Daily Links Archives: December, 2020
Bloomberg on Fidelity Fee Waivers
Bloomberg writes "Fidelity's Largest Money Market Fund Waives $247 Million of Fees." The article explains, "Fidelity Investments has waived nearly $250 million in fees and expenses for its largest money market fund, a sign of how low yields pressured the products in an unprecedented year. The Fidelity Government Money Market Fund reported the figure for the six months ended Oct. 31 in a filing last week. Without the waivers, investors in the $212 billion fund would have faced negative yields on their holdings." (See the full filing for SPAXX here.) The piece tells us, "Retail money market funds struggled this year as the U.S. Federal Reserve tamped down interest rates in response to the Covid-19 pandemic crisis. That made it difficult to generate enough interest income to cover expenses and still pay shareholders, leading to the fee waivers. As a result, managers face earning less revenue to oversee more assets." Bloomberg quotes our Peter Crane, "The question is not 'Are you waiving fees,' but 'how much are you waiving fees and how badly are you hurt.' ... "Clearly, if the number is in the hundreds of millions, the answer is 'ouch'." Crane Data shows the average money fund expense ratio declining by almost half, from 0.27% to 0.14% in 2020
Last Week's MF Portfolio Holdings
Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics last Tuesday, which track a shifting subset of our monthly Portfolio Holdings collection. (Note: We're not publishing Weekly Holdings this week; this brief reviews last week's data. We did post our latest Short-Term Bond Fund Portfolio Holdings yesterday though.) The most recent cut (with data as of December 18) includes Holdings information from 69 money funds (down eight from the week prior), which represent $1.913 trillion (down from $2.106 trillion) of the $4.711 trillion (40.6%) in total money fund assets tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website.) Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Treasury totaling $1.040 trillion (down from $1.182 trillion a week ago), or 54.4%, Repurchase Agreements (Repo) totaling $450.9 billion (down from $485.9 billion a week ago), or 23.6% and Government Agency securities totaling $258.3 billion (up from $247.5 billion), or 13.5%. Commercial Paper (CP) totaled $60.1 billion (down from $68.5 billion), or 3.1%, and Certificates of Deposit (CDs) totaled $49.1 billion (down from $54.5 billion), or 2.6%. The Other category accounted for $31.1 billion or 1.6%, while VRDNs accounted for $23.5 billion, or 1.2%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.044 trillion (54.6% of total holdings), Federal Home Loan Bank with $130.3B (6.8%), BNP Paribas with $63.3B (3.3%), Federal Farm Credit Bank with $52.9B (2.8%), Fixed Income Clearing Corp with $51.5B (2.7%), Federal National Mortgage Association with $44.8B (2.3%), RBC with $44.6B (2.3%), Mitsubishi UFJ Financial Group Inc with $28.9B (1.5%), Federal Home Loan Mortgage Corp with $28.3B (1.5%) and JP Morgan with $25.8B (1.4%). The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($196.6 billion), Goldman Sachs FS Govt ($160.6B), Fidelity Inv MM: Govt Port ($141.1B), Wells Fargo Govt MM ($138.4B), Morgan Stanley Inst Liq Govt ($98.6B), JP Morgan 100% US Treas MMkt ($93.2B), Goldman Sachs FS Treas Instruments ($81.0B), First American Govt Oblg ($80.3B), State Street Inst US Govt ($74.3B) and Dreyfus Govt Cash Mgmt ($71.8B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)
MMF Yields Inch Higher to 0.03%
Money market fund yields continue to flatline at just above zero, though our flagship Crane 100 inched a basis point higher in the latest week to 0.03%. (It dropped back to 0.02% yesterday though.) The Crane 100 Money Fund Index fell below the 1.0% level in mid-March and below the 0.5% level in late March. It is down from 1.46% at the start of the year and down from 2.23% at the beginning of 2019. Just under three-quarters of all money funds and roughly half of MMF assets have since landed on the zero yield floor, though many continue to show some yield. According to our Money Fund Intelligence Daily, as of Thursday, 12/24, 612 funds (out of 847 total) yield 0.00% or 0.01% with assets of $2.315 trillion, or 49.5% of the total $4.681 trillion. There are 206 funds yielding between 0.02% and 0.10%, totaling $1.901 trillion, or 40.6% of assets; 28 funds yielded between 0.11% and 0.25% with $464.8 billion, or 9.9% of assets; 1 fund yielded 0.28% with $277 million in assets. No funds yield over 0.28%. The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 670), shows a 7-day yield of 0.02%, unchanged in the week through Thursday, 12/24. The Crane Money Fund Average is down 45 bps from 0.47% at the beginning of April. Prime Inst MFs were unchanged at 0.05% in the latest week and Government Inst MFs were flat at 0.02%. Treasury Inst MFs were unchanged at 0.02%. Treasury Retail MFs currently yield 0.01%, (unchanged in the last week), Government Retail MFs yield 0.01% (unchanged in the last week), and Prime Retail MFs yield 0.03% (unchanged), Tax-exempt MF 7-day yields were also unchanged at 0.01%. (Let us know if you'd like to see our latest MFI Daily.) The latest Brokerage Sweep Intelligence, with data as of December 24, showed no changes in the last week. All major brokerages, with the exception of RW Baird, offer rates of 0.01% for balances of $100K. No brokerage sweep rates or money fund yields have gone negative to date, but this could become a distinct possibility in coming weeks or months. Crane's Brokerage Sweep Index has been flat for the last 36 weeks at 0.01% (for balances of $100K). Ameriprise, E*Trade, Fidelity, Merrill Lynch, Morgan Stanley, Raymond James, Schwab, TD Ameritrade, UBS and Wells Fargo all currently have rates of 0.01% for balances at the $100K tier level (and almost every other tier too). RW Baird offers a rate of 0.02% for its balances of $100K.
