The February issue of our flagship Money Fund Intelligence newsletter, which was sent to subscribers Friday morning, features the articles: "MMF Yields Higher & Spread Returns; Outflows Ahead?," which looks at how the increases in yields and spreads could affect fund flows; "MF University Experts on Supply & Demand in '16," where we recap the hot topics from last month's MFU conference; and "Worst Over for Fee Waivers; Earnings Up," which discusses how money fund managers are reducing fee waivers. We have also updated our Money Fund Wisdom database query system with Jan. 31, 2016, performance statistics, and sent out our MFI XLS spreadsheet Friday morning. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our January Money Fund Portfolio Holdings are scheduled to ship Tuesday, February 9, and our February Bond Fund Intelligence is scheduled to go out Friday, February 12.
MFI's lead article on "MMF Yields," says, "After a Fed-related jump in December, money fund yields continued to rise in January. But the all-too-brief party may be at an end, as expectations for additional hikes sank along with the stock market the past month. Talk of negative yields even surfaced this week, and assets experienced their first drop in 4 months, down $22.4 billion, in January. Preparations for MMF Reforms continued, and speculation focused on how much investor cash might leave Prime funds later in 2016."
The piece adds, "Our Crane Money Fund Average 7-Day Yield, a simple average of all taxable MMFs, rose to 0.09% from 0.06% at yearend (and triple the 0.03% from 11/30/15). The Crane 100 MF Index, which tracks the largest MMFs -- mainly Institutional and Prime -- rose to 0.18% from 0.15% on 12/31 and 0.07% on 11/30.... MMF yields rose less than the Fed hike, but more than expected of the move was passed through to investors. Gross yields rose by about 12-15 bps over 2 months (0.18% to 0.30% for the Crane MFA and 0.22% to 0.37% for the Crane 100), while Expenses rose by just 2-5 bps."
Our MFU recap reads, "Our 6th annual Money Fund University convened Jan. 21-22 in Boston and attracted a record 125 people. 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 and reforms. One of the overriding themes of this event was the supply outlook for 2016, which experts say should be more positive than 2015. Conference host and President of Crane Data Peter Crane commented, "This was our biggest and best MFU yet; it was encouraging to see new blood in the space given the change and challenges MMFs face."
It continues, "Crane kicked off the event with a session called, "History and Current State of Money Funds," reminding attendees that the industry has been remarkably stable since the Financial Crisis, gaining assets slightly in each of the past four years. "After six years of 0% yield and radical regulatory change, if you are still in a money market fund, [this likely means] you're not going anywhere." Crane said the migration out of Prime funds ultimately won't be as dramatic as many expect due to the yield advantage they will have over Government funds in a rising rate environment."
The piece adds, "That sentiment was echoed by others as well. He also expects inflows from the banking sector. "I believe you are going to hear a giant sucking sound out of the banking sector once money fund yields get to 100 basis points," he commented. Until then, much change is anticipated in the MMF space as reforms go into effect on Oct. 14, 2016. Fund managers, not quite sure which way the money will flow, are ready for everything. Crane added, "A lot of people are getting buckets out because they don't know where it's going to rain."
The "Worst Over for Fee Waivers" article says, "The December interest rate hike was a welcome relief for fee-starved money fund managers. As Crane Data's Peter Crane told Ignites in the article "`Fed Hike a 'Lifeline' for Money Funds, Waivers Drop to $5.5B," "The Fed hike was a lifeline and huge windfall for money fund managers." The Ignites piece adds, "The 25-basis-point federal funds rate increase will likely increase the amount of fees shops can collect from managers by 5 to 10 basis points. That would boost annualized revenues by $1.3 billion, to $2.6 billion, he adds. Waivers will likely decrease to 2009 levels this year and could eventually drop to levels last seen in 2007 and 2008 if the central bank raises rates again this year, says Crane."
We also review the Prime fund landscape in the sidebar, "The Big Sort: Inst or Retail?" It says, "We've reported frequently on the $264.1 billion converting from Prime to Government, but what about the remaining Prime money funds? Which will declare as pure "Retail" and which will become all "Institutional" and float in October." We provide a brief overview of how the 8 largest money fund managers are sorting out their Prime funds. We also write "China Passes Ireland, Regs," about how China became the second largest MMF country.
Our February MFI XLS, with Jan. 31, 2016, data, shows total assets decreasing $22.4 billion in January after increasing $44.2 billion in December, rising $3.5 billion in November, jumping $56.5 billion in October, and declining by $9.4 billion in September. Our broad Crane Money Fund Average 7-Day Yield climbed by 3 bps to 0.09% for the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) increased 5 basis points to 0.18% (7-day).
On a Gross Yield Basis (before expenses were taken out), funds averaged 0.30% (Crane MFA, up 4 basis points) and 0.37% (Crane 100, up 5 bps). Charged Expenses averaged 0.21% (up 1 bps) and 0.19% (unchanged) for the two main taxable averages. The average WAM (weighted average maturity) for the Crane MFA was 35 days (up 1 day from last month) and for the Crane 100 was 36 days (up 2 days). (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
Finally, Crane Data released the preliminary agenda for its upcoming Money Fund Symposium, which will be held June 22-24 at the Philadelphia Marriott. Registration is now live (and is $750) and the website and brochure are now available. (E-mail us at info@cranedata.com for the PDF brochure, or visit www.moneyfundsymposium.com for details.) We're also making preparations for our next European Money Fund Symposium, Sept. 20-21, in London, and our first Bond Fund Symposium, tentatively scheduled for March 23-24, 2017 in Boston.
