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This month, Money Fund Intelligence speaks with Eric Thole, CEO of U.S. Bancorp Asset Management and President of First American Funds, and Jeff Plotnik, Director of Money Market Fund Management for First American Funds. We look back at the implementation of reforms and changes in 2016, and we discuss the current environment and future of money funds. Our Q&A follows. (This interview is reprinted from the February issue of our flagship Money Fund Intelligence newsletter; e-mail email@example.com to request the full issue.)
MFI: What is your biggest priority? Thole: Our biggest priority today is very similar to what it's been in past years. We continue to diligently work with our shareholders. Money fund reform hit its finish line back in October of last year, but it's certainly the starting line for a new way of thinking about cash management. The operational pieces have been successfully completed. But we continue to see money in motion and our goal is to ensure we have the products to meet our shareholder's needs.
Plotnik: From a management standpoint, we're still adjusting to the new universe. We have more government cash than we once had, so we're really focused on putting that to work. It's harder to add value in that space, so you're always hunting and pecking to find product. We're also adjusting to the new prime environment.... It's early and we're still getting feedback through communications with our shareholders in regards to what’s important and what they want to see.
Thole: We're focused on having as many conversations as possible with various shareholders while making sure they understand the new pieces of money fund reform. We do expect, at least over time, shareholders are going to be excited about the yield differential they may pick up in a prime product and may -- at least for a portion of their money -- look to move back into the prime space.
MFI: What's your biggest challenge? Plotnik: We're approaching our 35th anniversary this year. Historically, pre-2009, as a manager my biggest concern was, 'Where can you get that extra basis point for your shareholders?' That was what we focused on ... and that's changed. In today's world, I find the biggest challenge, at least for me, comes from the regulatory and compliance side. As a portfolio manager, it's my job to deliver the best performance I can for our shareholders. But we're also dealing with additional regulatory restrictions from the SEC, from our own internal guidelines, from the rating agencies, etc., like never before and they all come with a heightened sense of scrutiny.
At the same time, we're thinking about the floating NAV, and the perceptions of gates and fees. So a lot goes into each trade. We have the processes that check, double-check, and triple-check all our activities. Even though these processes are very thorough and dependable, when it comes to compliance, seeking perfection is the only outcome that's acceptable. We as managers are ultimately responsible for the portfolios, and all of the regulatory requirements that have been implemented are additions to the job that require an extra layer of diligence.
Thole: We at First American hit the reform deadlines on time, but it wasn't without its complexity. During reform, we were constantly in touch with the board of directors. We still are today, but as we move into 2017, we're talking with the board about growth and shareholder needs from a cash management perspective. So our focus has returned to more forward-looking business considerations and making sure we have the right products that meet our shareholder's needs.
MFI: What are you buying? Plotnik: We obviously buy the most product in the government space. The bigger challenges are getting our government portfolios invested efficiently with large growth assets as a result of money fund reform. There's a larger reliance on the Fed's reverse repurchase program (RRP) as part of your portfolio, especially in the government and Treasury funds. We are buying the same products we have historically purchased in these funds, but finding enough has become the challenge.
In terms of the prime space, we obviously have smaller portfolios to work with now. When considering the institutional fund, we're more sensitive to NAV volatility and the perception of gates and fees, as opposed to the retail fund which just has the gates and fees considerations. Although our liquidity metrics have been consistent, we find it prudent to try and find value in shorter tenor securities, as we are more focused on potential price volatility. We're also more focused on finding value with securities in the three-to-seven month area with really good credit and a clean structure vs. pre-reform when 13-month tenors were much more common.
Getting invested efficiently back in October when floating NAV was being implemented was easier because issuers were really focused on getting funded ahead of reform. But today, only a few months after reform, I am finding that issuers once again are becoming more selective. I think they have adjusted well to the new environment. Nonetheless, we have been able to get invested with the liquidity and credit structure that we're looking for, so the yield opportunity is still there, providing an attractive yield for prime fund investors.
MFI: Are there pros and cons to size now on the Govt fund side? Plotnik: Yes. One of the cons is prior to reform we were able to get nearly the entire portfolio invested in government-sponsored enterprises (GSE) and dealer repos. Today the supply just isn't there to satisfy the size of the universe. I think everyone is struggling to a certain extent to fill those buckets.... The RRP is often our biggest single repo exposure. The sheer demand for the GSE product has forced a yield spread differential of a basis point or two in many cases. On the pro side, government funds are a simple and easy product for institutional investors. They are a great liquidity tool for our shareholders and their increased size allows us to accommodate investors of almost any size.