ICD Wins Treasury Award for ESG
A press release entitled, "Treasury Awards ICD for Bringing ESG Insights to Short-Term Investments tells us, "The treasury industry recognized ICD, an independent portal provider of money market funds and other short-term investments, with a TMI magazine Treasury4Good 2020 award for Best CSR/ESG Thought Leadership Campaign. ICD's award-winning campaign brought together pioneering ESG experts and fund managers in a series of webinars to educate treasury investment managers on ESG history, standards and criteria used by fund companies for short-term investments." ICD's Justin Brimfield comments, "ESG was a hot topic in 2020 before the pandemic hit, and we believe interest will continue as the world marches toward recovery. The COVID-19 crisis has focused the world on the importance of environment, social responsibility and governance, and we don't see companies letting up on their interest in investing in ESG products in the short-term investments space." The release adds, "ICD canvassed treasury professionals at the beginning and at the end of 2020 and found interest remained constant with 32% of survey respondents saying that they foresee their organizations investing in ESG products in the next 12 months." Another release, "ICD Wins Best Portal Technology Solution 2020 for Treasury Investments," explains, "ICD, an independent portal provider of money market funds and other short-term investments, won Best Portal Technology Solution 2020 in TMI magazine's annual awards for innovation and excellence in treasury." ICD CEO Tory Hazard tells us, "This award comes at a time when technology has really proven its value as the bridge between treasury teams and the vital work they do managing cash investments.... This award represents ICD's global focus on treasury. I commend our team for listening to the market and our clients for their constant feedback on how we can improve ICD Portal to serve their ever-changing needs." (Note: Watch for more from ICD's Hazard in an upcoming "profile" in the January issue of our Money Fund Intelligence newsletter.)
Money Fund Assets Jump Says ICI
ICI's latest weekly "Money Market Fund Assets" report shows money fund assets jumping in the latest week, just the 4th increase in the past 21 weeks. Assets have fallen $469 billion since May 20, when they were at a record $4.789 trillion. ICI says, "Total money market fund assets increased by $31.40 billion to $4.32 trillion for the six-day period ending Tuesday, December 22.... Among taxable money market funds, government funds increased by $35.33 billion and prime funds decreased by $1.92 billion. Tax-exempt money market funds decreased by $2.01 billion." ICI's stats show Institutional MMFs increasing $29.1 billion and Retail MMFs increasing $2.3 billion. Total Government MMF assets, including Treasury funds, were $3.668 trillion (84.9% of all money funds), while Total Prime MMFs were $545.4 billion (12.6%). Tax Exempt MMFs totaled $106.5 billion (2.5%). (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're almost $400 billion lower than our asset series.) ICI shows money fund assets up a still massive $688 billion, or 19.0%, year-to-date in 2020, with Inst MMFs up $534 billion (23.6%) and Retail MMFs up $155 billion (11.3%). Over the past 52 weeks, ICI's money fund asset series has increased by $716 billion, or 20.4%, with Retail MMFs rising by $161 billion (12.0%) and Inst MMFs rising by $555 billion (25.5%). (Crane Data's separate and broader Money Fund Intelligence Daily data series shows total MF assets are down $8.3 billion in December, as of 12/22, to $4.710 trillion.) They explain, "Assets of retail money market funds increased by $2.28 billion to $1.52 trillion. Among retail funds, government money market fund assets increased by $5.41 billion to $1.15 trillion, prime money market fund assets decreased by $2.33 billion to $280.20 billion, and tax-exempt fund assets decreased by $800 million to $95.43 billion. Retail assets account for just over a third of total assets, or 35.3%, and Government Retail assets make up 75.4% of all Retail MMFs. ICI adds, "Assets of institutional money market funds increased by $29.12 billion to $2.80 trillion. Among institutional funds, government money market fund assets increased by $29.92 billion to $2.52 trillion, prime money market fund assets increased by $415 million to $265.18 billion, and tax-exempt fund assets decreased by $1.21 billion to $11.03 billion. Institutional assets, which broke below the $3.0 trillion level for the first time since April 22 at the end of August, accounted for 64.7% of all MMF assets, with Government Institutional assets making up 90.1% of all Institutional MMF totals.
PWG Releases Report on MMFs
A press release entitled, "President's Working Group on Financial Markets Releases Report on Money Market Funds," tells us, "In March 2020, short-term funding markets came under sharp stress amid growing economic concerns related to the COVID-19 pandemic and an overall flight to liquidity and quality among investors. Today the President's Working Group on Financial Markets (PWG) released a report that examines these events and sets forth potential policy measures to improve the resilience of money market funds and broader short-term funding markets." U.S. Treasury Department's Deputy Secretary Justin Muzinich comments, "During March, money markets experienced significant outflows, forcing Treasury and the Federal Reserve to step in to prevent a destabilizing run. We must now consider reforms to ensure this vulnerability does not threaten financial stability in the future." The release adds, "The PWG agrees that while many of the reforms implemented after the global financial crisis increased market stability, the events of March 2020 show that more work is needed to reduce the risk that remaining structural vulnerabilities in prime and tax-exempt money market funds will lead to or exacerbate stresses in short-term funding markets. The PWG report released today does not endorse any particular reform, but instead advances the study and discussion of potential policy measures that could address these risks. In addition to the Secretary of the Treasury, the PWG includes the Chair of the Board of Governors of the Federal Reserve System, the Chairman of the Securities and Exchange Commission, and the Chairman of the Commodity Futures Trading Commission. The full report is available here: President's Working Group on Financial Markets: Report on Recent Events and Potential Reform Options for Money Market Funds." (Watch for excerpts in tomorrow's Crane Data News.)
