Daily Links Archives: June, 2022
European MFS in Paris, Sept. 27-28
Now that our big Money Fund Symposium show, which took place early last week in Minneapolis, is in the books, we're turning our attention to our next European Money Fund Symposium, which will be Sept. 27-28 in Paris, France. (Thanks again to those who attended Crane's Money Fund Symposium! The recordings and Powerpoints are available in our "Money Fund Symposium 2022 Download Center." Mark your calendars for next year's MFS, which is June 21-23, 2023, in Atlanta!) The latest European MFS agenda is available (though it's being tweaked) and registrations are now being taken for this year's "offshore" event. We provide more details on this, and our other upcoming conferences, below, and please contact Pete for more information. European Money Fund Symposium offers European, global and "offshore" money market portfolio managers, investors, issuers, dealers and service providers a concentrated and affordable educational experience, and an excellent and informal networking venue. Registration for European Money Fund Symposium is $1,000 USD. EMFS will be held at the The Renaissance Paris La Defense. Hotel rooms must be booked before August 5 to receive the discounted rate of E259. Visit www.euromfs.com to register, and contact us to request the PDF brochure. (Let us know too if you'd like information on speaking or sponsorship pricing too.) Also, mark your calendars for our next Crane's Money Fund University, which will be held in Boston, Mass., Dec. 15-16, 2022, and our next Bond Fund Symposium will also be held in Boston, Mass., March 23-24, 2023. Let us know if you'd like more details on any of our events, and we hope to see you in Paris in September, or in Boston in December or March 2023.
Weekly MF Portfolio Holdings
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 June 24) includes Holdings information from 87 money funds (up 16 from a week ago), which represent $2.865 trillion (up from $2.554 trillion) of the $4.965 trillion (57.7%) in total money fund assets tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website. See our June 10 News, "June MF Portfolio Holdings: NY Fed Repo Now Bigger Than US Treasuries," for more.) Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $1.433 trillion (up from 1.273 trillion a week ago), or 50.0%; Treasuries totaling $1.052 trillion (up from $975.2 billion a week ago), or 36.7%, and Government Agency securities totaling $169.7 billion (up from $140.2 billion), or 5.9%. Commercial Paper (CP) totaled $57.8 billion (up from a week ago at $48.0 billion), or 2.0%. Certificates of Deposit (CDs) totaled $48.1 billion (up from $41.7 billion a week ago), or 1.7%. The Other category accounted for $63.5 billion or 2.2%, while VRDNs accounted for $40.8 billion, or 1.4%. The Ten Largest Issuers in our Weekly Holdings product include: the Federal Reserve Bank of New York with $1.073 trillion (37.5%), the US Treasury with $1.052 trillion (36.7% of total holdings), Federal Home Loan Bank with $98.9B (3.5%), Federal Farm Credit Bank with $60.9B (2.1%), Fixed Income Clearing Corp with $57.9B (2.0%), BNP Paribas with $44.6B (1.6%), RBC with $31.3B (1.1%), Sumitomo Mitsui Banking Corp with $20.7B (0.7%), Citi with $18.2B (0.6%) and Mitsubishi UFJ Financial Group Inc with $17.8B (0.6%). The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($267.1B), Goldman Sachs FS Govt ($213.7B), BlackRock Lq FedFund ($179.8B), Morgan Stanley Inst Liq Govt ($158.9B), Fidelity Inv MM: Govt Port ($119.8B), Goldman Sachs FS Treas Instruments ($119.2B), Federated Hermes Govt ObI ($118.7B), Dreyfus Govt Cash Mgmt ($118.4B), BlackRock Lq T-Fund ($117.0B) and BlackRock Lq Treas Tr ($116.5B). (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.)
WSJ: Hedge Funds Bet Against Tether
The Wall Street Journal writes, "More Hedge Funds Are Betting Against Tether as Crypto Melts Down." It comments, "Short sellers have been ramping up their bets against tether, the world's largest stablecoin, amid a broad market selloff that has called into doubt the financial health of some crypto companies. In the past month, more traditional hedge funds have executed trades to short tether through Genesis Global Trading Inc., one of the largest crypto brokerages for professional investors.... Tether is a stablecoin, which are virtual currencies that are supposed to be pegged to the dollar or other national currencies, and it is the most widely traded in the world. Tether's market cap stood at about $67 billion on Friday, according to CoinMarketCap data." The Journal explains, "A number of investors have been betting against tether for at least 12 months. But more hedge funds got interested in shorting tether after the collapse in May of another stablecoin, TerraUSD, according to Genesis. TerraUSD is a so-called algorithmic stablecoin, which means it doesn't have to be backed by real assets. Other more traditional stablecoins, including tether, say they hold $1 of cash, Treasury bills or other traditional financial assets for each unit of stablecoin." The article adds, "Tether briefly lost its peg during the TerraUSD collapse in May. It traded as low as 95 cents on May 12, reflecting investors' concerns about the value of its assets and whether they would be readily convertible to cash in a market panic. It has since recovered and is now close to $1. There are two main factors driving hedge funds to short tether, Mr. Marshall said, citing conversations that he has had with clients. Some hedge funds are shorting tether as a bet about the broader economy. The Federal Reserve is raising interest rates to curb 40-year-high inflation, scaring investors away from riskier assets including cryptocurrencies. Other hedge funds are concerned about the quality of the assets backing tether. Tether says it maintains an equivalent amount of reserves that include commercial paper -- or corporate short term loans -- bank deposits, precious metals, government bonds and digital tokens. Some short sellers say they believe that most of tether's commercial-paper holdings are backed by debt-ridden Chinese property developers, The Wall Street Journal previously reported. Tether said in a blog post this month that 'these rumors are completely false.' The company added that it has been reducing its portfolio of commercial paper. A tether spokeswoman said the firm wouldn't comment further on 'how hedge funds are looking to generate returns by creating arbitrage opportunities on the basis of these rumors.'"