MFI: Can you touch on the debt ceiling? Plotnik: We've been through a couple of these debt ceiling fire drills before. Typically, we try to avoid those particular notes and bills surrounding key debt ceiling dates. At this point ... there hasn't been a lot of negative impact attributed directly to the upcoming debt ceiling debate, and we don't see any noticeable market stress at this time. I expect that at some point, as we approach the debt ceiling date, it will hit the headlines and there will be some market reaction. But we're not there yet. We are aware of it and are investing around it as best we can.
MFI: What are customers concerned about? Thole: We're hearing about yields <b:>`_. Shareholders and investment professionals tell us they're excited about potential for increased investment yields. There hasn't been a lot of noise around the floating NAV in prime funds. We continue to educate around fees and gates to make sure the shareholders understand how they work. For the most part, shareholders are focused on the utility of money funds as well as the yield. Many of our shareholders are enjoying the increase they received from the latest rate hike. If the trajectory of the market continues -- and we are forecasting multiple rate hikes this year -- the yield pickup for shareholders will continue. It may take more time before significant assets flow back into the prime space.
MFI: What about fee waivers and costs? Thole: Think about institutional prime and the fact that many institutional prime products are striking multiple NAVs per day. The operational costs have gone up in those particular products in general. If you think about the first two rate hikes, they absolutely were important not only from a shareholders perspective, but also from a business perspective. We're not out of the woods yet. Like many in the industry, we need another rate hike from a fee waiver perspective. The shareholders are going to continue to enjoy the benefit of the rising rate environment. This is important for both us and our shareholders; it continues to put a positive tailwind on money funds in general throughout 2017 and into the future.
MFI: What's your outlook for 2017? Plotnik: We expect higher rates this year, so that's certainly going to be attractive to our shareholders.... I would speculate that if you give it time, more NAV history and 40 or 50 basis points in yield spread, those investors that are allowed to will move back from government to prime funds.... I believe there is a sizeable client segment that can move back when they feel the environment is right [and] I believe 2017 is going to be good year. It's going to be a solid future for the money fund industry, as well as investors and managers on the short end of the curve. Thole: Higher rates translate into higher yields for shareholders, and that's a good thing for the money fund industry.
Crane Data released its February Money Fund Portfolio Holdings yesterday, and our latest collection of taxable money market securities, with data as of Jan. 31, 2017, shows declines in Repo and Treasuries, and increases in Agencies and CDs. Money market securities held by Taxable U.S. money funds overall (tracked by Crane Data) increased by $7.2 billion to $2.665 trillion last month, after decreasing by $34.7 billion in Dec., and increasing by $106.5 billion in November and $32.0 billion in Oct. Repo edged out Treasuries as the largest portfolio segment, though both fell following quarter-end. Agencies, which jumped, remained the third largest segment. CDs also rose and were in fourth place, followed by Commercial Paper, 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 a sample of our latest Portfolio Holdings Reports.)
Among all taxable money funds, Treasury securities fell $37.8 billion (-4.6%) to $784.8 billion, or 29.5% of holdings, after falling $59.4 billion in Dec. and rising $101.6 billion in November and $112.2 billion in Oct. Repurchase Agreements (repo) dropped $43.6 billion (-5.2%) to $788.8 billion, or 29.6% of holdings, after rising $56.3 billion in Dec. and falling $21.1 billion in Nov. and $65.2 billion in Oct. Government Agency Debt increased $35.3 billion (5.4%) to $687.8 billion, or 25.8% of all holdings, after falling $7.7 billion in Dec., but increasing $20.3 billion in Nov. and $32.3 billion in Oct. Repo, Treasuries and Agencies in total retreated from last month's record levels, but they still represent a massive 84.9% of all taxable holdings. Govt and Treasury MMFs lost assets and Prime MMFs recovered slightly last month.