Cunningham's Three Things to Watch
Federated Hermes' Debbie Cunningham discusses, "Three things to watch in 2021," in a brief video clip (posted last week). The CIO of of Global Liquidity comments, "The outlook we have for 2021 mainly stems from a couple factors. Number one is an increasing amount of supply in the short-term markets. And we do believe there will be a fiscal stimulus package that either happens before the end of this year or early in 2021, and much like we saw with the CARES Act in the middle part of 2020. [This] will require an increasing amount of treasury securities, treasury bills in particular, in order to finance that fiscal stimulus. So that increasing supply with a similar amount of demand should cause yields within a certain range to be a little bit higher." Cunningham continues, "We also believe that with a vaccine distribution that is not completely understood or known yet at this point. But given the fact that there are several of them out there, we believe we should see a work from office situation return and a little bit of more normal operating situation.... We also have the issues of unlocking the mysteries of a new president. We're not sure what that will bring in the form of stimulus, in the form of taxation, in the form of trades and global negotiations with others in the world. All of that we do think, though, allows for the potential for inflation to start increasing, not to the point where it becomes hugely problematic from a Federal Reserve standpoint in 2021. But we do believe that it will lead to a steepening of the yield curve as we begin to see some inflation creep back into the normal things that we do on a daily basis, household purchases at the grocery store, dining out, going on vacation, those sorts of things. We do think that there will be some inflation, and as that occurs, a steepening of the yield curve."
Money Fund University is Jan. 21-22
As a reminder, we'll be hosting our annual "basic training" event, Crane's Money Fund University, on Jan. 21-22, 2021. This year's MFU will be online only (and $250 to attend), and will include two afternoons of live segments, as well as a number of pre-recorded sessions and access to recordings and binder materials. Money Fund University offers an affordable and comprehensive 2-day training on money market mutual funds. MFU covers the history of money funds, interest rates, regulations (Rule 2a-7), ratings, rankings, money market instruments such as commercial paper, CDs and repo, and portfolio construction and credit analysis. We also include segments on offshore money funds and ultra-short bond funds. New portfolio managers, analysts, investors, issuers, service providers, and anyone interested in expanding their knowledge of "cash" investing will benefit from our comprehensive program. Even experienced professionals should enjoy this refresher course and the opportunity to interact with peers in an informal setting. Attendee registration is $250 and sponsorship opportunities are $1K, $2K, $3K and $5K. (Note: Thanks to those who attended our recent Money Fund Wisdom Demo & Training. If you missed it, you can catch the replay here.) Mark your calendars too for our upcoming Bond Fund Symposium, which will also be Online only and $250, March 25-26, 2021. Finally, given the arrival of a coronavirus vaccine, we also hope and plan to return to live in-person events by this summer! Our big show, Money Fund Symposium, is scheduled for June 23-25, 2021 in Philadelphia, and our European Money Fund Symposium is scheduled for October 21-22, 2021 in Paris, France. Please let us know if you'd like to see the PDF agendas for these events, or if you'd like to find out more information on sponsorships or "comp" attendance tickets. Thanks for your support and patience in 2020, Happy Holidays, and we hope to see you at one of our virtual or live events in 2021!
Invesco Files for Cavu Secs Class
Invesco filed a Form N1-A registration statement for its Short-Term Investment Trust (STIT) to launch new "CAVU Securities Classes" for its Invesco Liquid Assets Portfolio, Invesco Treasury Portfolio and Invesco Government & Agency Portfolio . The filing says, "This prospectus is to be used only by clients of CAVU Securities, LLC (CAVU). CAVU is a veteran and minority owned firm that measures the success of the firm not only based on financial performance, but also by the positive contributions it makes in giving back to the community, our country and those who have served our country. The CAVU Securities Class may not be purchased directly by individuals. In order to be a shareholder of the CAVU Securities Class, an individual generally needs to have a brokerage account with CAVU or its affiliates or another intermediary authorized by CAVU to offer the Fund's CAVU Securities Class." CAVU Securities' website says, "[It] is a privately-owned boutique broker-dealer focused on discreetly connecting sophisticated investors to hand-picked investment opportunities and asset management platforms. CAVU's team of seasoned professionals maintains an extensive network of trusted & active institutional and high-net-worth investors. We pride ourselves on knowing the areas of interest of our network and matching that with suitable investment opportunities. CAVU is a veteran and minority owned firm. We measure the success of the firm not only based on financial performance, but also by the positive contributions we make, as a team and as individuals, in giving back to the community, our country and especially those who have served our country." Once they go live, these share classes will join a growing list of veteran, minority and other "Impact" and affinity share classes. (For more, see these Crane Data News articles: "ESG and Social MMF Update: Mischler News, Green Deposits, Reg Debate (12/4/20), "Academy Launches Treasury MMFs (10/22/20), "Goldman Launches Social Class; Tiedemann Adds FICA; and CS Green ABCP (1/24/20); "Mischler Financial Joins "Impact" or Social Money Market Investing Wave (12/5/19); and, "Dreyfus Launches "Impact" or Diversity Government Money Market Fund (11/21/19).)