The Upside of Fed Rate Increases
Yahoo Finance published a piece by Allan Sloan entitled, "Here's the upside of Fed rate increases for investors," which tells us, "We've been hearing a lot lately about the damage that the Federal Reserve’s rate increases have done to the prices of stocks, bonds, and homes. But there's a major upside to those rate increases that few people, if any, are talking about.... It's that income for holders of money market mutual funds is running tens of billions of dollars a year above where it was at the start of the year, with more big increases on tap as the Fed keeps raising rates." The article explains, "Here's the deal, based on numbers from money market maven Pete Crane, whose Crane Data publishes the monthly Money Fund Intelligence newsletter. When Crane and I talked a few days ago, he said that money funds were yielding about 0.6% [they're now up to 1.14%], up from a minuscule 0.02% at year-end 2021, before the Fed rate increases started. Sure, that doesn't sound like a big enough difference to matter. But if you apply those numbers to the $5 trillion of money market funds, you see that yields are currently running about $30 billion a year, up from about $1 billion at year end." Sloan writes, "Given that the Fed has just raised rates three-quarters of a percent and is talking about raising them another three-quarters at its July meeting, we're looking at another 1.5% growth in yields. Which works out to another $75 billion a year for money fund holders. The reason that money fund yields are rising so rapidly is that the funds' asset portfolios have an average maturity of only about 30 days. This means that the Fed's increases in short-term rates -- the only rates that the Fed controls directly -- flow into money fund owners' wallets almost immediately." He adds, "These income increases are the total opposite of what happened when the Fed started cutting rates to almost zero in 2009 to forestall a worldwide financial meltdown. Yields eroded rapidly, leaving money funds yielding essentially nothing for much of the past dozen-plus years. But now that pattern is reversing. 'A two percent money fund yield by year-end isn't a layup,' quips Pete Crane, 'but it's a short jump shot.' There are certainly plenty of financial downsides to the Fed’s rate raises.... However, those increases in money fund yields -- and the fact that those rising yields are likely to spur banks to raise rates on trillions of dollars of savings accounts to try to avoid deposit runoffs -- are giving us tens of billions of dollars of optimistic news. And these days, we need all the optimism that we can get."
MMF Assets Flat in Latest Week
ICI's latest weekly "Money Market Fund Assets" report shows assets flat after falling the previous week, which included the June 15 quarterly tax date. Year-to-date, MMFs are down by $162 billion, or -3.4%, with Institutional MMFs down $138 billion, or -4.3% and Retail MMFs down $24 billion, or -1.6%. Over the past 52 weeks, money fund assets are down by $4 billion, or -0.1%, with Retail MMFs rising by $12 billion (0.9%) and Inst MMFs falling by $16 billion (-0.5%). (For the month of June, through 6/22, MMF assets have increased by $16.8 billion to $4.976 trillion according to Crane's MFI Daily, which tracks a broader universe of funds.) ICI's weekly release says, "Total money market fund assets increased by $1.89 billion to $4.54 trillion for the week ended Wednesday, June 22, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $3.74 billion and prime funds increased by $5.64 billion. Tax-exempt money market funds decreased by $9 million." ICI's stats show Institutional MMFs falling $8.7 billion and Retail MMFs increasing $10.6 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.014 trillion (88.4% of all money funds), while Total Prime MMFs were $426.1 billion (9.4%). Tax Exempt MMFs totaled $102.6 billion (2.3%). ICI explains, "Assets of retail money market funds increased by $10.62 billion to $1.44 trillion. Among retail funds, government money market fund assets increased by $6.22 billion to $1.14 trillion, prime money market fund assets increased by $4.19 billion to $213.27 billion, and tax-exempt fund assets increased by $208 million to $92.81 billion." Retail assets account for just under a third of total assets, or 31.8%, and Government Retail assets make up 78.8% of all Retail MMFs. They add, "Assets of institutional money market funds decreased by $8.73 billion to $3.10 trillion. Among institutional funds, government money market fund assets decreased by $9.96 billion to $2.88 trillion, prime money market fund assets increased by $1.45 billion to $212.82 billion, and tax-exempt fund assets decreased by $217 million to $9.83 billion." Institutional assets accounted for 68.2% of all MMF assets, with Government Institutional assets making up 92.8% of all Institutional MMF totals. (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're over $400 billion lower than Crane's asset series.)
Money Funds and Greenwashing
Yahoo Finance posted the article, "Money Funds May Be Next Target in Fight Against Greenwashing," which tells us, "An often overlooked part of the burgeoning ESG industry may soon encounter greater global scrutiny from regulators. Analysts at Fitch Ratings expect rulemakers to push for better transparency from managers of money market funds. This comes as other ESG-related offerings that fall short on the standards front increasingly struggle to keep and attract investors. The integration of environmental, social and governance factors into money funds has accelerated in recent years, especially in Europe where in 2021 assets surged by about 200% as more funds took on the ESG label." The Bloomberg piece adds, "Roughly 350 billion euros ($369 billion) is invested in ESG-focused money funds, accounting for 23% of the total market for European money funds. By comparison, there's just $9 billion in US prime money funds that have ESG in their names.... Large ESG reporting disparities also exist between the two regions, creating inconsistencies in reporting standards across the market. In Europe, there's 'a more prescriptive, standardized framework,' while in the US, it's more of 'a disclosure regime,' said Greg Fayvilevich, senior director and global head of Fitch's fund and asset manager ratings group. Money funds are considered among the least risky investments available because they traditionally hold only the safest government and corporate-bond securities. The average yield for money funds has risen above 0.3% in Europe from about negative 0.6% at the start of the year. Yields are now at the highest level since 2014."
