Bank ($524.2B, 18.4%), BNP Paribas ($150.8B, 5.3%), Federal Reserve Bank of New York ($96.2B, 3.4%), RBC ($75.7B, 2.7%), Credit Agricole ($69.5B, 2.4%), Federal Farm Credit Bank ($68.3B, 2.4%), Wells Fargo ($64.7B, 2.3%), Federal Home Loan Mortgage Co ($55.6B, 1.9%), Barclays PLC ($54.3B, 1.9%), Societe Generale ($44.6B, 1.6%), Nomura ($43.5B, 1.5%), Mitsubishi UFJ Financial Group Inc ($38.8B, 1.4%), Bank of Nova Scotia ($36.8B, 1.3%), Toronto-Dominion Bank ($35.2B, 1.2%), Natixis ($34.7B, 1.2%), Bank of America ($34.7B, 1.2%), HSBC ($34.2B, 1.2%), JP Morgan ($33.5B, 1.2%), and Canadian Imperial Bank of Commerce ( $30.8B, 1.1%).

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: BNP Paribas ($133.8B, 14.2%), Federal Reserve Bank of New York ($96.2B, 10.2%), RBC ($53.5B, 5.7%), Credit Agricole ($52.8B, 5.6%), Wells Fargo ($51.2B, 5.5%), Nomura ($43.5B, 4.6%), Barclays PLC ($43.4B, 4.6%), Societe Generale ($40.4B, 4.3%), Bank of America ($29.1B, 3.1%) and HSBC ($27.8B, 3.0%). NY Fed RRP Repo reached its lowest point since July 2016 (the last time it wasn't the largest repo program). (Fixed Income Clearing Corp repo ranked No. 12 with $13.2 billion from 13 funds.)

The 10 largest Fed Repo positions among MMFs on 11/30 include:Northern Trust Trs MMkt ($16.6B in Fed Repo), Fidelity Cash Central Fund ($11.0B), JP Morgan US Govt ($11.0B ), Morgan Stanley Inst Liq Govt Sec ($8.0B), Fidelity Sec Lending Cash Central ($7.1B), Northern Inst Govt Select ($5.7B), BlackRock Lq FedFund ($4.5B), Goldman Sachs FS Treas Sol ($3.9B), Vanguard Market Liquidity Fund ($3.9B), and Wells Fargo Govt MMkt ($3.8B).

The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: RBC ($22.2B, 5.1%), BNP Paribas ($17.1B, 3.9%), Credit Agricole ($16.8, 3.9%), Toronto-Dominion Bank ($16.2B, 3.7%), Mitsubishi UFJ Financial Group Inc. ($15.6B, 3.6%), Canadian Imperial Bank of Commerce ($14.6B, 3.4%), Bank of Nova Scotia ($14.0B, 3.2%), Bank of Montreal ($13.8, 3.2%), Wells Fargo ($13.5B, 3.1%), and Australia & New Zealand Banking Group Ltd ($13.3, 3.1%).

The 10 largest CD issuers include: Bank of Montreal ($13.5B, 7.0%), Wells Fargo ($13.4, 7.0%B), RBC ($11.7, 6.1%), Sumitomo Mitsui Banking Co ($11.2B, 5.8%), Mitsubishi UFJ Financial Group Inc ($10.2B, 5.3%), Mizuho Corporate Bank Ltd ($9.4B, 4.9%), Toronto-Dominion Bank ($9.3B, 4.8%), Sumitomo Mitsui Trust Bank ($8.6B, 4.5%), KBC Group NV ($7.7B, 4.0%), and Canadian Imperial Bank of Commerce ($7.4B, 3.9%).

The 10 largest CP issuers (we include affiliated ABCP programs) include: Commonwealth Bank of Australia ($9.0B, 5.3%), JP Morgan ($7.9B, 4.7%), Westpac Banking Co ($7.5B, 4.4%), BNP Paribas ($7.2B, 4.3%), Bank Nederlandse Gemeenten ($6.6B, 3.9%), Bank of Nova Scotia ($6.3B, 3.7%), Credit Agricole ($6.2B, 3.6%), UBS AG ($5.9B, 3.5%), National Australia Bank Ltd ($5.8B, 3.4%), and Toronto-Dominion Bank ($5.7B, 3.3%).

