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The Wall Street Journal writes "These Bank Customers Are Making a Bundle on Their Deposits." The article explains, "Despite seven interest-rate increases by the Federal Reserve since 2015, many banks have resisted rewarding deposit customers with higher rates. Some customers, however, are getting a far better deal. The recent moves from the Fed have set off a battle for deposits for the first time since the financial crisis. In an effort to stanch deposit declines, lenders are offering new customers one-time payments of hundreds of dollars to open accounts. For the banks, these bonuses can have the benefit of being tucked away in obscure parts of earnings reports where they don't weigh on closely followed profitability metrics. While some lenders have been giving deposit bonuses for years, the pitches have grown larger and more common. Over the six months ended in March, the number of banks sending more than five million of the mail offers has risen to 15 from seven in mid-2015, according to consulting firm Novantas." The Journal adds, "The push comes as deposits have grown harder to come by. The Federal Reserve has raised its benchmark interest rate by about 1.75 percentage points, which has caused some depositors to shop around for a money-market fund that earns higher yields. The central bank is also unwinding its balance sheet, a process that broadly sucks deposits out of the financial system.... But growth in deposits has slowed, which threatens an important source of low-cost funding for banks in recent years. When the Fed raised interest rates in the past, banks raised rates paid to depositors to keep them around. This time around, banks have passed along only 18% of the benefit from higher rates to customers, according to Erika Najarian, a bank analyst at Bank of America Corp."

A Prospectuses Supplement filing for Vanguard Prime Money Market Fund and Vanguard Treasury Money Market Fund tells us about an, "Important Change to Vanguard Prime Money Market Fund and Vanguard Treasury Money Market Fund." It says, "Effective June 30, 2018, David R. Glocke will retire from The Vanguard Group, Inc., and will no longer serve as a portfolio manager for Vanguard Prime Money Market Fund or Vanguard Treasury Money Market Fund." It adds, "Nafis T. Smith, who currently serves as a portfolio manager with Mr. Glocke, will remain as the sole portfolio manager of the Funds upon Mr. Glocke's retirement. The Funds' investment objectives, strategies, and policies will remain unchanged." Vanguard is the second largest manager of money market funds with $310.7 billion in assets (as of 5/31/18).

ICI posted a press release entitled, "Mutual Fund Expense Ratios in 401(k) Plans Continued to Decline in 2017," which tells us that, "The cost of investing in mutual funds through 401(k) plans fell again in 2017, according to 'The Economics of Providing 401(k) Plans: Services, Fees, and Expenses, 2017,' a research paper released today by the Investment Company Institute (ICI). The report also shows that participants who invest in mutual funds in their 401(k) plans tend to hold lower-cost funds." The full report says, "Only 2 percent of 401(k) mutual fund assets were invested in money market funds at yearend 2017.... 401(k) participants holding money market funds had an asset-weighted average expense ratio of 0.28 percent in 2017, higher than in 2016.... Industrywide, the average expense ratio investors incurred on money market funds also rose in 2017. The increase in money market fund expense ratios in 2017 is largely reflective of a change in the current interest rate environment. During the period of ultralow interest rates after the financial crisis, money market funds had adopted expense waivers to ensure that net yields did not fall below zero. When the Federal Reserve increased interest rates starting in December 2015, many funds began to pare back expense waivers. This caused the expense ratios of money market funds to rise somewhat." ICI's study says 401(k) plan assets in mutual funds total $3.5 trillion, so their 2% estimate for money market funds would amount to $70 billion in 401(k) assets. Over the past 3 years, ICI's study shows average money fund expense ratios for the industry rising from 0.14% in 2015 to 0.20% in 2016 and 0.25% in 2017. For 401(k) plans in particular, the average expense ratio for money market funds were higher, rising from 0.16% in 2015 to 0.22% in 2016 and 0.28% in 2017.

Brokerage Charles Schwab wrote recently, "Fed Raises Rates, Projects Faster Pace of Future Hikes," which says, "The Federal Reserve raised its target range for the federal funds rate, as expected, [last] Wednesday. The range is now 1.75% to 2.0%. Projections suggest two more rate hikes this year, signaling a faster pace of tightening than the March projections indicated. Fed Chairman Jerome Powell indicated that there will be press conferences after every FOMC meeting, beginning next January. Overall, the outcome of the meeting was largely in line with expectations, but it signaled that the Fed is focusing on tightening policy further in response to low unemployment." The piece explains, "The important shift by the Fed was seen in its new dot plot, which provides insight into the Fed's thinking about the pace of rate hikes. The Fed is projecting that it will raise interest rates the same number of times, but more quickly. Based on the dot plot, the committee's median estimates for the pace of rate hikes suggest that there could be a total of four rate hikes this year, up from three implied in the previous estimate. Additionally, the projections imply three rate hikes in 2019 and then one more hike in 2020. However, the long-run federal funds rate is still projected to be near 3%. This projection is viewed as the Fed's estimate of the 'neutral rate,' the rate that neither slows nor accelerates inflation."