Bloomberg: More from MF Symposium
Bloomberg writes "Inflation Is Fueling ‘Most Uncertain Time’ in Investors’ Careers," which tells us, "The current denizens of Wall Street have never seen a market quite like this. Volatility surged across assets last week as a worsening outlook for inflation and growth smashed US stocks and bonds. Inflation that's surging at a rate unseen in decades -- and proving unexpectedly sticky -- has sent central banks scrambling to reshape policy on the fly. And that has even hardened market veterans reeling in shock, with unprecedented amounts of money flooding into cash-like instruments and facilities. Investors gathered for the Crane's Money Fund Symposium in Minneapolis have been busy comparing notes in the wake of a historic week that saw the Federal Reserve jack up its overnight interest rate by the most in decades, prompting a huge whipsawing of the bond market and finally dragging the S&P 500 Index into a bear market." They quote Northern Trust's Peter Yi, "This might be the most uncertain time in our careers in terms of pace and what happens with inflation. There's just a lot of volatility out there, a lot of quick changes and last week was a great example of that." The piece adds, "Uncertainty about front-end rate policy and the outsized impact that is having on longer-term assets means more and more people are looking to park bigger chunks of their portfolios in cash." Click here to see Bloomberg's recap of the first day of the Crane’s conference."
Bloomberg: Money Funds, Symposium
Bloomberg writes, "Money Markets Rake In Cash as Funds Gird for Regulatory Changes." The article by Alexandra Harris explains, "The specter of regulatory change is hanging over the $4.5 trillion US money-market industry, even as the Federal Reserve's aggressive interest-rate hikes and market volatility have investors piling in. That's the backdrop that will be front of mind for the roughly 400 attendees at the Crane's Money Fund Symposium beginning Monday, a marquee event for a business that struggled the past two years while rates were near zero." It continues, "Money funds have grown by about $100 billion since April, and they hold almost $1 trillion more than at the start of the pandemic, when companies raised cash and parked it in the market for safety. Now the funds are looking to another source of growth: corporations and individuals that want to take advantage of higher rates as the Fed boosts borrowing costs to contain inflation. The key question is how proposed changes from the Securities and Exchange Commission might complicate investors' decisions. The agency unveiled recommendations last year ... with the aim of averting the kind of turmoil seen in March 2020." They quote Northern Trust Asset Management's Peter Yi, "There's a lot of assets in flight coming soon and I think it's going to be good for the industry. There's a lot of things we can look forward to despite money-market reform." The piece tells us, "There will be no shortage of other topics to discuss as industry executives gather in Minneapolis next week. The lack of Treasury bill supply may be chief among them.... The overwhelming demand for relatively few securities has pushed rates on everything from repurchase agreements to most T-bills well below the offering yield on the Fed's overnight reverse repo facility, now at 1.55%. That's why money funds account for roughly 88% of the record $2.22 trillion sitting at the so-called RRP, JPMorgan Chase & Co. strategists say. 'Every marginal dollar we’re getting right now is getting parked at the Fed,' Yi said. The pace at which the Fed hikes will determine how quickly funds can pass along higher yields to investors, and hopefully attract more cash -- particularly deposits earning next to nothing in banks, which tend to be slower to lift rates as the Fed tightens.... The central bank's move to start shrinking its mammoth balance sheet this month through what's known as quantitative tightening is also a potential boon for money funds. Barclays Plc estimates that money-fund balances could increase by $600 billion as a result by year-end."
MMF Assets Fall on Tax Date
ICI's latest weekly "Money Market Fund Assets" report shows assets falling in the latest week, which includes the June 15 quarterly tax date, after being up strongly the previous week <b:>`_. Year-to-date, MMFs are down by $164 billion, or -3.5%, with Institutional MMFs down $129 billion, or -4.0% and Retail MMFs down $35 billion, or -2.4%. Over the past 52 weeks, money fund assets are down by $37 billion, or -0.8%, with Retail MMFs falling by $1 billion (-0.0%) and Inst MMFs falling by $37 billion (-1.2%). (For the month of June, through 6/15, MMF assets have increased by $24.5 billion to $4.984 trillion according to Crane's MFI Daily, which tracks a broader universe of funds.) ICI's weekly release says, "Total money market fund assets decreased by $11.65 billion to $4.54 trillion for the week ended Wednesday, June 15, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $4.86 billion and prime funds decreased by $6.84 billion. Tax-exempt money market funds increased by $51 million." ICI's stats show Institutional MMFs falling $20.9 billion and Retail MMFs increasing $9.3 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.018 trillion (88.5% of all money funds), while Total Prime MMFs were $420.5 billion (9.3%). Tax Exempt MMFs totaled $102.7 billion (2.3%). ICI explains, "Assets of retail money market funds increased by $9.27 billion to $1.43 trillion. Among retail funds, government money market fund assets increased by $6.10 billion to $1.13 trillion, prime money market fund assets increased by $3.15 billion to $209.09 billion, and tax-exempt fund assets increased by $14 million to $92.60 billion." Retail assets account for just under a third of total assets, or 31.6%, and Government Retail assets make up 79.0% of all Retail MMFs. They add, "Assets of institutional money market funds decreased by $20.91 billion to $3.11 trillion. Among institutional funds, government money market fund assets decreased by $10.96 billion to $2.89 trillion, prime money market fund assets decreased by $9.99 billion to $211.37 billion, and tax-exempt fund assets increased by $37 million to $10.05 billion." Institutional assets accounted for 68.4% of all MMF assets, with Government Institutional assets making up 92.9% of all Institutional MMF totals. (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're over $400 billion lower than Crane's asset series.)