The largest increases among Issuers include: BNP Paribas (up $12.5B to $150.8B), Federal Home Loan Mortgage Co (up $9.3B to $55.6B), JP Morgan (up $8.5B to $33.5B), RBC (up $7.7B to $75.7B), Canadian Imperial Bank of Commerce (up $7.0B to $30.8B), Bank of Montreal (up $6.8B to $29.2B), Mizuho Corporate Bank Ltd (up $5.4B to $24.4B), Deutsche Bank AG (up $4.5B to $25.8B), Credit Suisse (up $4.0B to $25.6), and Wells Fargo (up $3.1B to $64.7B).

The largest decreases among Issuers of money market securities (including Repo) in November were shown by: Federal Reserve Bank of New York (down $66.0B to $96.2B), ING Bank (down $8.5B to $27.8B), Societe Generale (down $3.5B to $44.6B), US Treasury (down $3.0B to $736.3B), Skandinaviska Enskilda Banken AB (down $2.2B to 10.6B), Canadian Imperial Bank of Commerce (down $2.5B to $23.8B), Skandinaviska Enskilda Banken AB (down $2.5B to $12.8B), Goldman Sachs (down $1.5B to $17.9B), KBC Group NV (down $1.3B to $10.0B), and Federal National Mortgage Association (down $1.1B to $21.7B).

The United States remained the largest segment of country-affiliations; it represents 61.4% of holdings, or $1.754 trillion. France (11.0%, $313.7B) remained in second place ahead of Canada (7.6%, $218.0B) in third. Japan (5.9%, $169.0B) stayed in fourth, while the United Kingdom (4.0%, $113.9B) remained in fifth place. Germany (2.2%, $62.0B) moved into sixth place ahead of The Netherlands (2.1%, $58.4B), while Australia (1.6%, $46.0B) moved ahead of Sweden (1.5%, $42.2B). Switzerland (1.3%, $36.9B) remained in tenth place. (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 Nov. 30, 2017, Taxable money funds held 31.2% (down from 32.2%) of their assets in securities maturing Overnight, and another 17.3% maturing in 2-7 days (up from 16.1%). Thus, 48.5% in total matures in 1-7 days. Another 24.8% matures in 8-30 days, while 9.2% matures in 31-60 days. Note that over three-quarters, or 82.5% of securities, mature in 60 days or less (up slightly from last month), the dividing line for use of amortized cost accounting under SEC regulations. The next bucket, 61-90 days, holds 7.6% of taxable securities, while 7.7% matures in 91-180 days, and just 2.0% matures beyond 181 days.

Dec 07
 

The December issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Thursday morning, features the articles: "A Decade Later: Subprime Crisis & StratCash, SIVs, LGIPs," which reviews the 10-year anniversary of the financial crisis and troubles with enhanced cash; "Vanguard's Justin Schwartz Talks Muni Money Markets," which interviews Vanguard's Head of Municipal Money Markets; and, "Signs of Life in Tax Exempt Money Fund Sector Too," which reviews the slow rebound and launches in the Muni MMF space. We've also updated our Money Fund Wisdom database with Nov. 30, 2017, statistics, and sent out our MFI XLS spreadsheet Thursday a.m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our December Money Fund Portfolio Holdings are scheduled to ship Monday, December 11, and our December Bond Fund Intelligence is scheduled to go out Thursday, December 14.

MFI's "Decade After Subprime" article says, "In recent months, we've been marking the 10-year anniversary of the start of the Subprime Liquidity Crisis, which dramatically impacted the money markets and money fund business. While it started in August 2007, the crisis didn't really get serious for money funds until November/December 2007, when SIV bailouts, meltdowns of LGIPs and exploding enhanced cash funds appeared in quick succession. We look back at these tumultuous days of a decade ago, and review some of our coverage at the time. (‚ÄčSee our Nov. 29 News, "Another Look Back at Early Subprime Crisis 10 Years Ago: LGIPs, SIVs," and our Aug. 11 News, "10 Years Ago: Subprime Crisis Starts.")