CDs, CP and Other (Time Deposits) segments all rebounded last month, climbing off of record low levels last month. Certificates of Deposit (CDs) were up $22.4 billion (15.8%) to $170.0 billion, or 6.4% of taxable assets, after declining $0.2 billion in Dec., $1.0 billion in Nov., and $13.6 billion in Oct. Commercial Paper (CP) was up $16.9 billion (13.7%) to $140.6 billion, or 5.3% of holdings (after decreasing $9.5 billion in Dec. and increasing $5.8B in Nov.), while Other holdings, primarily Time Deposits, rose $15.8 billion (35.9%) to $59.8 billion, or 2.2% of holdings. (Time Deposits normally rise after quarter-end as Repo falls.) VRDNs held by taxable funds decreased by $1.8 billion (-5.1%) to $33.1 billion (1.2% of assets).
Prime money fund assets tracked by Crane Data rose to $515 billion (up from $501 billion last month), or 19.3% (up from 18.2%) of taxable money fund holdings' total of $2.665 trillion. Among Prime money funds, CDs represent a third of holdings at 33.0% (up from 29.4% a month ago), followed by Commercial Paper at 27.3% (up from 27.1%). The CP totals are comprised of: Financial Company CP, which makes up 16.3% of total holdings, Asset-Backed CP, which accounts for 5.9%, and Non-Financial Company CP, which makes up 5.1%. Prime funds also hold 2.1% in US Govt Agency Debt, 7.9% in US Treasury Debt, 6.4% in US Treasury Repo, 3% in Other Instruments, 9.2% in Non-Negotiable Time Deposits, 6.3% in Other Repo, 2.1% in US Government Agency Repo, and 4.6% in VRDNs.
Government money fund portfolios totaled $1.517 trillion (56.9% of all MMF assets), down from $1.531 trillion in December, while Treasury money fund assets totaled another $633 billion (23.8%) in January, up from $625 billion the prior month. Government money fund portfolios were made up of 44.8% US Govt Agency Debt, 16.1% US Government Agency Repo, 18.7% US Treasury debt, and 19.5% in US Treasury Repo. Treasury money funds were comprised of 72.7% US Treasury debt, 26.9% in US Treasury Repo, and 0.2% in Government agency repo, Other Instrument, and Investment Company shares. Government and Treasury funds combined now total $2.150 trillion, or over 80% (80.7%) of all taxable money fund assets, down from 81.1% last month.
European-affiliated holdings increased $215.5 billion in January to $473.4 billion among all taxable funds (and including repos); their share of holdings increased to 17.8% from 9.7% the previous month. Eurozone-affiliated holdings increased $152.6 billion to $329.0 billion in Jan.; they now account for 12.4% of overall taxable money fund holdings. Asia & Pacific related holdings increased by $11.8 billion to $171.6 billion (6.4% of the total). Americas related holdings decreased $220.2 billion to $2.020 trillion and now represent 75.8% of holdings.
The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements, which decreased $74.7 billion, or 13.0%, to $499.2 billion, or 18.7% of assets; US Government Agency Repurchase Agreements (up $39.4 billion to $256.2 billion, or 9.6% of total holdings), and Other Repurchase Agreements ($33.4 billion, or 1.3% of holdings, down $8.2 billion from last month). The Commercial Paper totals were comprised of Financial Company Commercial Paper (up $16.8 billion to $83.8 billion, or 3.1% of assets), Asset Backed Commercial Paper (down $1.9 billion to $30.2 billion, or 1.1%), and Non-Financial Company Commercial Paper (up $2.0 billion to $26.5 billion, or 1.0%).
The 20 largest Issuers to taxable money market funds as of Jan. 31, 2017, include: the US Treasury ($784.8 billion, or 29.5%), Federal Home Loan Bank ($516.4B, 19.4%), Federal Reserve Bank of New York ($155.7B, 5.8%), BNP Paribas ($103.1B, 3.9%), Federal Farm Credit Bank ($68.7B, 2.6%), Federal Home Loan Mortgage Co. ($66.2B, 2.5%), Credit Agricole ($58.4B, 2.2%), Wells Fargo ($53.7B, 2.0%), RBC ($51.9B, 1.9%), Societe Generale ($41.8B, 1.6%), JP Morgan ($39.7B, 1.5%), Nomura ($38.1B, 1.4%), Mitsubishi UFJ Financial Group Inc. ($37.0B, 1.4%), Bank of America ($35.1B, 1.3%), Federal National Mortgage Association ($33.1B, 1.2%), Bank of Nova Scotia ($32.4B, 1.2%), HSBC ($29.5B, 1.1%), Citi ($29.4B, 1.1%), ` Barclays PLC <b:>`_ ($29.2B, 1.1%), and Bank of Montreal ($26.5B, 1.0%).