Reuters published the piece, "Look at the big picture in money market reform, says regulator." They write, "Any reform of the $7 trillion money market funds sector should 'tread carefully' and look at the broader financial system and not only the funds themselves, a global regulator said on Wednesday. March saw an extreme 'dash for cash' in markets globally when economies went into lockdown, with strains on money market funds only eased after central banks injected liquidity into financial systems in the United States and Europe." The article continues, "The Financial Stability Board (FSB), which coordinates financial rules for the G20 economies, is looking at whether reform of money market funds (MMFs) is needed to avoid such vulnerabilities in future shocks. But Ashley Alder, chair of global securities regulators' body IOSCO, an FSB member, said there was a need to tread 'very carefully' given how important the sector has become as a source of short-term funding, and for banks and companies to park cash." They quote Alder (from an Afore Consulting event), who "also heads Hong Kong's securities watchdog," "I don't think you can really form any conclusions until you have looked at the whole ecosystem.... The ecosystem includes the funds themselves, the underlying markets, issuers, dealers and central banks.... You should also look at investor expectations of money market funds. Do they view them as cash like, effectively investment like, or a grey area in between?" Reuters adds, "The European Securities and Markets Authority (ESMA), the European Union's markets watchdog, on Wednesday updated its guidance on regular stress testing of money market funds to check on how they can cope with shocks like heavy outflows. 'ESMA increased the severity of the redemption shock in light of the vulnerabilities identified during the COVID-19 outbreak,' it said. Separately on Wednesday, the FSB said growth in the world's $200 trillion non-bank financial sector has continued to outpace traditional lenders, creating vulnerabilities that the COVID-19 crisis has highlighted in sectors like MMFs. Also dubbed 'shadow banking' for its role in creating credit, the sector comprises insurers, money market funds, hedge funds and other types of investment funds, and pension providers."
JPM on Brexit and Offshore MMFs
J.P. Morgan writes in a recent "Mid-Week US Short Duration Update" about "Brexit and offshore MMFs. They explain, "With less than a month to go before the UK transition period ends, the chances of a no-deal Brexit increased [last] week as talks between EU and UK officials ended in deadlock.... UK Prime Minister Boris Johnson and European Commission President Ursula von Der Leyen are poised for further discussions.... Notably, the Brexit uncertainty has not necessarily impacted USD funding costs of UK banks. In fact, unsecured CP/CD transactions of UK banks have been trading around 0.20%-0.25% in the 3-month tenor this month, within the vicinity of other banks. Still, UK banks are not entirely immune from Brexit-related market implications. Under the EU's MMF regulation, offshore money market funds must face counterparties that have their registered offices in a Member State or in a third country where the counterparties are 'subject to prudential rules considered equivalent to those laid down in Union law.'" The piece continues, "This means that post year-end, unless the EU grants UK equivalence with respect to prudential banking regulations as part of the Brexit deal, offshore MMFs will face increased restrictions around what they can invest in. In particular, offshore MMFs will no longer be able to engage in time deposits with UK counterparties. Furthermore, repos with UK counterparties will require an extra haircut above the current standard on certain types of collateral (e.g., bonds greater than 5 years). Other eligible asset classes do not speak to equivalence for counterparties, and as such we suspect they won't be impacted post Brexit." JPM adds, "Based on Crane Data, as of October month-end we find there's about $11.6bn of time deposit and repo exposures with UK counterparties in offshore USD-denominated funds, £22bn in offshore GBP funds, and about 1.4tn of exposures in other currency-denominated offshore MMFs.... Realistically, impacted exposures are likely less than the above as not all repo collateral are affected. To this end, while UK banks and offshore MMFs may need to find alternative sources of funding and investments respectively in the run up to and post Brexit, we don't foresee this as a significant source of concern. Even with US G-SIB pressures increasing over the past few days as evidenced by the widening in the FX-OIS and cross currency basis markets, we suspect offshore MMFs will have no issues finding other homes for that cash. Indeed, offshore MMFs face a diversified set of counterparties with respect to their time deposits.... As for UK banks, given the abundance of liquidity in the marketplace, we also believe that they will have no issues in finding alternative sources of funding." (Note: Crane Data published its Nov. 30 MFI International Portfolio Holdings earlier this week.)