It continues, "Ten years ago this weekend (on 12/8/07), we wrote the story, "More Enhanced Cash Troubles: Columbia StratCash Halts Redemptions," which told CraneData.com readers, "Market rumors swirled Friday that the largest entrant in the 'enhanced cash' space, Columbia's Strategic Cash had halted redemptions. Enhanced cash pools, or '3c-7' funds, are private placements available to only the largest qualified institutional investors.... Over half of the pool, $21 billion, has been separated into a 'StratCash 2' portfolio, perhaps signaling a very large 'in kind' separation.... StratCash has been gradually declined from $40 billion to $33 billion over the past several weeks. Columbia parent Bank of America reportedly set aside $300 million to support the pool previously.... StratCash becomes the latest enhanced cash product to retreat from the besieged sector."

MFI's latest Profile reads, "This month, MFI interviews Justin Schwartz, Head of Municipal Money Markets at the Vanguard Group. Vanguard is the 2nd largest manager of tax-exempt MMFs (and MMFs overall) with over $29.4 billion ($285.2B overall). Schwartz manages the $17.4 billion Vanguard Municipal Money Market Fund, the largest fund in the tax-exempt space. We discuss supply, credit, liquidity, and several other topics below."

We asked Schwartz to "Give us a little background." He responds, "Vanguard began running tax exempt money market funds in 1980 with the launch of the Vanguard Tax Exempt MMF. At the time we launched, interest rates were in the double digits so it was a much different environment than today. We followed up with the launch of our state funds; most of which [were added] in the late '80s, with our final product being launched in 1997. So we've been managing tax exempt money funds for coming up on four decades."

He continues, "In terms of my background, I joined the fixed income group of Vanguard in 2005 as a trader with our long-term bond funds. Subsequently, I joined the short-term municipal team in 2008, [which was] a challenging time to start a career in the money market space. But the lessons learned during the financial crisis are invaluable with regards to shaping my perspective on the proper ways to manage risk and liquidity in money market portfolios."

Schwartz adds, "I was promoted to fund manager in 2010 and most recently became head of the municipal short desk in 2016 following Pam Tynan's retirement. Along the way I've managed several of our state specific money funds. I currently manage our Vanguard Municipal Money Market and also Vanguard Short Term Tax Exempt Fund. My team consists of three portfolio managers and six traders. In addition to the money funds, we manage all the cash investments for our muni bond funds." (Watch for more excerpts from this "profile" later this month, or ask us to see the latest MFI.)

Our "Signs of Life in Tax Exempt" article says, "While they haven't seen the rebound that Prime money market funds have over the past year, Tax Exempt money market funds too are showing some signs of life after being left for dead following last year's money fund reforms. Year-to-date, Tax Exempt MMF assets have increased by $2.0 billion, or 1.5%, to $134.5 billion, and the number of funds appears to be stabilizing. Even the Tax Exempt Institutional sector, which was abandoned by all but 9 of the remaining 17 managers in the space, has seen some interest, as JPMorgan and Fidelity file to launch new funds here."

MFI quotes a recent, Ignites article entitled, "Green Shoots? Fidelity, JPMorgan Register Muni Money Funds," who writes, "Fidelity and JPMorgan each registered an institutional municipal money market fund in November, bucking the trend in recent years of liquidating such products or converting them to government or retail strategies. The plans to launch the products may indicate rekindled interest among institutional investors for municipal money funds, says Peter Crane, CEO of money fund tracking firm Crane Data. Clients of both firms presumably pressed the shops for the new products, says Crane."

They comment, "Fidelity, the largest manager of money funds, filed for the Fidelity SAI Municipal Money Market Fund, which will be offered 'exclusively to certain clients of the advisor or its affiliates,' according to the preliminary prospectus. Fidelity'Strategic Advisers Inc. unit oversees managed accounts.... Meanwhile, JPMorgan filed for an Institutional Tax-Free Money Market Fund. The preliminary prospectus is dated 2018, but does not include a specific launch date. The total expense ratio, after fee waivers and reimbursements, is 26 basis points. The investment minimum to establish an account is $5 million, the filing states."

Ignites adds, "The 2014 reforms, which required firms to classify funds as retail or institutional depending on their investor base, mandated that institutional prime and municipal funds adopt fluctuating net asset values and have the ability to impose liquidity fees and redemption gates. Many investors responded by yanking their money from institutional prime and municipal products and moving it to government ones, which were allowed to maintain a stable net asset value and don't operate under the specter of liquidity fees and redemption gates.... Firms that opted to offer institutional municipal money funds include BlackRock, Federated, Wells Fargo and Invesco."

