Ignites: Crane MMF Outlook for 2015
Mutual fund news source Ignites.com published an "Opinion" piece entitled, "Things are Looking Up for Money Funds in 2015," which features commentary from Crane Data President Peter Crane. Our Crane writes, "Money market fund providers have lived with the pain of zero interest rates and the threat of radical regulatory change for six years, but 2015 is expected to bring big changes on both fronts.... Now things are looking up for money funds, and next year could even be downright excellent for such "cash" investments. However, there also are plenty of reasons to remain cautious. So while I believe that money funds will see light at the end of the tunnel in 2015, there is a chance that the industry could see an oncoming train instead. Below are three predictions for the sector, along with a brief outlook and some other developments to watch for. 1. The Federal Reserve should begin to increase interest rates sometime after mid-2015, ending an era of near-zero yield. While higher interest rates do carry risks for money funds, they should be a godsend to their managers and investors. Fee waivers have savaged fund revenues, causing managers to forgo more than 60% of the fees that they normally collect. Last year, money fund managers collected in the neighborhood of $5 billion of what normally would be an $8 billion annual fee total. Even one Federal Reserve rate hike during 2015 could mean several billion dollars in annualized revenue being returned to these funds, and two increases should restore almost all of the waivers.... Forecasts are for the Fed funds target to be more than 1% by the end of 2015 and 2.5% by the end of 2016, which should be great news for money funds. 2. Money funds should actually see significant asset inflows. With rising interest rates, money funds likely will regain their historical yield advantage over what is now more than $10 trillion in bank deposits, where the vast majority of "hot" money now resides. Institutional assets, in particular, could pour out of deposits as banks feel pressure to cover new regulatory costs stemming from their $4 trillion in uninsured deposits. In addition, bond fund flows could reverse in 2015 if the Fed hikes interest rates as expected.... The bottom line: money fund assets should grow between 5% and 10%, or somewhere between $135 billion and $270 billion of inflows, in 2015, up from the current AUM total of $2.7 trillion.... 3.The common wisdom about ultra-short bond funds, separately managed accounts (SMAs) and private money funds' gaining a substantial amount of assets will prove to be wrong. While there will be continued innovation and interest in the cash-management space outside of traditional money funds, the vast majority of assets will remain within them. Money market fund assets have been stable for three years -- and through the most stressful, trying time in the history of money funds. That fact indicates that money fund investors are in no hurry to move away from the vehicle."