Weekly MF Portfolio Holdings
Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Wednesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of June 10) includes Holdings information from 62 money funds (down 2 from 3 weeks ago), which represent $2.101 trillion (up from $1.912 trillion) of the $4.987 trillion (42.1%) in total money fund assets tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website. See our June 10 News, "June MF Portfolio Holdings: NY Fed Repo Now Bigger Than US Treasuries," for more.) Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $1.052 trillion (up from 973.4 billion 2 weeks ago), or 50.1%; Treasuries totaling $759.4 billion (up from $725.7 billion 2 weeks ago), or 36.1%, and Government Agency securities totaling $136.9 billion (up from $111.1 billion), or 6.5%. Commercial Paper (CP) totaled $44.9 billion (up from 2 weeks ago at $36.3 billion), or 2.1%. Certificates of Deposit (CDs) totaled $41.1 billion (up from $18.4 billion 2 weeks ago), or 2.0%. The Other category accounted for $39.6 billion or 1.9%, while VRDNs accounted for $27.5 billion, or 1.3%. The Ten Largest Issuers in our Weekly Holdings product include: the Federal Reserve Bank of New York with $770.8B (36.7%), the US Treasury with $759.4 billion (36.1% of total holdings), Federal Home Loan Bank with $83.6B (4.0%), BNP Paribas with $45.7B (2.2%), Federal Farm Credit Bank with $43.0B (2.0%), RBC with $30.5B (1.5%), Fixed Income Clearing Corp with $25.4B (1.2%), Sumitomo Mitsui Banking Corp with $17.4B (0.8%), Mitsubishi UFJ Financial Group Inc with $16.4B (0.8%) and JP Morgan with $14.4B (0.7%). The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($290.5B), Goldman Sachs FS Govt ($203.6B), Morgan Stanley Inst Liq Govt ($165.2), Allspring Govt MM ($120.9B), Fidelity Inv MM: Govt Port ($120.6B), Dreyfus Govt Cash Mgmt ($116.0B), Goldman Sachs FS Treas Instruments ($106.7B), State Street Inst US Govt ($96.5B), JPMorgan 100% US Treas MMkt ($87.3B) and First American Govt Oblg ($82.5B). (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.)
AFP Releases 2022 Liquidity Survey
A press release entitled, "Survey: Fifty-five Percent of Organizations' Short-term Investments Maintained in Bank Deposits, Highest Figure Since 2016," tells us, "Results of the 2022 AFP Liquidity Survey from the Association for Financial Professionals (AFP), underwritten by Invesco, report that the typical organization currently maintains 55% of its short-term investments in bank deposits. This is the highest figure since 2016, when it was also reported that 55% of organizations were holding their short-term investments in banks. This is only a slight increase from 2021 and 2020 figures, which were 52% and 51% respectively. The largest increase occurred from 2019 to 2020 when it jumped 9%. Similar trends are also being observed for short-term investments outside the U.S. (69%)." The AFP explains, "The survey also found that 57% of organizations are preparing their portfolios ahead of anticipated federal funds target rate increases, with 34% doing so by managing the duration of their portfolios. Others are considering investing in floating rate notes, creating bond maturity ladders or using a barbell approach with select securities. Findings suggest companies are being cautiously optimistic while shoring up liquidity to ease uncertainty as the share of organizations that plan on increasing their cash holdings in the U.S. has decreased by 10 percentage points to 37% as compared to 47% who reported the same last year." Additional findings of the survey include: "Safety continues to be the most valued short-term investment objective for 63% of organizations. This can be expected, given the economic uncertainty due to high inflation rates, anticipated actions by the Federal Reserve and the tense geopolitical environment. Twenty-five percent of organizations are considering Environmental, Social and Governance (ESG) investment parameters, which is materially higher than the 17% reported in last year's survey report.... AFP's Liquidity Survey was conducted in March 2022 and received responses from 284 corporate practitioners." Jim Kaitz, AFP president and CEO, comments, "In the past year, the economic environment has been fraught with uncertainty. Therefore, it is not at all surprising that the majority of organizations are prioritizing safety as their primary investment objective. That said, we are hopeful as a smaller percentage of respondents report an increase in cash and short-term balances at their organizations over the past year compared to a year earlier, suggesting that companies are less constrained than they were in 2021." Invesco Global Liquidity CIO Laurie Brignac adds, "It's been a remarkable period in liquidity markets, from the early pandemic days in 2020 to the sharp inflation acceleration and aggressive shift by the Federal Reserve to tightening monetary policy in 2022.... As companies prepare to put cash to work, investors need to be strategic in their approach to uncover opportunities in the higher interest rate environment while managing through a very aggressive hiking cycle." See the highlights and full 2022 AFP Liquidity Survey here, and watch for more coverage in coming days. (Note: AFP's Tom Hunt and Invesco's Laurie Brignac will also present on "Corporate Investors, Portals, D&I Discussion" on Monday, June 20, at our Money Fund Symposium conference in Minneapolis.)