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: Federal Reserve Bank of New York ($155.7B, 19.7%), BNP Paribas ($92.4B, 11.7%), Credit Agricole ($44.1B, 5.6%), Wells Fargo ($41.9B, 5.3%), RBC ($40.4B, 5.3%), Nomura ($38.1B, 4.8%), Societe Generale ($35.3B, 4.5%), JP Morgan ($33.9B, 4.3%), Bank of America ($31.8B, 4.0%), and HSBC ($24.2B, 3.1%). The 10 largest Fed Repo positions among MMFs on 1/31 include: Northern Trust Trs MMkt ($14.8B), Fidelity Cash Central Fund ($12.9B), Federated Gvt Oblg ($9.3B), Vanguard Fed MMkt ($9.1B), JP Morgan US Govt ($8.5B), ` Morgan Stanley Inst Lq Gvt Sec <b:>`_ ($8.5B), Goldman Sachs FS Gvt ($7.0B), Vanguard Market Liquidity Fund ($6.4B), BlackRock Lq FedFund ($5.5B), and ` UBS Select Treas <b:>`_ ($5.4B).
The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: Mitsubishi UFJ Financial Group Inc. ($16.6B, 5.1%), Credit Agricole ($14.3B, 4.4%), Toronto-Dominion Bank ($12.5B, 3.8%), Wells Fargo ($11.8B, 3.6%), Svenska Handelsbanken ($11.5B, 3.5%), RBC ($11.5B, 3.5%), BNP Paribas ($10.7B, 3.3%), Bank of Montreal ($10.7B, 3.3%), Bank of Nova Scotia ($10.7B, 3.3%), and Sumitomo Mitsui Banking Co ($9.6B, 2.9%).
The 10 largest CD issuers include: Toronto-Dominion Bank ($11.7B, 6.9%), Wells Fargo ($11.5B, 6.8%), Mitsubishi UFJ Financial Group Inc. ($11.5B, 6.8%), Bank of Montreal ($10.2B, 6.0%), Svenska Handelsbanken ($8.1B, 4.8%), Sumitomo Mitsui Banking Co ($7.9B, 4.6%), RBC ($7.6B, 4.5%), KBC Group NV ($7.0B, 4.1%), Bank of Nova Scotia ($6.2B, 3.7%), and Citi ($5.9B, 3.5%). The 10 largest CP issuers (we include affiliated ABCP programs) include: Commonwealth Bank of Australia ($7.6B, 6.1%), Credit Agricole ($7.0B, 5.6%), Societe Generale ($5.9B, 4.7%), BNP Paribas ($5.1B, 4.1%), Westpac Banking Co ($4.9B, 3.9%), National Australia Bank Ltd ($4.8B, 3.9%), JP Morgan ($4.6B, 3.7%), Bank of Nova Scotia ($4.4B, 3.5%), NRW.Bank ($4.1B, 3.3%), and Canadian Imperial Bank of Commerce ($4.0B, 3.2%).
The largest increases among Issuers include: BNP Paribas (up $47.5B to $103.1B), Credit Agricole (up $42.3B to $58.4B), Federal Home Loan Bank (up $33.1B to $516.4B), Barclays PLC (up $21.2B to $29.2B), Societe Generale (up $18.8B to $41.8B), JP Morgan (up $17.5B to $39.7B), Credit Suisse (up $15.7B to $24.3B), Deutsche Bank AG (up $9.0B to $21.0B), HSBC (up $8.2B to $29.5B), and ING Bank (up $7.8B to $21.0B).
The largest decreases among Issuers of money market securities (including Repo) in Dec. were shown by: the Federal Reserve Bank of New York (down $234.2 to $155.7B), the US Treasury (down $37.9B to $784.8B), Canadian Imperial Bank of Commerce (down $3.8B to $13.1B), RBC (down $3.5B to $51.9B), Australia & New Zealand Banking Group Ltd (down $2.2B to $7.7B), Federal Home Loan Mortgage Co (down $1.6B to $66.2B), Bank of Montreal (down $1.4B to $26.5B), Toronto-Dominion Bank (down $1.0B to $21.8B), Sumitomo Mitsui Trust Bank (down $0.9B to $7.4B), and National Australia Bank Ltd (down $0.3B to $8.6B).