RBC Global Asset Management wrote a recent brief entitled, "The Fed Continues to Enact the Year of the Dots." The piece reads, "The Federal Open Market Committee (FOMC) continues to fulfill the path of their 'dot plot' and has voted to raise the Fed Funds Rate 25 basis points (bps) to 1.75-2.00%. The FOMC stated that it 'expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the committee's symmetric 2% objective over the near term.'" RBC explains, "Current economic and geopolitical conditions support our expectation that the Fed will hike two more times this year. The Fed's plan to continue to raise interest rates gradually depends on a number of supporting economic fundamentals: a strong labor market, federal tax cuts and spending polices, high household and business confidence, stable financial conditions, and adequate global growth." They conclude, "Looking beyond 2018, we are uncertain if the Fed will continue to fulfill the path of their current projections. We are seeing a flatter yield curve, increased tensions from protectionism, ongoing geopolitical concerns, and market volatility from tighter financial conditions. As these issues and other uncertainties build into 2019, we think the Fed's dot trajectory will become harder and harder to achieve. 2018 may prove to be first and last time the Fed was able to carry out the 'Year of the Dots.'"

With just a week to go before our 10th Annual Money Fund Symposium, we thought we'd give some "know before you go" advice to those planning on attending and encourage those registering last minute to do so ASAP. Those registered should watch for an e-mail with the conference binder and login information later today, and Crane Data subscribers and conference attendees may access the conference materials at our Money Fund Symposium 2018 Download Center. We're still accepting registrations ($750) for our June 25-27 conference at The Westin Convention Center Pittsburgh, and are expecting around 500 attendees in total. The conference lineup features a keynote from Federated Investors' President & CEO Chris Donahue and a 'who's who' of speakers in the money market mutual fund industry. We hope you'll join us in Pittsburgh! (See here for the latest agenda, and see here to register.) Also, we're making plans for Crane's 6th annual "offshore" money fund event, European Money Fund Symposium, which will be held in London, England, September 20-21, 2018. This website (www.euromfs.com) is now taking registrations and the preliminary agenda has been posted, and we expect a robust turnout in the U.K. due to pending regulatory changes and Brexit. (Contact us to inquire about sponsoring or speaking. A couple slots are still available.) Finally, our next Money Fund University "basic training" event has shifted dates slightly -- it is scheduled for Jan. 17-18, 2019, in Stamford, Conn. The MFU website, as well as our Bond Fund Symposium site, will be taking registrations soon, and we'll be publishing these agenda late this summer. Our 3rd Bond Fund Symposium will be March 25-26, 2019, in Philadelphia, Pa. 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.

ICI's latest "Money Market Fund Assets" report shows money fund assets fell after rising for 6 weeks in a row. Money fund assets turned positive for the year-to-date for the first time in 2018 last week, and they remain slightly positive so far in 2018. MMFs have increased by $17 billion, or 0.6%, YTD, and they've increased by $229 billion, or 8.7%, over 52 weeks. ICI writes, "Total money market fund assets decreased by $22.80 billion to $2.85 trillion for the week ended Wednesday, June 13, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $26.11 billion and prime funds increased by $5.09 billion. Tax-exempt money market funds decreased by $1.78 billion." Total Government MMF assets, which include Treasury funds too, stand at $2.243 trillion (78.6% of all money funds), while Total Prime MMFs stand at $474.8 billion (16.6%). Tax Exempt MMFs total $137.0 billion, or 4.8%. They explain, "Assets of retail money market funds increased by $177 million to $1.03 trillion. Among retail funds, government money market fund assets decreased by $684 million to $632.10 billion, prime money market fund assets increased by $2.54 billion to $269.19 billion, and tax-exempt fund assets decreased by $1.68 billion to $129.00 billion." Retail assets account for over a third of total assets, or 36.1%, and Government Retail assets make up 61.4% of all Retail MMFs. ICI's release adds, "Assets of institutional money market funds decreased by $22.98 billion to $1.82 trillion. Among institutional funds, government money market fund assets decreased by $25.43 billion to $1.61 trillion, prime money market fund assets increased by $2.55 billion to $205.65 billion, and tax-exempt fund assets decreased by $103 million to $7.95 billion." Institutional assets account for 63.9% of all MMF assets, with Government Inst assets making up 88.3% of all Institutional MMFs.

The Federal Reserve hiked its Federal funds target rate 1/4 a point for the 7th time in the past 2 1/2 years yesterday, bringing its target range to 1.75-2.0% from its previous 1.5-1.75%. The Fed's FOMC statement explains, "Information received since the Federal Open Market Committee met in May indicates that the labor market has continued to strengthen and that economic activity has been rising at a solid rate. Job gains have been strong, on average, in recent months, and the unemployment rate has declined. Recent data suggest that growth of household spending has picked up, while business fixed investment has continued to grow strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy have moved close to 2 percent.... Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced." The Fed explains, "In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 1-3/4 to 2 percent. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation. In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. Voting for the FOMC monetary policy action were Jerome H. Powell, Chairman; William C. Dudley, Vice Chairman; Thomas I. Barkin; Raphael W. Bostic; Lael Brainard; Loretta J. Mester; Randal K. Quarles; and John C. Williams." Expect money market mutual fund yields to move higher in the coming days as they digest the Fed's hike.

