Ignites: Record MMF Fee Waivers
Money market fund fee waivers hit a record in 2014, reports mutual fund industry publication ignites in a story, "Darkness Before the Dawn: Money Fund Waivers Hit $6.3B." The article says, "`Money market fund fee waivers climbed to their highest-ever levels in 2014, hitting $6.3 billion. That's up from $5.8 billion in 2013 and $4.8 billion in 2012, according to data from Investment Company Institute and iMoneyNet. Total money fund assets also grew, partly accounting for the waivers. A bump of about $48 billion during the year pushed industrywide assets to $2.75 trillion in December, data from iMoneyNet shows. "Hopefully this is the darkness before the dawn," says Peter Crane, CEO of Crane Data, referring to an expected increase in interest rates this year that would lift money fund yields. Since the Federal Reserve lowered its interest rate target to near zero in 2008, many firms have put in place fee waivers to simply keep yields positive. In fact, 99% of money fund share classes waived fees as of the end of December, whereas only 64% of share classes did so in January 2008, ICI and iMoneyNet data show. "If rates start moving higher this year, the recovery will start. You get a couple [Federal Reserve] hikes and happy days will be here again for the money fund business," says Crane. Investors stuck with money funds in 2014 despite ultra-low yields, notes Sean Collins, senior director of industry and financial research at ICI. The average seven-day gross yield on money funds at the end of December was 0.13%. After fees, the average seven-day yield was 0.02%, according to Crane Data. The average expense ratio for money funds was 0.12% in the third quarter, on an asset-weighted basis, down from 0.13% in the prior-year period, iMoneyNet reported. "Clearly the vast majority of gross yields were going to pay fees," says Crane, adding that it appears most firms have been able to cover expenses. Still, lower yields have meant lower profits. Schwab's fee waivers have climbed in recent years, mirroring those of the broader industry. The firm waived a record $751 million in fees in 2014, up from $674 million in 2013 and $587 million in 2012, according to regulatory filings.... Meanwhile, Federated reported waiving $89 million in money fund fees for the first three quarters of 2014.... The firm reports fourth-quarter results on Jan. 22. Federated was the fourth-largest manager of money funds, with $215 billion in assets as of Dec. 31, according to Crane Data. Schwab manages mostly retail money funds, which generally carry higher fees than institutional funds, resulting in bigger waivers.... "The fee waivers are clearly hitting higher expense and retail money market funds harder than institutional," says Crane. "It varies depending on how managers distribute their funds. Sometimes the intermediaries are sharing, or bearing the brunt, of the pain, and sometimes the manager is bearing the brunt.""