Our December MFI XLS, with Nov. 30, 2017, data, shows total assets increased $46.4 billion in November to $2.988 trillion after decreasing $2.2 billion in October, increasing $32.0 billion in September and $68 billion in August, and decreasing $32.6 billion in July. Our broad Crane Money Fund Average 7-Day Yield was up 4 basis points to 0.75% during the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) was up 3 bps to 0.93%.

On a Gross Yield Basis (7-Day) (before expenses were taken out), the Crane MFA rose 3 bps to 1.19% and the Crane 100 rose 3 bps to 1.21%. Charged Expenses averaged 0.45% and 0.28% (unchanged) for the Crane MFA and Crane 100, respectively. The average WAM (weighted average maturity) for the Crane MFA was 29 days (down one day from last month) and for the Crane 100 was 29 days (down one from last month). (See our Crane Index or craneindexes.xlsx history file for more on our averages.)

Dec 04
 

Crane Data, which publishes the Money Fund Intelligence newsletter and produces Money Fund Symposium, the largest annual gathering of money fund and money market professionals, invites you to join us for our second annual Bond Fund Symposium conference. Crane's Bond Fund Symposium will be held March 22-23, 2018 at the InterContinental Los Angeles Downtown. Our first event last year in Boston attracted 150 bond fund managers, marketers, fixed-income issuers, investors and service providers, and we expect our LA show to be even bigger. We review the preliminary agenda and details below, and we also give an update on our 2018 conference calendar, including next month's Money Fund University in Boston (1/18-19/18). (As a reminder, please make hotel reservations soon if you plan on attending MFU.)

Crane Data, which is celebrating the third anniversary of its Bond Fund Intelligence publication and BFI XLS bond fund information service and benchmarks, continues to expand its fixed income fund product offerings. We recently launched Bond Fund Wisdom, a product suite which includes our new Bond Fund Portfolio Holdings data. Our Bond Fund Symposium offers a concentrated and affordable educational experience, as well as an excellent and informal networking venue. Registration for Bond Fund Symposium is $750; exhibit space is $2,000 (includes 2 tickets); and sponsorship opportunities are $3K, $4K, $5K and $6K. Our mission is to deliver the best possible conference content at an affordable price to bond fund professionals and investors.

The morning of BFS's Day One agenda includes: State of the Bond Fund Marketplace, with Peter Crane, of Crane Data and Sean Collins of the Investment Company Institute; Keynote Discussion: Ultra-Shorts vs. SMAs with Dave Martucci of J.P. Morgan Asset Management and Jerome Schneider of PIMCO; Bond Strategists: Outlook for Rates & Spreads, with Mark Cabana of Bank of America Merrill Lynch and Michael Cloherty of RBC Capital Markets; and, Bond Fund Ratings & USBF Market Overview, with Greg Fayvilevich of Fitch Ratings and Peter Rizzo of Standard & Poor's Ratings.

Day One's afternoon agenda includes Senior Portfolio Manager Perspectives, with James McNerny of J.P. Morgan A.M., Morten Olsen of Northern Trust Asset Mgmt, and Mary Beth Syal of Payden & Rygel. Also on the agenda: Major Issues in Fixed-Income Investing with Alex Roever from J.P. Morgan Securities as moderator, Jeff Weaver of Wells Fargo Funds and Tony Wong of Invesco; and, EFT Trends & Bond Fund Investors featuring James Meyers of Invesco PowerShares. The day concludes with Corporate Credit & Index Fund Issues, with George Bory of Wells Fargo Securities.

Day Two's agenda includes: Money Fund Update & Conservative USBFs with Crane and Michael Morin of Fidelity Investments; Regulatory Update: Form N-PORT, Liquidity with Stephen Cohen of Dechert LLP and John Hunt of Sullivan & Worcester LLP. The second day also features: Government Bond Fund Discussion with Sue Hill of Federated Investors; Municipal Bond Fund Issues with Kristian Lind of Neuberger Berman. (Note: The agenda is still in flux and some speakers have yet to confirm their participation.)