Carfang on Corporate Cash in Q3
The Carfang Group posted a news release, "Corporate Cash Falls $128B in Third Quarter to $3.83T," which tells us, "Corporations in the U.S. added $1.02 trillion or 36.1% to their cash holdings thus far in 2020 according to The Carfang Group analysis of recent Federal Reserve data. For the third quarter, cash is down $128B or 3.2% and now stands at $3.83T. According to Anthony J. Carfang, Managing Director at The Carfang Group, 'Corporate cash stabilized at historically high levels during the third quarter. Following a tumultuous first half in which the Covid pandemic led to a global flight to liquidity. Central banks intervened. Corporate cash soared.'" The release tells us, "The Fed's balance sheet grew from $4.1T to $7.0T during the first nine months of 2020 but was flat during the third quarter. Bank reserves which grew from $1.6T to $3.0T in the first half, dropped by $200B during the third quarter. As a result of these factors, corporate treasurers substantially increased their cash holdings. All major cash categories increased significantly this year. Cash + checkable deposits grew by $472B, time deposits by $69B and money funds grew by $369B. Corporate cash holdings were 18% of US GDP, 3X the level of the early 1990s. During the second quarter cash levels soared as US GDP plunged, exceeding 20% of GDP. The third quarter GCP rebound, combined with the drop in corporate cash brought the ratio down to 18%. There had been a three-decade long upward trend in this ratio, but the current leap is well above that trendline. As this is unprecedented, the macroeconomic effects remain to be seen. Corporate holdings of checkable deposits + currency grew 37% YTD and time deposits grew by 35%. However, their holdings of money market funds jumped by 66%. Checkable deposits and currency remained at 45% of corporate cash, after increasing from 35% following the SEC's tighter rules on money market funds." It adds, "Time deposits now account for 6.9% of corporate cash, dipping toward the lower end of its recent historical range. This is likely due to the low rates resulting from the pandemic-related aggressive Federal Reserve monetary policies. Money funds, at 24% corporate cash, pulled back slightly during the quarter, but still remain near their highest level since mid-2016 when the SEC instituted new regulations. That's still less than half the 59% level of December 2008." (See also our Crane Data News article, "Fed Flow of Funds Shows Households, Businesses Decreased MMFs in Q3.") In other news, a press release entitled, "Bandwidth Wins Treasury Award for API Integration of ICD Portal, Tovata Platform," explains, "Bandwidth Inc., a cloud-based communications platform-as-a-service company, won a 2021 Alexander Hamilton Award for transforming its treasury organization with an API integration launched earlier this year between ICD, an independent portal provider of money market funds and other short-term investments, and Trovata, a leader in automating cash reporting and forecasting through wholesale, multi-bank API data aggregation. The winning project created a seamless workflow for cash forecasting, short-term investments and reporting."
Money Fund Wisdom Demo & Training
Please join us for our last webinar of 2020, Money Fund Wisdom Demo & Training, which will take place Wednesday, Dec. 16, from 1-2pm ET. Crane Data's Peter Crane will give an overview of money market mutual fund data along with a tutorial on our Money Fund Wisdom product "suite" and Money Fund Intelligence newsletter. We'll also review the www.cranedata.com website, our News archives and database query system. The event is free to attendees. Also, register soon for our next Money Fund University, which will take place (virtually) the afternoons of Jan. 21-22, 2021, and mark your calendars our next Bond Fund Symposium ($250), scheduled for March 25-26, 2021 (virtually). (MFU and BFS cost $250 for attendees, or ask us about "comp" tickets for new clients or sponsor tickets.) Our "big show," Money Fund Symposium, is scheduled for June 23-25, 2021 in Philadelphia, so we're hoping live events will be possible again later in 2021. Finally, our next European Money Fund Symposium is planned for October 21-22, 2021 in Paris, France. Crane Data Subscribers or Attendees may access past conference and webinar materials at the bottom of our "Content" page, or see links to our latest events from the "Conferences" menu option. Let us know if you'd like more information about any of our shows, and we hope to see you online soon or back out on the road later in 2021!
MF Assets Up, Biggest Gain Since May
ICI's weekly "Money Market Fund Assets" report shows that money fund assets increased in the latest week, just the 2nd increase in the past 19 weeks and the biggest increase since May. Assets have fallen $446 billion since May 20, when they were at a record $4.789 trillion. ICI says, "Total money market fund assets increased by $22.90 billion to $4.34 trillion for the week ended Wednesday, December 9.... Among taxable money market funds, government funds increased by $25.58 billion and prime funds decreased by $1.41 billion. Tax-exempt money market funds decreased by $1.28 billion." ICI's stats show Institutional MMFs increasing $29.8 billion and Retail MMFs decreasing $6.9 billion. Total Government MMF assets, including Treasury funds, were $3.672 trillion (84.5% of all money funds), while Total Prime MMFs were $562.6 billion (13.0%). Tax Exempt MMFs totaled $108.2 billion (2.5%). (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data.) ICI shows money fund assets up a still massive $711 billion, or 19.6%, year-to-date in 2020, with Inst MMFs up $558 billion (24.7%) and Retail MMFs up $153 billion (11.2%). Over the past 52 weeks, ICI's money fund asset series has increased by $724 billion, or 20.6%, with Retail MMFs rising by $169 billion (12.6%) and Inst MMFs rising by $556 billion (25.6%). (Crane Data's separate and broader Money Fund Intelligence Daily data series shows total MF assets are up $8.2 billion in December, as of 12/9, to $4.727 trillion.) They explain, "Assets of retail money market funds decreased by $6.88 billion to $1.52 trillion. Among retail funds, government money market fund assets decreased by $2.98 billion to $1.14 trillion, prime money market fund assets decreased by $3.12 billion to $284.36 billion, and tax-exempt fund assets decreased by $778 million to $96.92 billion. Retail assets account for just over a third of total assets, or 35.1%, and Government Retail assets make up 75.0% of all Retail MMFs. ICI adds, "Assets of institutional money market funds increased by $29.78 million to $2.82 trillion. Among institutional funds, government money market fund assets increased by $28.56 billion to $2.53 trillion, prime money market fund assets increased by $1.71 billion to $278.20 billion, and tax-exempt fund assets decreased by $500 million to $11.30 billion. Institutional assets, which broke below the $3.0 trillion level for the first time since April 22 at the end of August, accounted for 64.9% of all MMF assets, with Government Institutional assets making up 89.7% of all Institutional MMF totals.