SEC Slaps Schwab Robo on Cash
The SEC posted a press release entitled, "Schwab Subsidiaries Misled Robo-Advisor Clients About Absence of Hidden Fees." It explains, "The Securities and Exchange Commission today charged three Charles Schwab investment adviser subsidiaries for not disclosing that they were allocating client funds in a manner that their own internal analyses showed would be less profitable for their clients under most market conditions. The subsidiaries agreed to pay $187 million to harmed clients to settle the charges. According to the SEC's order, from March 2015 through November 2018, Schwab's mandated disclosures for its robo-adviser product, Schwab Intelligent Portfolios, stated that the amount of cash in the robo-adviser portfolios was determined through a 'disciplined portfolio construction methodology,' and that the robo-adviser would seek 'optimal return[s].' In reality, Schwab's own data showed that under most market conditions, the cash in the portfolios would cause clients to make less money even while taking on the same amount of risk. Schwab advertised the robo-adviser as having neither advisory nor hidden fees, but didn't tell clients about this cash drag on their investment. Schwab made money from the cash allocations in the robo-adviser portfolios by sweeping the cash to its affiliate bank, loaning it out, and then keeping the difference between the interest it earned on the loans and what it paid in interest to the robo-adviser clients." The release continues, "Schwab claimed that the amount of cash in its robo-adviser portfolios was decided by sophisticated economic algorithms meant to optimize its clients' returns when in reality it was decided by how much money the company wanted to make," said Gurbir S. Grewal, Director of the SEC's Division of Enforcement. "Schwab's conduct was egregious and today's action sends a clear message to advisers that they need to be transparent with clients about hidden fees and how such fees affect clients' returns." The SEC adds, "Without admitting or denying the SEC's findings, Schwab's investment adviser subsidiaries, Charles Schwab & Co., Inc., Charles Schwab Investment Advisory, Inc., and Schwab Wealth Investment Advisory, Inc., agreed to a cease-and-desist order prohibiting them from violating the antifraud provisions of the Investment Advisers Act of 1940, censuring them, and requiring them to pay approximately $52 million in disgorgement and prejudgment interest, and a $135 million civil penalty. The subsidiaries also agreed to retain an independent consultant to review their policies and procedures relating to their robo-adviser's disclosures, advertising, and marketing, and to ensure that they are effectively following those policies and procedures." For more, see our articles: "SEC Action on 12b-1, Sweeps" (6/1/22); "Barron's: SEC Hits Sweeps Again" (10/4/21); "SEC Slaps SCF Financial Over Sweeps" (8/18/20); and, "SEC Warns on Cash Sweeps" (11/12/19).
NY Times on Money Market Funds
The New York Times writes a big piece on money market funds in "How Inflation May Change Where You Put Your Cash." Columnist Jeff Sommer says, "The stock market hasn't provided much joy, bonds have been a source of considerable pain and inflation is troubling. But at last there is a glimmer of good news for people who need a place to park their cash: Money market mutual funds are finally beginning to pay a little interest. These funds are a convenient place for both individual investors and big institutions to keep money temporarily. Their yields have been very low for years, and since the crisis of March 2020 they had hovered near zero, paying investors virtually nothing." He continues, "But now that the Federal Reserve has begun to increase the short-term interest rates it controls directly, money market fund yields that are available to consumers have also started to rise -- and they will continue their climb as long as the Fed continues to increase short-term rates." The Times quotes T. Rowe Price's Doug Spratley, "You can expect money market rates to keep rising for a while. And they will be rising fairly rapidly." But the piece explains, "Don't get too excited just yet. `This isn't a return to the early 1980s, when money market rates soared above 15 percent, along with the rate of inflation. The yield on the average big money market fund is still only about 0.6 percent, said Peter G. Crane, the president of Crane Data of Westborough, Mass., which monitors money market funds. 'Yields are moving in the right direction,' Mr. Crane said. 'But that's still not much, especially when you factor in inflation.'" The article adds, "Money market yields won't stay where they are for very long. On Wednesday, the Federal Reserve is expected to raise rates again, and money market rates should follow, with a lag of about one month. As a practical matter, in the current unsettled markets, many people need good places to keep their short-term cash. In the past, I noted that several options -- like bank accounts and Treasury bills -- seemed reasonable. Now I would add money market funds to that list, with some qualifications. Be aware that, yields aside, money market funds ran into some safety problems in the last two financial crises. Since then, they have been subjected to tighter regulatory scrutiny and to a series of reforms. Many funds now hold only U.S. government securities, and all are required to hold only high-quality debt instruments. All are intended to avoid fluctuations in value, though they have come under strain before and could well do so again. In any case, money market funds are safer than bond or stock mutual funds or exchange-traded funds."