The United States remained the largest segment of country-affiliations; it represents 70.0% of holdings, or $1.866 trillion. France (8.9%, $236.2B) moved up to second place ahead of Canada (5.7%, $152.8B), now in 3rd. Japan (4.8%, $128.4B) stayed in fourth, while the United Kingdom (2.7%, $70.9B) remained in fifth place. Germany (1.7%, $45.3B) moved up to sixth, ahead of The Netherlands (1.4%, $37.2B). Sweden (1.4%, $37.2B) moved into eighth place ahead of Australia (1.3%, $33.9B). Switzerland (1.0%, $26.8B) was tenth. (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 Jan. 31, 2017, Taxable money funds held 29.3% (down from 35.5%) of their assets in securities maturing Overnight, and another 14.2% maturing in 2-7 days (up from 10.0%). Thus, 43.5% in total matures in 1-7 days. Another 19.2% matures in 8-30 days, while 11.5% matures in 31-60 days. Note that almost three-quarters, or 74.3% of securities, mature in 60 days or less (down from last month), the dividing line for use of amortized cost accounting under the new pending SEC regulations. The next bucket, 61-90 days, holds 10.9% of taxable securities, while 10.5% matures in 91-180 days, and just 4.4% matures beyond 180 days.
The preliminary agenda is available and registrations are now being taken for Crane's Money Fund Symposium, which will take place June 21-23, 2017 at The Hyatt Regency Atlanta, in Atlanta, Ga. Money Fund Symposium is the largest gathering of money market fund managers and cash investors in the world. Last summer's event in Philadelphia attracted a record 575 attendees, and we expect another robust turnout for our 9th annual event in Atlanta this June. (Money Fund Symposium participants include money fund managers, marketers and servicers, cash investors, money market securities dealers, issuers, and regulators.) Visit the MF Symposium website at www.moneyfundsymposium.com) for more details. Registration for attendees is $750, and discounted hotel reservations are also now available. We review the agenda and conference details below. (E-mail us at firstname.lastname@example.org to request the full brochure, or click here to download.) We also review the rest of Crane Data's 2017 conference calendar, including next month's Bond Fund Symposium.
Our June 21 Opening (afternoon) Agenda kicks off with "Welcome to Money Fund Symposium 2017" from Peter Crane, President & Publisher of Crane Data. Then our keynote talk will feature Invesco President & Chief Executive Officer Martin Flanagan, who will discuss "The Elevation of Money Market Funds." The rest of the Day One agenda includes: "Private Money Funds, SMAs and ETFs," with Deborah Cunningham of Federated Investors, Rich Mejzak of BlackRock, and Andrew Wittkop of PIMCO; "Corporate Investment & Issuance Issues," moderated by Treasury Strategies' Tony Carfang, and featuring Jeff Glenzer of the Association for Financial Professionals, a speaker from Coca-Cola and another Corporate Investor; "Major Money Fund Issues 2017," moderated by Peter Crane and featuring John Donohue of J.P. Morgan AM, Dave Fishman of Goldman Sachs, and Tracy Hopkins of BNY Mellon Cash Investment Strategies. (The opening day's refreshments will be sponsored by Fidelity and the opening evening's reception will be sponsored by Bank of America Merrill Lynch.)
Day 2 of Money Fund Symposium 2017 begins with "State of the Money Fund Industry" with Peter Crane and Alex Roever of J.P. Morgan Securities. This is followed by "Senior Portfolio Manager Perspectives" panel, which includes Kevin Gaffney of Fidelity Investments, Jeff Plotnik of First American Funds, and Rob Sabatino of UBS Asset Mgmt; a session on "Government and Treasury Money Fund Issues," featuring Mike Bird of Wells Fargo Funds and another PM to be named later; and, a "Muni & Tax Exempt Money Fund Update" with Justin Schwartz of Vanguard and John Vetter of Fidelity. (Day 2's breakfast is sponsored by BlackRock and the coffee break is sponsored by Wells Fargo.)