Wells Podcast on Increasing Yield
Wells Fargo Asset Management recently released a Podcast entitled, "Income Generator: Increasing return for cash investors." (They also just published their latest Portfolio Manager Commentary.) The description tells us, "Today's podcast features a discussion about what fixed-income investors with lots of cash on hand can do to increase their return potential. In today's low-yield world, we'll be talking about how extending maturity and taking more credit risk can be used. To discuss, we're talking with Michael Rodgers, Senior Portfolio Specialist at Wells Fargo Asset Management (WFAM)." Host Laurie King asks, "So the question for cash investors -- or what they've been asking -- is what can they do to earn more than 1 basis point, which is what, say, a government money market fund is offering?" Rodgers answers, "Money market mutual funds are one of the primary vehicles cash investors use to manage their short-term cash. Following the implementation of money market fund reform in October 2016, government money market funds became the preferred choice for institutional cash investors, as they are not subject to liquidity fees and redemption gates and maintain a constant NAV versus a floating rate NAV for prime funds. In early March of this year, institutional government money market fund balances exploded as investors fled to cash as the pandemic spread globally and our economy began to shut down. In fact, government money market funds breached the $3 trillion level by the end of April. Following the Fed's aggressive response in cutting the Fed Funds target rate to a range of 0 to 25 basis points, investors in Treasury and government money market funds, in many cases, find themselves once again earning a paltry 1 basis point. It's our view that as investors think about increasing returns on their cash investments, it's important to understand the two components of total return in fixed income, which are price return and income return. Income return is and always has been the largest driver of total return in high-quality short-duration fixed-income." He explains, "To increase return on cash, investors should be considering high-quality sources of income while achieving the primary objectives of capital preservation and liquidity. There are two primary levers investors can pull to increase returns. One is extending maturities further out the yield curve or taking more credit risk within investment grade. Or they can do both depending on their appetite for risk and liquidity. Pulling one or both of these levers serves to increase income in portfolios, increasing the overall total return for investors." King also asks, "Is there a more holistic or structural approach to take to optimize a cash portfolio?" Rodgers explains, "As cash investors seek to increase returns, we typically see them navigate this challenge by tiering their cash portfolios into liquidity buckets, depending on their cash flow needs. For example, operating funds needed to run their business on a daily basis are typically either invested in money market funds or held on deposit at their operating bank. Working capital and strategic cash, which are often defined as those funds not needed within the next six months to 12 months, can be invested beyond the money market fund spectrum. By investing further out on the yield curve, these cash investors may be able to capture additional return opportunities that complement their operating cash investments. The investment vehicles appropriate for working capital and strategic cash buckets may include ultra-short-term bond funds, short-term bond funds, or a customized separately managed account. Ultra short and short-term bond funds can be a great way for investors who lack the scale to fully diversify an institutional portfolio to pull the two levers we discussed earlier. Those investors with sizable cash balances may want to consider a separately managed account that can be specifically customized to their risk tolerance and liquidity needs and has lower fees generally than a money market fund or a bond fund, which can also be additive to total return."
S&P: Corps Hold $2.5 Trillion Cash
S&P Global Ratings distributed a press release entitled, "U.S. Corporates Hold A Record $2.5 Trillion Cash Amid Pandemic Shock While Debt Reaches $7.8 Trillion, Report Says." They tell us, "Cash and investments held by U.S. nonfinancial and nonutility corporate issuers rated by S&P Global Ratings rose 30% to a record $2.5 trillion in the first half of 2020, according to a report published today. Debt rose 9% to $7.8 trillion as companies issued a record amount to make it through the COVID-19 pandemic-related shock to their businesses. The pandemic has led many corporate borrowers to reverse the shedding of cash from their balance sheets that began in early 2018 in the wake of passage of the Trump administration's corporate tax cut, S&P Global Ratings analyst Geoffrey Wilson says in "U.S. Corporates Hold Record $2.5 Trillion Cash To Meet Pandemic Shock; Debt Reaches $7.8 Trillion", published today. The U.S. Federal Reserve's plan to keep benchmark interest rates near zero for at least three more years also bodes well for future liquidity needs if the pandemic and recession worsen or vaccines become delayed." S&P continues, "While this has eased near-term liquidity concerns for all but the highest-risk issuers, the trajectory of post-pandemic cash balances will depend on management teams' decisions about whether to use the added cash to proactively ensure liquidity, pay down debt, or put it toward shareholder-friendly activities and acquisitions." They explain, "S&P Global Ratings believes near-term economic uncertainty likely will keep balance sheets relatively conservative. However, if the outlook brightens in 2021 as coronavirus vaccines become widely available, we believe some issuers will revert to more aggressive financial policies. The economic disruption from the pandemic isn't uniformly distributed. Most issuers will suffer to varying degrees, but some may thrive, leading companies to rethink their shareholder return strategies."