MMF Assets Jump in Early June
ICI's latest weekly "Money Market Fund Assets" report shows assets up strongly in the latest week after being flat the previous week (and up sharply the week before that). Year-to-date, MMFs are down by $152 billion, or -3.2%, with Institutional MMFs down $108 billion, or -3.4% and Retail MMFs down $44 billion, or -1.4%. Over the past 52 weeks, money fund assets are down by $53 billion, or -1.1%, with Retail MMFs falling by $9 billion (-0.6%) and Inst MMFs falling by $44 billion (-1.4%). (For the month of June, through 6/8, MMF assets have increased by $34.0 billion to $4.994 trillion according to Crane's MFI Daily, which tracks a broader universe of funds.) ICI's weekly release says, "Total money market fund assets increased by $26.40 billion to $4.55 trillion for the week ended Wednesday, June 8, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $19.89 billion and prime funds increased by $4.96 billion. Tax-exempt money market funds increased by $1.54 billion." ICI's stats show Institutional MMFs rising $22.5 billion and Retail MMFs increasing $3.9 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.023 trillion (88.4% of all money funds), while Total Prime MMFs were $427.3 billion (9.4%). Tax Exempt MMFs totaled $102.6 billion (2.3%). ICI explains, "Assets of retail money market funds increased by $3.86 billion to $1.42 trillion. Among retail funds, government money market fund assets decreased by $440 million to $1.13 trillion, prime money market fund assets increased by $2.44 billion to $205.94 billion, and tax-exempt fund assets increased by $1.86 billion to $92.59 billion." Retail assets account for just under a third of total assets, or 31.3%, and Government Retail assets make up 79.0% of all Retail MMFs. They add, "Assets of institutional money market funds increased by $22.53 billion to $3.13 trillion. Among institutional funds, government money market fund assets increased by $20.33 billion to $2.90 trillion, prime money market fund assets increased by $2.52 billion to $221.36 billion, and tax-exempt fund assets decreased by $324 million to $10.01 billion." Institutional assets accounted for 68.7% of all MMF assets, with Government Institutional assets making up 92.6% of all Institutional MMF totals. (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're over $400 billion lower than Crane's asset series.)
Allspring Money Funds on Fed, QT
The latest "Overview, Strategy, and Outlook" from Allspring Money Market Funds discusses the Fed, QT and RRP. They write, "In the money markets, QT will eventually have significant effects. First, it will tend to boost Treasury market supply, because any security not rolled over by the Fed will instead need to be issued by the Treasury to private (non-Fed) buyers. This effect should be gradual, and exactly how it impacts the money markets will depend on the degree to which the Treasury skews its additional supply to Treasury bills, compared with longer-term notes and bonds. The second way money markets will feel QT will be through a normalizing of the overnight repurchase agreement (repo) market. With nearly $2 trillion routinely parked in the Fed's reverse repo program (RRP), there's currently an absurd abundance of excess cash, making it a borrowers' market. After QT has been long underway, the excess cash pile will diminish, and more securities in private hands will need to be funded in the repo market. This may be a several-years-long process, but eventually supply and demand should find a new equilibrium, where repo rates are set by market interests rather than being pinned at or below the Fed's RRP rate as they are now." The piece adds, "For the Allspring Funds, we continue to focus on what the FOMC is saying and positioning for future policy rate increases. Since we tend to take a conservative approach when constructing our portfolios and favor keeping excess liquidity over the stated regulatory requirements, running shorter weighted average maturities and looking to extend if the opportunity offers a favorable risk/reward proposition allowed our portfolios to capture this rate increase quickly. In addition to capturing higher yields, the enhanced liquidity buffer allows our portfolios to meet the liquidity needs of our investors and helps stabilize net asset value (NAV) volatility."
Crane 100 Inches Up to 0.59%
Money market fund yields continue to inch higher following a surge early in May in reaction to the Fed's 50-basis-point move. The 7-Day Yield Average for our flagship Crane 100 Money Fund Index rose to 0.59% in the week ended Friday, June 3. The average had been 0.55% the prior week, 0.21% on April 29, 0.15% on March 31 and 0.02% on February 28 (where it had been for almost 2 years prior). Brokerage sweep rates also remained steady over the past week. Our latest Brokerage Sweep Intelligence shows the average rate was 0.05% (on FDIC insured deposits), up from 0.04% two weeks ago and up from 0.01% a month ago. We review the latest money fund and brokerage sweep yields below. The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 674), shows a 7-day yield of 0.48%, up 2 basis points in the week through Friday. The Crane Money Fund Average is up 33 bps from 0.15% at the beginning of May. Prime Inst MFs were up 2 bps to 0.65% in the latest week, and up 41 bps from the start of May. Government Inst MFs rose by 1 bp to 0.54%, they are up 37 bps from the beginning of May. Treasury Inst MFs rose by 3 bps to 0.52%, up 33 bps from the beginning of May. Treasury Retail MFs currently yield 0.31%, (up 2 bps for the week, and up 25 bps from the start of May), Government Retail MFs yield 0.26% (up 1 bps for the week, and up 22 bps from the beginning of May), and Prime Retail MFs yield 0.48% (up 2 bp for the week, and up 34 bps from the start of May), Tax-exempt MF 7-day yields dropped by 5 bps to 0.37%, they were up 23 bps since the beginning of May. Our Crane Brokerage Sweep Index, the average rate for brokerage sweep clients (all of which are swept into FDIC insured accounts), remained at 0.05%. This follows increases over the past 3 weeks and follows 2 straight years of yields at 0.01%. Sweep yields were 0.12% on average at the end of 2019 and 0.28% on average at the end of 2018. The latest Brokerage Sweep Intelligence, with data as of June 3, shows no changes over the previous week but one change over the two weeks prior -- Ameriprise increased its rates to 0.02% for balances over $100K (and to 0.03% for balances over $5M). And a number of brokerages increased rates over the three weeks prior. Three weeks ago, Brokerage Sweep Intelligence reported that Fidelity hiked its FCash brokerage account rate to 0.25% across all tiers. (Rates on its default sweep Cash Management Account also rose to 0.25%.) We also showed that Raymond James increased rates from 0.01% to 0.02% for balances under $25K, to 0.03% for balances under $100K, to 0.05% for balances under $500K and to 0.08% for balances $500K to $2.5 million. Also, RW Baird increased its sweep rates from 0.03% to 0.10% for the week ended May 13. Six of 11 major brokerages still offer rates of 0.01% for balances of $100K (and most other tiers). These include: E*Trade, Merrill Lynch, Morgan Stanley, Schwab, TD Ameritrade, and UBS. (Wells moved its rates to 0.02% three weeks ago.) According to Monday's Money Fund Intelligence Daily, with data as of Friday (6/3), just 78 funds (out of 821 total) still yield 0.00% or 0.01% with assets of $63.4 billion, or 1.3% of total assets. (This compares to 593 funds with $2.623 trillion yielding 0.00% or 0.01% at the beginning of the year.) There were 31 funds yielding between 0.02% and 0.09%, totaling $33.8B, or 0.7% of assets; 38 funds yielded between 0.10% and 0.19% with $30.4 billion, or 0.6% of assets; 258 funds yielded between 0.20% and 0.49% with $1.216 trillion in assets, or 24.5%; 366 funds yielded between 0.50% and 0.79% with $3.032 trillion in assets, or 61.1%; and just 50 funds yielded 0.80% or higher with $586.6 billion in assets or 11.8%; four funds yielded over 0.90%.