Portfolio managers, analysts, investors, issuers, service providers, and anyone interested in expanding their knowledge of bond funds and fixed-income investing will benefit from our comprehensive program. A block of rooms has been reserved at the Intercontinental Los Angeles. We'd like to thank our 2017 sponsors -- Fitch Ratings, Federated Investors, Fidelity Investments, J.P. Morgan Asset Management, Wells Fargo, Invesco, S&P Global Ratings, INTL FCStone, Bank of America Merrill Lynch, Goldman Sachs, PIMCO, Payden & Rygel, Investortools, Barclays, State Street Global Advisors, and S&P Dow Jones Indices -- for their support, and we're still accepting sponsors for our 2018 show. E-mail Pete Crane for more details.

Crane Data is also making final preparations and still accepting registrations for our "basic training" Money Fund University. Our eighth annual MFU will be held at the Boston Hyatt Regency in Boston, Massachusetts, January 18-19, 2018. Crane's Money Fund University is designed for those new to the money market fund industry or those in need of a concentrated refresher on the basics. The event also focuses on hot topics like money market regulations, money fund alternatives, offshore markets, and other recent industry trends. For those attending, please make hotel reservations soon; our discounted room rates expire December 20th or until our room block is filled.

Note: We're introducing "free Fridays" for our Money Fund University (and other conferences) and would like to invite anyone in the Boston area to attend the final day sessions without a ticket. So feel free to visit the Boston Hyatt Regency on Friday, January 19, and to "crash" any or all of our sessions, which include Money Fund Regulations, European MMF Reforms, Ultra-Short Bond Funds & SMAs, and Money Fund Data & Wisdom Training.

Finally, mark your calendars for our "big show," Money Fund Symposium, which will be held June 25-27, 2018, at the Westin Convention Center in Pittsburgh, Pa. Watch for the preliminary agenda in coming weeks at www.moneyfundsymposium.com and let us know if you'd like more details on sponsoring this event. We have also set the dates and location for our next European Money Fund Symposium, which is scheduled for Sept. 20-21, 2018, in London, England. Watch for more details in early 2018.... We wish all of our readers a Happy Holiday season, and we hope to see you at one of our events in 2018!

Nov 27
 

This month, BFI speaks with Vanguard Portfolio Manager Chris Wrazen, who runs Vanguard's Short-Term Bond Index Fund. He discusses a number of issues in the short-term bond and index fund marketplace, including supply, yields, flows, and the challenges in tracking bond indexes. Our Q&A follows. (Note: This "profile" is reprinted from the November issue of our Bond Fund Intelligence publication. Contact us if you'd like to see the full issue, or if you'd like to see our new Bond Fund Portfolio Holdings product. Also, let us know if you'd like to see the about-to-be-released preliminary agenda for our upcoming Bond Fund Symposium conference, which will be in Los Angeles, Calif., March 22-23, 2018.)

BFI: How long have you been running short-term bond and index funds? Wrazen: We launched Total Bond [Index] fund back in 1987, so we have about 30 years or so of experience with bond index funds. With respect to the front end, we launched Short Index in 1994, so about 23 years with the "maturity tranched" suite of funds out there.... I have been at Vanguard since 2004 and in fixed income since 2008.... The first five years or so, I was on the active side, focused on structured products. Then for the last five years, I have been on the index side.

BFI: Tell us about index funds in general. Wrazen: On the fixed income side, it's a little bit different than equities because you can't just go and buy a basket of securities to replicate the benchmark. The fixed income market is still primarily traded OTC, so a lot of it is still voice, over the phone. We do leverage some electronic trading platforms, but even so, the liquidity in the space is such that you couldn't just go out and buy the whole benchmark.

So anytime we have a subscription, we need to decide which securities we want to buy. Even though it's an index product, at the security level we are going to be putting on overweights and underweights. Granted they will be very small. But we do want to be very deliberate about those securities that we have small overweights and underweights in.

BFI: How's the fund been doing lately? Wrazen: Performance has been really strong, and tracking has been really tight. Year to date, we're within 2/10ths of a basis point of the benchmark for short index. We're outperforming the benchmark by a fraction of a basis point. But overall, the space has been doing pretty well.

Wrazen: Granted, rates have been very low. We've been averaging, over the past five years or so, one and a quarter percent 'ish', very much in line with the benchmark.... The slowly rising interest rate environment, I think, is the ideal environment for a short bond fund. You don't have a lot of duration, but you do want to see that incremental carry pickup over time as you're reinvesting coupons and maturities.... Flows have been really robust. Our Short-Term Bond Index Fund has grown to over $50 billion, and year-to-date we have seen about $4 billion.