The Afternoon of Day 2 (after a Dreyfus-sponsored lunch) features: a "Dealer & Issuer Panel; Looking at Supply," moderated by Laurie Brignac of Invesco and including Stewart Cutler of Barclays, John Kodweis of J.P. Morgan Securities and Jean-Luc Sinniger of Citi Global Markets; a "Ratings Agency Roundtable: Criteria, Risks, NAVs," with Robert Callagy from Moody's Investors Service, Greg Fayvilevich from Fitch Ratings, and Michael Masih from S&P Global Ratings; a segment on "MMFs in Ireland, France & China," with Reyer Kooy of IMMFA, Jonathan Curry of HSBC Global AM, and Alastair Sewell of Fitch Ratings; and a presentation on "Brokerage Sweep Options & Issues" with Ted Hamilton of Promontory Interfinancial and Sunil Kothapalli of Wells Fargo Advisors. (The Day 2 break is sponsored by Invesco and the reception is sponsored by Barclays.)
The third day of Symposium (after a Federated-sponsored breakfast) features the sessions: "Strategists Speak '17: Rising Rates & Fed RRP," presented by Mark Cabana of Bank of America Merrill Lynch, Garret Sloan of Wells Fargo Securities, and Rob Zambarano of Guggenheim Securities; a "Treasury & Agency Supply Outlook, with John Dolan of the U.S. Dept. of Treasury and Dave Messerly of the FHLBanks - Office of Finance; and, the "Pros & Cons of Ultra-Short Bond Funds," with Michael Morin of Fidelity Investments and Morten Olsen of Northern Trust AM. (The coffee break is sponsored by First American Funds.) Finally, the last session, entitled, "Money Fund Trading, Technology & Data," is an optional lunch workshop with Peter Crane presenting on the latest money fund information tools, Michael Berkowitz of Citi discussing the portal market, and James Morris of Investortools reviewing Rule 2a-7 compliance and trading software.
We hope you'll join us in Atlanta this June! (We'd also like to encourage attendees, speakers and sponsors to register early and make hotel reservations in coming weeks.) Note that a few of our speakers have yet to confirm their participation, and the agenda is still in the process of being finalized.
In other conference news, final preparations are being made for the inaugural Crane's Bond Fund Symposium, which will be held next month (March 23-24) in Boston. (Click here to see the PDF agenda.) Bond Fund Symposium, the first conference devoted entirely to bond mutual funds, will bring together bond fund managers, marketers, and professionals with fixed-income issuers, investors and service providers. The vast majority of the content will be aimed at the growing ultra-short and conservative ultra-short bond fund marketplace. (As a reminder, please register for BFS and make hotel reservations for BFS soon if you plan on attending!)
Crane Data, which recently celebrated the second anniversary of its Bond Fund Intelligence publication and BFI XLS bond fund information service and benchmarks, continues to expand its fixed income fund offerings with the launch of our first conference in this space. Bond Fund Symposium will offer fixed-income portfolio managers, bond investors, issuers, dealers and service providers a concentrated and affordable educational experience, as well as an excellent and informal networking venue. Registration for Bond Fund Symposium is $500; exhibit space is $2,000 (includes 2 tickets); and sponsorship opportunities are $3K, $4K, $5K and $6K. (Complimentary tickets are available for corporate investors too; contact Pete for details.) Our mission is to deliver the best possible conference content at an affordable price to bond fund professionals and investors.
Finally, Crane's 5th annual "offshore" money fund event, European Money Fund Symposium, will be held in Paris, France, September 25-26, 2017. This website (www.euromfs.com) will be updated with the 2017 information soon. (Contact us to inquire about sponsoring or speaking.) Our next Money Fund University "basic training" event is also tentatively scheduled for Jan. 19-20, 2018, in Providence, RI. Watch www.cranedata.com for more details on these events, and please let us know if you have any questions or feedback on our growing conference business.
The February issue of our flagship Money Fund Intelligence newsletter, which was sent to subscribers Tuesday morning, features the articles: "Time for Prime Comeback Say MMF Managers; Rates Higher," which revisits the $1 trillion question: will investors return to Prime?; "Money Funds First (American) at US Bancorp A.M.," which "profiles" First American Funds' Jeff Plotnik and Eric Thole; and, "MF University Features Big Shift, New Frontiers in ’17," which reviews our latest "basic training" conference. We have updated our Money Fund Wisdom database query system with Jan. 31, 2017, performance statistics, and also 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 February Money Fund Portfolio Holdings are scheduled to ship Thursday, Feb. 9, and our Feb. Bond Fund Intelligence is scheduled to go out Tuesday, Feb. 14.