P&I Bullish on Stable Value Funds
Pensions & Investments writes that, "Slumping equity markets could help stable value." They tell us, "Retirement investors took on more equity risk last year amid a rebound from the coronavirus pandemic, causing a slump in stable value industry assets after surging in 2020 when investors sought safety. The stable value asset gains in early 2020 began to evaporate in late 2020 and in 2021, but the big questions for a possible stable value comeback in 2022 depend on the stock market, the bond market, interest rates and competition from money market funds." They quote David O'Meara of Willis Towers Watson PLC, "Participant flows tend to follow the stock market. If stocks struggle, we expect to see participants retrench into money market and stable value. Conversely, if stocks rebound, participants will likely migrate back to the equity market." The article continues, "For the five months through May 31, the S&P 500 index was down 12.8%. During this period the Bloomberg U.S. Aggregate Bond index was down 8.9%. An erratic stock market and battered bond funds due to rising interest rates provide a one-two punch against investors that could help stable value funds, said Greg Jenkins, ... head of institutional defined contribution for Invesco Ltd. In this environment, stable value is 'fulfilling its role in spades by providing downside protection to participants,' Mr. Jenkins said. `Invesco's stable value assets under management of $40 billion in 2021 rose 4.27% from the end of 2020." P&I also quotes Michael Norman ... co-president of Galliard Capital Management LLC, a subsidiary of Allspring Global Investments, "Historically, volatility in the market — typically the equity market — has led to inflows into stable value options." The piece adds, "According to P&I data, Allspring saw a 7.6% drop in stable value assets to $59.7 billion, a function of pandemic-induced inflows in 2020 and market-recovery-prompted outflows, Mr. Norman said. Another source for potential stable value growth is from plans that offer only a money market fund for capital preservation. Stable value crediting rates -- the interest rate on a stable value contract -- move in conjunction with interest rates, but they don't move as quickly -- up or down -- as money market funds. 'It is very possible that in the early stages of a rapidly rising interest rate environment you could see the crediting rate of a stable value product not immediately start upward in lockstep with interest rates, due to the lag within the stable value products as they work through the contract rate resets and the impact of yield change,' Mr. Norman said."
Fitch: Money Market Funds May 2022
Fitch Ratings published the brief, "U.S. Money Market Funds: May 2022." They comment, "Total taxable money market fund (MMF) assets decreased by $52 billion from March 31, 2022 to April 30, 2022, according to Crane data. Government MMFs gained $8 billion in assets during this period, and prime MMFs lost $61 billion. Total assets have decreased by $85 billion since Dec. 31, 2021.... Taxable MMFs shifted exposure slightly away from Treasury from March to April. Treasury holdings decreased by $79 billion while Repo holdings decreased by $10 billion, from March 31 to April 30, 2022, according to Crane Data. Repo remains the largest portfolio segment, followed by Treasury." Fitch explains, "As of April 30, 2022, institutional government and prime MMFs' net yields were 0.17% and 0.24%, respectively, per Crane Data, both up from the end of March. This increase is due to the Fed increasing rates. The latest increase was 50bps on May 4, 2022, in line with market expectations." In related news, a press release entitled, "Fitch Affirms 2 BMO Money Market Funds' at 'AAAmmf'," tells us, "Fitch Ratings has affirmed BMO Euro Liquidity Fund and BMO Sterling Liquidity Fund at Money Market Fund (MMF) Ratings of 'AAAmmf'. The funds are short-term variable net asset value MMFs (ST VNAV MMFs) managed by BMO Asset Management Limited (BMO). BMO is a wholly owned subsidiary of Columbia Threadneedle Investments (CTI), which is part of Ameriprise Financial, Inc (A-/Stable/F1)."
