Money market fund assets fell sharply at quarter-end, their sixth weekly decline in a row. Since the week ended May 20, assets have fallen by $134.0 billion, but this follows 15 straight weeks of inflows (during which time assets increased by $1.175 trillion). ICI's latest weekly "Money Market Fund Assets" report says, "Total money market fund assets decreased by $27.67 billion to $4.66 trillion for the week ended Wednesday, July 1, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $22.45 billion and prime funds decreased by $4.71 billion. Tax-exempt money market funds decreased by $508 million." ICI's stats show Institutional MMFs decreasing $24.5 billion and Retail MMFs decreasing $3.2 billion. Total Government MMF assets, including Treasury funds, were $3.764 trillion (80.9% of all money funds), while Total Prime MMFs were $761.1 billion (16.4%). Tax Exempt MMFs totaled $130.6 billion, 2.8%.
Money fund assets are up an eye-popping $1.023 trillion, or 28.2%, year-to-date in 2020, with Inst MMFs up $836 billion (37.0%) and Retail MMFs up $188 billion (13.7%). Over the past 52 weeks, ICI's money fund asset series has increased by $1.417 trillion, or 43.8%, with Retail MMFs rising by $318 billion (25.7%) and Inst MMFs rising by $1.099 trillion (55.0%).
They explain, "Assets of retail money market funds decreased by $3.16 billion to $1.56 trillion. Among retail funds, government money market fund assets decreased by $1.71 billion to $981.18 billion, prime money market fund assets decreased by $472 million to $460.37 billion, and tax-exempt fund assets decreased by $976 million to $116.05 billion." Retail assets account for just over a third of total assets, or 33.5%, and Government Retail assets make up 63.0% of all Retail MMFs.
ICI adds, "Assets of institutional money market funds decreased by $24.51 billion to $3.10 trillion. Among institutional funds, government money market fund assets decreased by $20.74 billion to $2.78 trillion, prime money market fund assets decreased by $4.24 billion to $300.71 billion, and tax-exempt fund assets increased by $468 million to $14.51 billion." Institutional assets accounted for 66.6% of all MMF assets, with Government Institutional assets making up 89.8% of all Institutional MMF totals. (Note: Crane Data has its own separate daily and monthly asset series.)
In other news, S&P Global Ratings published "Sterling Money Market Funds Are Living Up To Their Name." The paper tells us, "Since 1983, S&P Global Ratings has assigned principal stability fund ratings to money market funds--the well-regarded cash management tool used by institutional investors, with its unique focus on preserving an investor's capital. In our view, the recent market turmoil has one-sidedly shone the spotlight on money market funds, and their potential risk to the wider financial system. For over 20 years, we have assigned fund ratings to Sterling-denominated money market funds (SMMFs), assessing each under our "Principal Stability Fund Rating Methodology". Each week, pursuant to those criteria, we analyze surveillance data related to all rated money market funds, including credit metrics on asset levels, net asset value (NAV) per share, portfolio credit quality, and duration and redemption patterns."
They explains, "Overall, we rate these 23 SMMFs 'AAAm'. And recent performance exemplifies the rationale behind the ratings. Before, during, and after the March 2020 market COVID-19 related upheaval, all rated SMMFs, with £247 billion in assets under management, have maintained their portfolio credit metrics. In fact, they have performed exceptionally, demonstrating strong resilience especially compared to their prior record during the 2008 market turmoil around the time of the Lehman Brothers' default. We do see some clouds on the horizon, in particular the potential of negative interest rates but our overall assessment is that the performance of rated SMMFs has been ... well, sterling."
S&P writes, "In the late 1990s, rated SMMFs had a total asset base of a mere £2 billion. Since then, SMMFs have prospered. In the past decade, their assets have risen to £247 billion as of May 2020 from £86 billion in 2010.... Over the past 12 months, overall assets for rated SMMFs have risen 22%. This increase is well above the average 10% annual growth seen in the past decade, despite historically low interest rates.... In the past two months (April and May 2020), the appeal of SMMFs has remained strong among investors as they seek to shelter from market upheaval, increasing a healthy 8% and 5.7% each month, respectively."
They continue, "The size of rated SMMFs ranges from £23 million to £45 billion, and averages £10.8 billion. The BlackRock Sterling Liquidity Fund, part of the Institutional Cash Series, remains the largest rated fund; it, or variants of it, has been the largest SMMF fund since 2004. It was known as the Barclays Global Investors (BGI) Sterling Liquidity First Fund before BlackRock acquired it in 2009. The top 10 largest SMMFs hold £219 billion (or 88%) of the £247 billion across all rated SMMFs as of May 2020.... A primary growth engine for a number of SMMFs is the consolidation within the industry during the past decade. For example: Goldman Sachs acquired RBS Asset Management's MMF business in 2013, Aberdeen Asset Management acquired Scottish Widows Investment Partnership in 2014, Standard Life acquired Ignis Asset Management in 2014, and Standard Life and Aberdeen Asset Management merged in 2017."
The paper tells us, "Despite COVID-19 market pressures, rated SMMFs have preserved their invested capital. From our analysis, during the first five months of 2020, the funds never approached the LVNAV collar of 20 basis points, nor the 'AAAm' threshold of 0.9975, let alone declined due to credit market losses toward 0.9950 per share--the last stop before a money market fund would "break the buck." In the four weeks before and after March 19, 2020, which encompassed pandemic-related market upheavals, the average SMMF NAV per share was £1.00018, or 1.8 basis points above par.... Compared with a similar surveillance period around the Lehman Brothers' default in September 2008, NAVs for SMMFs ranged from £0.9987 (13 bps below par) to £1.00014 (1.4 bps above par)."
It adds, "Our analysis of redemption patterns during these periods indicates that S&P Global Ratings 'AAAm' rated SMMFs have been able to cope. Across three notable periods of increased event risk, (the Lehman Brothers' default in 2008, the U.K. referendum in 2016, and COVID-19 in 2020), we have found that on average, 72% of SMMFs' largest individual weekly redemptions ranged from 5%-10% of assets.... Relaying those movements to net assets, on average, 88% of weekly net asset flows ranged from negative 10% to positive 10%."
Finally, they summarize, "Overall, SMMFs have demonstrated ratings resilience through their credit metrics and demonstrated their preferred status as a cash management tool for institutional investors. Still, a number of factors will continue to shape their appeal such as the uncertainty surrounding the economic recovery from COVID-19, the repercussions of a hard Brexit, and the potential impact to MMFs in the event the Bank of England adopts a negative interest rate policy. For the many types of SMMF investors focusing on capital preservation, negative interest rates will eradicate that prospect. Nevertheless, we believe SMMFs will continue to have a place, as seen with short-term euro-denominated MMFs that are still practical solutions despite their negative yields, for investors who view their cash investments on a relative basis."