BFI: Tell us about your other offerings. Wrazen: We have our Short-Term Bond Index, which is the one we have been talking about. But we also have a Short Corporate Index Fund as well. There's both a traditional share class and an ETF share class.... It is very similar to Short Term Bond Index, in that it is 1-5 year. But the difference is our Short-Term Bond Index is a government & credit fund; it is about 70% or so government or government-related securities and about 30% credit bonds. Our Short Term Corporate Bond is 100% credit.

Wrazen: If you just isolate that 30% or so in Short Term Bond Index that's corporate credit, and scale that up to the whole fund, that is pretty much what we get in the Short Term Corporate Fund. Because it's entirely corporate, it does have a higher yield.

BFI: What's your biggest challenge? Wrazen: The short-term funds are more challenging to manage because you do have that dynamic of legacy 10 year and 30 year bonds that are rolling down into the 5-year part of the curve. When that happens, sometimes you have these big chunky issues that [do not have] a whole lot of liquidity. But they are in the benchmark now, so it creates an underweight that we need to fill or find a way to proxy.... To the extent the liquidity is not there, we have to come up with proxies, or different ways that we can basically get a comparable risk exposure and continue to have the fund track.... The market has been supportive, with the new issue pipeline being so robust.

Wrazen: So we have been able to get a lot of risk on through the new issue market and haven't had a need to lean on secondary liquidity quite as much. That's been a little bit of a mitigating factor. If the new issue market were to shut down and we continued to have these kinds of flows, the secondary liquidity could be a bit of a challenge.

BFI: Tell us more about the strategies you use? Wrazen: Short Term Bond Index is a 'govt-credit' fund, so it invests in government and government related securities. It's Treasuries and also includes agencies as well. Between Treasuries and agencies, that makes up about 65%, about 60% 'govies' and about 5% agencies. The remaining 35% is investment grade credit, mostly corporate credit, which includes financials, industrials and utilities. But there is also an 8% slice of the fund that is 'non-corporate' credit as well.... It's a Bloomberg Barclays Index..... It's all investment grade, so it needs to have a composite rating of at least low triple-B. This specific product doesn't include mortgage-backed securities; it doesn't include ABS or CMBS.

BFI: Talk about the ETF version. Wrazen: It is actually a pretty sizeable ETF share class as well. I mentioned the fund has about $50 billion in assets. Around $20 billion or so of that is in the ETF share class.... To answer the question about how investors choose which one [fund or ETF], the ETF share class does have a lower expense ratio than the Investor shares of the traditional mutual fund. So if you are a long-term holder and you are just trying to get a lower cost, but you don't meet the criteria for the Admiral shares, you can look to the ETF share class. Some investors like the flexibility to be able to get in and out of the market throughout the day too. If you are going to invest in an ETF share class, I think you have to have a pretty good understanding of the premium-discount dynamic that is in play with ETFs.

BFI: Are you worried about big inflows? Wrazen: It has definitely been incredible, the amount of flows we have seen, and it really seems like it's not subsiding any time soon. It just continues month after month. To answer your question ... I'm less concerned about it. I don't think it's really performance chasing or anything like that. The market is relatively comfortable with the fact that even if interest rates go up, they're unlikely to go up drastically in a short amount of time.... I think it's more of a structural shift. You have this demographic, this aging population. There is always going to be demand for fixed income. If you are talking about a front-end product like the Short-Term Bond Index, I think it is always going to have demand as people use it as a cash proxy.

BFI: What kinds of investors are interested in this space? Wrazen: It's pretty much across the board. There is definitely retail demand and a big portion of Vanguard's investor base is retail. But we also have a very strong institutional presence. This includes anything from corporate treasury accounts to DB or DC assets. We just had an institution move over $1 billion dollars or so into short index within the past year... As they move their previous holdings from whatever institution they were with before, they are kind of 'mapping' them into our most similar offerings.

BFI: What about regulations? Wrazen: From a regulatory standpoint, I think most of the trends that we are seeing are very index friendly, [such as] all these rules coming out on transparency. You also have the 'fiduciary rule' still lingering out there. They are all regulations that are very supportive of index products. I think that is a major part of what is driving this structural shift toward indexing, just an overall alignment of the way money managers manage with the interests of investors, which again is a great trend for the market and a very supportive one for Vanguard and our index funds in particular.