A short video on Bloomberg TV entitled, "Cash Is Becoming Attractive, Says T. Rowe Price's Page" "interviews Sebastien Page, head of asset allocation at T. Rowe Price, who "discusses why cash is becoming an option for defensive investors." Page is asked, "A lot of analysts say 'It is too early to go defensive,' Yet, you are winding up seeing a lot of people going to cash. What is the right trade?" Page answers, "We like cash. Cash is becoming attractive [at] 1.9%, 2%.... Pretty soon you are going to earn 2.2%, 2.5% on cash. That is more than the dividend yields on the S&P." He adds, "[For] investors who are marginally taking risk off ... cash is one of the assets we are getting into to play defense. We are also looking at different ways of playing offense at the same time, like I mentioned adding to small cap stocks."

Bloomberg published an "Opinion piece last night, entitled, "Cash Is King Because It Finally Pays Something." It comments, "It's tempting to look at the wave of cash spilling into U.S. money-market funds and conclude that investors are sheltering themselves from political and economic turmoil around the globe. After all, the short-term debt funds experienced one of the largest inflows since the financial crisis in the week through June 6, bringing total money-market assets up to an eight-year high of $2.9 trillion, according to Investment Company Institute data. For U.S. government money funds in particular, the assets reached a record $2.27 trillion. So, why the rush to cash? Simple: It pays more than it has in years. And there's nothing to suggest that's going to change soon.... Naturally, money-market funds will also be sought for safety once that happens, given that recessions tend to follow not too long after inversion. Indeed, as the curve went from negative to sharply positive in 2007, money-market assets soared by $790 billion to $3.16 trillion. They'd peak a year later at $3.92 trillion. By that point, three-month bill rates had fallen to zero, from 5 percent at the start of 2007. Those rates would remain near zero for seven years. So it's understandable why the prospect of a positive real return is downright thrilling for risk-averse investors."

A press release entitled, "SEC Names Sarah ten Siethoff Associate Director in the Division of Investment Management's Rulemaking Office" and sent out last week, tells us, "The Securities and Exchange Commission ... announced that Sarah G. ten Siethoff has been named the Associate Director for the Division of Investment Management's Rulemaking Office. As Associate Director, Ms. ten Siethoff will develop recommendations for rulemaking and other policy initiatives relating to funds and investment advisers under the federal securities laws. Ms. ten Siethoff has been a member of the Division of Investment Management in a variety of positions since 2008, serving most recently as Deputy Associate Director in the Rulemaking Office." SEC Director of the Division of Investment Management Dalia Blass comments, "Sarah is a talented leader who always approaches her work with the long term interests of investors in mind. Her intellectual curiosity and commitment to developing thoughtful policy recommendations for the benefit of Main Street investors has earned her the respect of her colleagues across the Commission. I look forward to Sarah's continued leadership and counsel in her new role." SEC Chairman Jay Clayton adds, "I have worked directly with Sarah and I agree with and fully endorse Dalia's assessment of Sarah's skills and the decision to promote her to this important role." Ms. ten Siethoff says, "I am honored to lead the Rulemaking Office and continue working with the talented staff in the Division of Investment Management and throughout the Commission to serve American investors and help develop a fair and efficient regulatory framework for funds and investment advisers."

ICI's latest "Money Market Fund Assets" report shows money fund assets rising for the 6th week in a row. Money fund assets turned positive for the year-to-date for the first time in 2018 last week, and they've now reached their highest level since April 2010. MMFs have increased by $40 billion, or 1.4%, YTD, and they've increased by $229 billion, or 8.7%, over 52 weeks. ICI writes, "Total money market fund assets increased by $37.50 billion to $2.88 trillion for the week ended Wednesday, June 6, the Investment Company Institute reported [Thursday]. Among taxable money market funds, government funds increased by $31.68 billion and prime funds increased by $6.58 billion. Tax-exempt money market funds decreased by $761 million." Total Government MMF assets, which include Treasury funds too, stand at $2.269 trillion (78.8% of all money funds), while Total Prime MMFs stand at $469.8 billion (16.3%). Tax Exempt MMFs total $138.7 billion, or 4.8%. They explain, "Assets of retail money market funds increased by $4.64 billion to $1.03 trillion. Among retail funds, government money market fund assets increased by $2.84 billion to $632.78 billion, prime money market fund assets increased by $2.91 billion to $266.65 billion, and tax-exempt fund assets decreased by $1.10 billion to $130.68 billion." Retail assets account for over a third of total assets, or 35.8%, and Government Retail assets make up 61.4% of all Retail MMFs. ICI's release adds, "Assets of institutional money market funds increased by $32.85 billion to $1.85 trillion. Among institutional funds, government money market fund assets increased by $28.84 billion to $1.64 trillion, prime money market fund assets increased by $3.67 billion to $203.10 billion, and tax-exempt fund assets increased by $343 million to $8.06 billion." Institutional assets account for 64.2% of all MMF assets, with Government Inst assets making up 88.6% of all Institutional MMFs. (See also, Reuters' "U.S. money market funds see biggest inflows in nearly 5 years -Lipper".)

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