As we learned last week, money market mutual funds continue to garner unprecedented levels of attention on investment manager and brokerage earnings and other conference calls. Perhaps the most discussed topic lately has been the impact of ultra-low yields on money fund expense ratios, particularly in the Treasury fund space. Below, we excerpt and summarize various comments on the zero yield and fee waiver issue.
As we mentioned Friday ("Federated Believes Money Market Mutual Fund Core Will Remain Intact"), Federated Investors discussed the issue on its Friday earnings call. The company said it held $90 billion in Treasury funds (28%), $122 billion in Govt funds (38%), $78 billion in Prime funds (24%), and $35 billion in Muni funds (11%) as of Dec. 31, 2008. The company said in December is had $1.5 million in reduced operating earnings from 11 classes of shares with $15 billion in assets, while in January to date it had $505K in reductions from 20 classes with $29 billion.
Federated said it "Expects waivers to increase going forward, but that too many variables to predict how much. "While waivers reduce income, the growth of assets has made it possible for federated funds to perform well," said the company. Money market CIO Debbie Cunningham said, "The market for treasuries has become a little less punative" recently, citing repo rates that had been zero moving to 20-30 basis points." The company also said that approximately 75% of every waived dollar was being waived by intermediaries, with just 25% coming out of Federated's share of revenues.
On Thursday, we wrote about BlackRock's earnings call in "BlackRock Excited About Liquidity Business, Welcomes Capital Reserves." The company said, "Low interest rates are going to put pressure on the liquidity business, at least in the retail business. [But with the] institutional business, we are not seeing any pressures to date."
TD Ameritrade's call last week cited money fund fee waivers as a factor, but the yields on their money funds show that this should only be impacting the company currently. (The funds have just recently approached zero and appeared to be comfortably above zero in December.) TDA said, "We would waive to keep money market rates at zero... We're not looking at purchasing other types of securities right now, we're not the asset manager." The company added, "`We do have a view that the FDIC-insured product is better in this market."
Look for more on Treasury yields and fee waivers in our pending Money Fund Intelligence Distribution Survey and in our February issue of Money Fund Intelligence. Let us know too if you'd like to see our most recent Money Fund Intelligence Daily, which allows users to rank funds by their latest yields. The funds waiving fees are easy to spot -- they're the ones with 0.00% or 0.01% yields (which currently represent about 5% of money funds assets).