MFI's lead "Time for Prime Comeback" article says, "As interest rates continue inching higher on money market mutual funds, and as the spread between Prime and Government money funds continues to widen, money has slowly but surely begun to trickle back to Prime funds. Fund managers are encouraging this trend by publishing papers and attempting to re-educate investors on gates, fees and floating NAVs, and by extolling the benefits of segmenting cash. We revisit the new $1 trillion question: will investors return to Prime? While we're not predicting a Patriots-style comeback, things are looking up."
It adds, "Prime assets increased by $9.0 billion in January, after being flat in December. (We showed Prime up $88.0 billion in December, but this was due to the addition of a number of internal and private money funds to our collection.) Spreads also continued widening, rising from 25 to 28 bps in January (the difference between Prime Inst MMFs and Treasury Inst MMFs), and up from 18 bps in November 2016 (and 11 bps in Dec. 2015)."
Our First American Funds profile reads, "This month, Money Fund Intelligence speaks with Eric Thole, CEO of U.S. Bancorp Asset Management and President of First American Funds, and Jeff Plotnik, Director of Money Market Fund Management for First American Funds. We look back at the implementation of reforms and huge changes of 2016, and we discuss the current environment and outlook for money funds going forward. Our Q&A follows."
MFI asks, "What's your biggest priority?" Thole says, "I would say that our biggest priority today is very similar to what it's been in past years. We continue to diligently work with our shareholders.... Money fund reform hit its finish line back in October of last year, but it's certainly the starting line for a new way of thinking about cash management. So we're busy talking with shareholders, just like we were all of last year. The operational pieces are done. But we're trying to take advantage of the 'money in motion'.... We've had growth in our AUM numbers, and we're looking to continue to take advantage of some of that as the year progresses."
Plotnik adds, "From a management standpoint, we're adjusting to the new universe. We have a lot more 'Govie' cash than we once had, so we're really focused on putting that to work. It's a lot harder, as [there's] a shortage of product, so you're always hunting and pecking there. We're also getting used to the different prime environment...."
Our "MF University '17" article explains, "Crane Data recently hosted its 7th annual Money Fund University, which took place Jan. 19-20 in Jersey City. The 'basic training' event, targeted at those new to the money fund industry, featured primers on interest rates, money market securities, the Federal Reserve, ratings, portfolio management, and money fund regulations. The big themes this year were the massive shift from Prime into Government MMFs, the realization of rising rates and the possible return to Prime, or shift into alternatives, in 2017."
It explains, "Host Peter Crane kicked off the event with a session called, 'History and Current State of Money Funds,' commenting, "The composition of money funds has shifted dramatically over the past year. Right now treasuries, repos and agencies, the main investments for government MMFs, really dominate.... A trillion dollars in 2016 shifted from prime general purpose into government MMFs."
In a sidebar, we discuss, "Invesco: The Case for Prime," saying, "Invesco Fixed Income posted a recent 'Investment Insights,' entitled, "Prime Institutional funds may offer renewed value in a post-ZIRP, post-reform world." Written by Robert Corner, senior client portfolio manager, it says, "Yields of floating net asset value (FNAV) prime institutional money market funds have increased and may now offer an attractive relative value opportunity. Following many years of zero interest rate policy (ZIRP) and recent money market fund reform implementation, we believe the yield advantage of prime institutional funds has increased enough to compensate investors for political fluctuations in FNAVs. And to reduce the risk of being subject to potential liquidity fees and redemption gates (fees and gates), we believe investors should consider segmenting their cash investments."
Our February MFI XLS, with Jan. 31, 2017, data, shows total assets decreased $43.0 billion in January to $2.711 trillion after increasing $107.8 billion in December (this includes the addition of $110.3 billion in new funds), $32.1 billion in November, and decreasing $3.1 billion in October and $48.5 billion in September. Our broad Crane Money Fund Average 7-Day Yield was up 3 bps to 0.29% for the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) rose 4 bps to 0.47% (7-day).
On a Gross Yield Basis (before expenses were taken out), the Crane MFA rose 0.06% to 0.67% and the Crane 100 rose 5 bps to 0.73%. Charged Expenses averaged 0.39% and 0.26% for the Crane MFA and Crane 100, respectively. The average WAM (weighted average maturity) for the Crane MFA was 37 days (up 1 day from last month) and for the Crane 100 was also 37 days (unchanged). (See our Crane Index or craneindexes.xlsx history file for more on our averages.)