ICI on Reverse Distribution Mechanism
The Investment Company Institute's ICI Operations unit published a white paper entitled, "Reverse Distribution Mechanism and Negative Yields: Considerations and Recommended Practices." It says, "The [Fed's zero yield] policy has increased the likelihood that some constant net asset value (CNAV) money market funds will post negative yields after accounting for expenses, due to the number of affected securities these funds tend to hold. In response, CNAV money market funds are exploring several actions to mitigate the pressure of negative yields. Potential mitigating actions include the following: Implementing fee waivers and/or soft closures (e.g., close funds to new investors and new money); Contributing a fund sponsor's own capital to stabilize the net asset value (NAV) and maintain a non-negative yield; Converting from a CNAV money market fund to a floating NAV....; [and] Additional alternatives involve reducing or cancelling full and fractional CNAV money market fund shares on a pro rata basis to offset the negative yield and enable the fund to maintain a constant NAV. These options include the following: Daily reverse stock split; Accrue negative yield and periodically post to shareholder accounts; [or] Reverse Distribution Mechanism (RDM)." The Foreward adds, "The Investment Company Institute (ICI) convened a working group of funds, intermediaries, and their respective service providers to discuss the operational feasibility of these share cancellation alternatives. In the end, the daily reverse stock split and negative yield accrual alternatives were deemed operationally unworkable due to a combination of current system capabilities, operational risks, and the cost and time needed to scale them for widespread use. The working group identified RDM as the most operationally feasible alternative should a CNAV money market fund have to apply negative yield quickly. This paper provides details on RDM and highlights recommended practices for successful implementation of RDM, should it become necessary." Watch for more excerpts from this paper in coming days.
WSJ: Companies' Record Cash Levels
The Wall Street Journal Weekend writes that, "Companies Stockpile Record Stack of Cash." They tell us, "U.S. companies are sitting on the largest pile of cash ever. Investors are trying to gauge how they are going to use it. Cash holdings at nonfinancial companies grew to a record $2.1 trillion at the end of June, according to a report from Moody's Investors Service. That is up 30% from that time last year and higher than the previous peak of nearly $2 trillion in 2017. Among the biggest hoarders: AT&T Inc. and Delta Air Lines Inc., which each held more than $15 billion at the end of June. Other measures show some of America's largest companies continued to hang on to record cash stockpiles at the end of the third quarter. The amount held by S&P 500 companies not in the financial, transportation or utility sectors is expected to total around $1.9 trillion, according to data compiled by S&P Dow Jones Indices. That is the most cash ever held by that group in data going back to 1980." The Journal piece comments, "Cash hoards swelled this year after companies issued record-breaking amounts of debt to bolster their balance sheets against the Covid-19 pandemic's disruptions. As of Nov. 30, U.S. companies had sold more than $2 trillion of investment-grade and high-yield bonds -- the most on record in data going back to 2006 -- according to LCD, a unit of S&P Global Market Intelligence.... Wall Street analysts expect companies to start dipping into more of their cash next year. Some investment-grade companies have taken initial steps to lower their debt loads, while continuing to hoard cash in anticipation of a surge in infections this winter, according to a Bank of America Corp. report." It adds, "'Next year, the expectations are for no meaningful corporate bond issuance because companies are sitting on huge cash buffers that are no longer needed,' said Ralf Preusser, rates strategist at BofA."
MMF Assets Continue Inching Lower
ICI's weekly "Money Market Fund Assets" report shows that money fund assets inched lower again in the latest week, marking their 17th decrease over the last 18 weeks. Assets have fallen $469 billion since May 20, when they were at a record $4.789 trillion. ICI says, "Total money market fund assets decreased by $3.88 billion to $4.32 trillion for the week ended Wednesday, December 2.... Among taxable money market funds, government funds decreased by $1.20 billion and prime funds decreased by $3.76 billion. Tax-exempt money market funds increased by $1.08 billion." ICI's stats show Institutional MMFs decreasing $330 million and Retail MMFs decreasing $3.6 billion. Total Government MMF assets, including Treasury funds, were $3.647 trillion (84.4% of all money funds), while Total Prime MMFs were $564.0 billion (13.1%). Tax Exempt MMFs totaled $109.5 billion (2.5%). (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data.) ICI shows money fund assets up a still massive $688 billion, or 19.0%, year-to-date in 2020, with Inst MMFs up $529 billion (23.4%) and Retail MMFs up $160 billion (11.7%). Over the past 52 weeks, ICI's money fund asset series has increased by $741 billion, or 21.1%, with Retail MMFs rising by $181 billion (13.5%) and Inst MMFs rising by $561 billion (25.8%). (Crane Data's separate and broader Money Fund Intelligence Daily data series shows total MF assets are down $23.5 billion in December, as of 12/2, to $4.695 trillion.) They explain, "Assets of retail money market funds decreased by $3.55 billion to $1.53 trillion. Among retail funds, government money market fund assets decreased by $741 million to $1.14 trillion, prime money market fund assets decreased by $2.77 billion to $287.48 billion, and tax-exempt fund assets decreased by $41 million to $97.69 billion. Retail assets account for just over a third of total assets, or 35.4%, and Government Retail assets make up 74.8% of all Retail MMFs. ICI adds, "Assets of institutional money market funds decreased by $330 million to $2.79 trillion. Among institutional funds, government money market fund assets decreased by $459 million to $2.50 trillion, prime money market fund assets decreased by $996 million to $276.48 billion, and tax-exempt fund assets increased by $1.13 billion to $11.80 billion. Institutional assets, which broke below the $3.0 trillion level for the first time since April 22 at the end of August, accounted for 64.6% of all MMF assets, with Government Institutional assets making up 89.7% of all Institutional MMF totals.