Money Fund Assets Flat in Latest Week
ICI's latest weekly "Money Market Fund Assets" report shows assets flat in the latest week after a big jump last week (and two weeks of declines prior to this). Year-to-date, MMFs are down by $179 billion, or -3.8%, with Institutional MMFs down $131 billion, or -4.0% and Retail MMFs down $48 billion, or -3.3%. Over the past 52 weeks, money fund assets are down by $86 billion, or -1.9%, with Retail MMFs falling by $15 billion (-1.1%) and Inst MMFs falling by $70 billion (-2.2%). (For the month of May, through 5/31, MMF assets decreased by $12.7 billion to $4.960 trillion according to Crane's MFI Daily, which tracks a broader universe of funds.) ICI's weekly release says, "Total money market fund assets decreased by $3.07 billion to $4.53 trillion for the week ended Wednesday, June 1, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $6.78 billion and prime funds increased by $2.04 billion. Tax-exempt money market funds increased by $1.67 billion." ICI's stats show Institutional MMFs falling $3.1 billion and Retail MMFs increasing $0.1 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.003 trillion (88.4% of all money funds), while Total Prime MMFs were $422.3 billion (9.3%). Tax Exempt MMFs totaled $101.1 billion (2.2%). ICI explains, "Assets of retail money market funds increased by $10 million to $1.42 trillion. Among retail funds, government money market fund assets decreased by $3.47 billion to $1.13 trillion, prime money market fund assets increased by $1.95 billion to $203.50 billion, and tax-exempt fund assets increased by $1.53 billion to $90.72 billion." Retail assets account for just under a third of total assets, or 31.4%, and Government Retail assets make up 79.3% of all Retail MMFs. They add, "Assets of institutional money market funds decreased by $3.08 billion to $3.11 trillion. Among institutional funds, government money market fund assets decreased by $3.31 billion to $2.88 trillion, prime money market fund assets increased by $87 million to $218.84 billion, and tax-exempt fund assets increased by $142 million to $10.33 billion." Institutional assets accounted for 68.6% of all MMF assets, with Government Institutional assets making up 92.6% of all Institutional MMF totals. (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're approximately $400 billion lower than Crane's asset series.)
Ivy Funds Liquidating ... Again
A filing for the Delaware Ivy Funds discussing Fund Liquidations tells us, "On May 18-19, 2022, the Boards of Trustees of the ... Ivy Funds unanimously voted and approved a proposal to liquidate the ... Delaware Ivy Government Money Market Fund. As noted in the supplement dated September 14, 2021, on September 13, 2021, the Board of Trustees of the Ivy Funds unanimously voted and approved a proposal to liquidate Delaware Ivy Cash Management Fund, Delaware Ivy ProShares Russell 2000 Dividend Growers Index Fund, Delaware Ivy ProShares Interest Rate Hedged High Yield Index Fund, Delaware Ivy ProShares S&P 500 Bond Index Fund, and Delaware Ivy ProShares MSCI ACWI Index Fund." On the Delaware Ivy Government Money Market Fund, it says the Liquidation Date is "on or about July 22, 2022, and the fund is "closed to new shareholders on or about June 8, 2022." Regarding the "`Delaware Ivy Cash Management Fund," the Liquidation Date is on or about July 22, 2022 and the fund was closed to new shareholders September 30, 2021. The filing also says, "Shareholders may redeem their Fund shares at any time prior to the Liquidation Date.... Under the Funds' right of reinstatement policy, shareholders, including shareholders impacted by the Delaware Ivy Cash Management Fund and Delaware Ivy Government Money Market Fund liquidations, have up to 90 days to buy back into Class A shares of another Fund at net asset value ('NAV') upon reentry and notification to the liquidating Funds' transfer agent or the shareholder's financial intermediary." Finally, a "Share Class Liquidation," discusses "Class E: Delaware Ivy Government Money Market Fund." It adds, "These Share Classes will close to purchases by new investors on or about June 6, 2022 and all sales efforts will cease. Existing shareholders will be able to continue to make purchases until June 8, 2022. The Share Classes will be liquidated on or about June 10, 2022.... Delaware Management Company is an indirect wholly owned subsidiary of Macquarie Group Limited (MGL)." For more, see our Crane Data News pieces: "Delaware Pauses Cash Liquidation" (11/1/21); "Delaware Ivy Cash Funds Liquidating" (10/4/21); and, "Delaware Liquidates Govt Cash Mgmt" (1/11/21).
SEC Action on 12b-1, Sweeps
ThinkAdvisor writes "SEC Hits Madison Avenue Securities Over Revenue Sharing, 12b-1 Fees," which says, "The Securities and Exchange Commission on Tuesday charged Madison Avenue Securities with breaching its fiduciary duties in connection with its receipt of third-party compensation, including 12b-1 fees. According to the SEC order, Madison, a dually registered investment advisor and broker-dealer, failed to provide full and fair disclosure regarding conflicts of interest associated with its receipt of: revenue sharing payments from its unaffiliated clearing broker as a result of sweeping cash into certain money market mutual funds since at least February 2016; fees pursuant to Rule 12b-1 under the Investment Company Act of 1940 from at least February 2016 to April 2018; and revenue sharing payments from its clearing broker for no-transaction-fee mutual fund investments since at least February 2016. With respect to the 12b-1 fees, Madison, although eligible to do so, 'did not self-report to the Commission pursuant to the Division of Enforcement's Share Class Selection Disclosure Initiative,' the order states." The piece adds, "The San Diego-based firm also failed to adopt and implement 'written compliance policies and procedures reasonably designed to prevent violations of the Advisers Act and the rules thereunder in connection with its practices concerning cash sweep revenue sharing, mutual fund and money market fund share class selection, and NTF revenue sharing,' the SEC said. The firm was ordered to pay disgorgement, prejudgment interest and a civil penalty totaling $803,174 as follows: disgorgement of $579,524, prejudgment interest of $73,650 and a civil money penalty of $150,000."