Federated on Fighting with Fed
Federated Hermes' Deborah Cunningham writes on "Fighting the Fed" in her latest monthly commentary. She tells us, "The stakes are high, but it was hard to resist eating popcorn while watching the Federal Reserve and the federal government square off last month. The main card featured Treasury Secretary Steven Mnuchin, who informed the Fed that the Treasury Department would let most of the emergency lending facilities expire at the end of the year. Hours after that news, the Fed issued a rare public rebuke of the administration, arguing that the programs provide crucial support for an economy still struggling to recover." Cunningham continues, "The fisticuffs concerned the more prominent -- and politically charged -- special purpose vehicles (SPVs) including the Main Street Lending Program and the Municipal Liquidity Facility. In contrast, the Treasury seems to understand the importance of the Commercial Paper Funding Facility and the Money Market Liquidity Facility and actually asked the Fed to extend them through March 31, 2021 (which the central bank did yesterday). Even though these SPVs have seen little use since last March, their mere existence has instilled confidence in the liquidity sector. Allow me to say again that these facilities and other Fed moves in the depth of the crisis targeted the broad secondary markets, not just money funds." The Federated Hermes Global Liquidity CIO adds, "Clouded in the dustup is how well the liquidity sector performed in November. Between the protracted results of the election and the surge in Covid-19 cases, uncertainty abounded, leading to some concern that the money markets would react adversely to it. Instead, they shrugged it off. Liquidity was abundant, yields spreads over corresponding Treasuries continued and outflows were in line with expectations. Attention now turns to year-end activity, but the moderate stress that can arise at this time seems quaint compared to what we endured this year -- and certainly when measured against pressure in Washington."
Weekly Portfolio Holdings Summary
Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Tuesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of November 27) includes Holdings information from 72 money funds (down 5 from a week ago), which represent $2.078 trillion (up from $1.958 trillion) of the $4.642 trillion (44.8%) in total money fund assets tracked by Crane Data. (Note that our Weekly MFPH are e-mail only and aren't available on the website.) Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Treasury totaling $1.141 trillion (up from $1.069 trillion a week ago), or 54.9%, Repurchase Agreements (Repo) totaling $488.0 billion (up from $455.8 billion a week ago), or 23.5% and Government Agency securities totaling $269.9 billion (up from $244.5 billion), or 13.0%. Commercial Paper (CP) totaled $56.7 billion (down from $74.3 billion), or 2.7%, and Certificates of Deposit (CDs) totaled $53.9 billion (up from $37.8 billion), or 2.6%. The Other category accounted for $44.4 billion or 2.1%, while VRDNs accounted for $23.6 billion, or 1.1%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.144 trillion (55.1% of total holdings), Federal Home Loan Bank with $135.8B (6.5%), BNP Paribas with $72.4B (3.5%), Fixed Income Clearing Corp with $66.6 (3.2%), Federal Farm Credit Bank with $50.2B (2.4%), Federal National Mortgage Association with $49.5B (2.4%), Federal Home Loan Mortgage Corp with $33.0B (1.6%), RBC with $32.6B (1.6%), Credit Agricole with $27.1B (1.3%) and JP Morgan with $26.8B (1.3%). The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($199.5 billion), Goldman Sachs FS Govt ($163.3B), BlackRock Lq FedFund ($159.3B), Fidelity Inv MM: Govt Port ($146.4B), BlackRock Lq T-Fund ($101.6B), JPMorgan 100% US Treas MMkt ($95.0B), Morgan Stanley Inst Liq Govt ($86.7B), Goldman Sachs FS Treas Instruments ($82.2B), First American Govt Oblg ($78.9B) and Dreyfus Govt Cash Mgmt ($75.6B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)
Bottom Line Warns on Money Funds
Bottom Line Personal writes on "Money-Market Fund Danger" in its latest newsletter. The piece explains, "If you keep your cash in a money market mutual fund at a brokerage firm, it may not be as safe as you think. What they are: These funds typically invest in a mix of US government bonds and high-quality corporate debt. They became tremendously popular, growing assets more than 70% over the past five years to $5.2 trillion, because the risk of losing money was very low and the yields often were higher than those offered by ultra-safe bank products such as saving accounts and money market accounts, which are FDIC-insured." But the piece says, "As the coronavirus pandemic accelerated in the spring, sparking a sudden recession and widespread unemployment, panicky consumers it started draining their savings, including cashing out their money market funds. Some funds considered slowing redemptions by imposing an exit fee and/or preventing investors from selling their shares for a short time period.... The Federal Reserve -- fearing that brokerage funds would have to sell holdings at a loss to meet redemptions, saddling investors with losses -- staved off a potential crisis by backstopping the funds." Under, "What to do," they tell readers, "Although the risk of losing money is not high, the yields are so low now that it is not worth adding to or keeping money in a money market fund. Recently, large money market funds averaged an annual percentage yield of justice 0.12%. A year ago, the Fidelity Government Money Market fund yielded 1.8% but recently just 0.01%. Safer alternatives: For cash you plan to invest soon, most brokerage firms offer a federally insured 'cash sweep' account, where any cash from investment trades automatically goes. Your money may already be in a cash-sweep account, which recently yielded 0.01% at large brokerage firms such as Fidelity and Charles Schwab. They are safer than money-market funds. For longer-term savings, consider moving your cash to FDIC-insured money market account online banks, where recent years were much better -- as high as 1%."
