News Archives: December, 2019

ICI Nov. Trends Confirm Asset Increase; Treasuries Up, Repo Down Again

Dec 31 19

The Investment Company Institute released its monthly "Trends in Mutual Fund Investing - November 2019" and its latest "Month-End Portfolio Holdings of Taxable Money Funds" reports yesterday. Their latest numbers show that money fund assets increased by $47.0 billion to $3.565 trillion in November. The monthly increase follows increases of $77.4 billion in October, $74.4 billion in September and $87.0 billion in August. For the 12 months through Nov. 30, 2019, money fund assets have increased by $600.1 billion, or 20.2%. (Crane Data's separate and broader MFI Daily asset series shows money market funds up by $55.3 billion month-to-date in December through 12/27 to $3.966 trillion.)

ICI's release states, "The combined assets of the nation's mutual funds increased by $416.56 billion, or 2.0 percent, to $20.88 trillion in November, according to the Investment Company Institute's official survey of the mutual fund industry. In the survey, mutual fund companies report actual assets, sales, and redemptions to ICI."

It explains, "Bond funds had an inflow of $34.96 billion in November, compared with an inflow of $28.31 billion in October.... Money market funds had an inflow of $44.19 billion in November, compared with an inflow of $74.08 billion in October. In November funds offered primarily to institutions had an inflow of $39.02 billion and funds offered primarily to individuals had an inflow of $5.17 billion."

ICI's latest statistics show that both Taxable and Tax Exempt MMFs gained assets last month. Taxable MMFs increased by $45.9 billion in November to $3.427 trillion. Tax-Exempt MMFs increased $1.1 billion in November to $138.3 billion. Taxable MMF assets increased year-over-year by $600.7 billion (21.3%). Tax-Exempt funds fell by $0.6 billion over the past year (-0.04%). Bond fund assets increased by $37.3 billion in November (0.8%) to $4.653 trillion; they've risen by $553.9 billion (13.5%) over the past year.

Money funds represent 17.1% of all mutual fund assets (down from 17.2% the previous month), while bond funds account for 22.3%, according to ICI. The total number of money market funds was 363, down five from the month prior and down from 368 a year ago. Taxable money funds numbered 283 funds, and tax-exempt money funds numbered 80 funds.

ICI's "Month-End Portfolio Holdings" update confirms an increase in Treasuries and drops in Agencies and Repo last month. Repurchase Agreements remained in first place among composition segments; they decreased by $22.1 billion, or -1.9%, to $1.117 trillion, or 32.6% of holdings. Repo holdings have risen $139.4 billion, or 14.3%, over the past year. (See our Dec. 11 News, "Dec. MF Portfolio Holdings: Treasuries at Record $1.1 Tril; Repos Slide.")

Treasury holdings in Taxable money funds increased by $51.1 billion, or 5.2%, to $1.041 billion, or 30.4% of holdings. Treasury securities have increased by $236.2 billion, or 29.4%, over the past 12 months. U.S. Government Agency securities were the third largest segment; they decreased $18.2 billion, or -2.5%, to $716.2 billion, or 20.9% of holdings. Agency holdings have risen by $96.2 billion, or 15.5%, over the past 12 months.

Certificates of Deposit (CDs) stood in fourth place; they increased by $11.0 billion, or 3.9%, to $289.9 billion (8.5% of assets). CDs held by money funds have grown by $84.5 billion, or 41.2%, over 12 months. Commercial Paper remained in fifth place, up $3.1 billion, or 1.3%, to $245.6 billion (7.2% of assets). CP has increased by $53.5 billion, or 27.8%, over one year. Notes (including Corporate and Bank) were up $35 million, or 0.3%, to $12.6 billion (0.4% of assets), while Other holdings increased to $759 million to $15.7 billion.

The Number of Accounts Outstanding in ICI's series for taxable money funds increased by 554.7 thousand to 36.956 million, while the Number of Funds decreased by five from last month to 283. Over the past 12 months, the number of accounts rose by 4.093 million and the number of funds decreased by four. The Average Maturity of Portfolios was 38 days, two more than in October. Over the past 12 months, WAMs of Taxable money have increased by seven.

In other news, rates on money market funds, brokerage sweep accounts and bank accounts remained flat in the latest week. Our Money Fund Intelligence Daily shows that the flagship Crane 100 MF Index held at 1.46% last week. The Crane 100 is down from 1.81% on Sept. 30, down from 2.18% on June 30, and down from 2.23% at the start of the year. Following a flurry of cuts in November, our latest Brokerage Sweep Intelligence publication, with data as of Friday, Dec. 27, shows brokerages also kept rates steady in the past week. As we move into 2020, we expect rates to remain flat at least during the first half of the New Year.

Our broader Crane Money Fund Average, which includes all taxable funds tracked by Crane Data, shows a 7-day yield of 1.33%, unchanged in the week through Friday, Dec. 27. Treasury Inst MFs and Prime Inst MMFs were flat this past week, with 7-day yields of 1.35% and 1.56%, respectively. Government Inst MMFs dropped a basis point to 1.40%. Treasury Retail MFs currently yield 1.08%, (down 0.01%) Government Retail MFs yield 1.09% (unchanged) and Prime Retail MFs yield 1.39% (unchanged). Tax-exempt MF 7-day yields jumped 0.20% to 1.00%.

Crane's Brokerage Sweep Index remained flat at 0.14% in the week ended December 27 (for balances of $100K). No firms changed rates. E*Trade and TD Ameritrade currently have the lowest rate for balances at the $100K level (0.01%). Meanwhile, Fidelity continues to have the highest sweep rate (0.82%). (Fidelity also have a higher-yielding money fund option for new accounts.) Morgan Stanley is paying 0.03%. UBS, Merrill and Wells Fargo are all paying 0.05%, and Schwab is paying 0.06%. Raymond James and Ameriprise are paying 0.08%. RW Baird is paying 0.33% for balances of $100K.

Crane Data has also started tracking some of the other brokerages beyond the largest ones in our Brokerage Sweep Intelligence, just for internal purposes. Securities America currently has the lowest rate for balances at the $100K level (0.05%). Meanwhile, Robinhood has the highest sweep rate (1.80%). Betterment was a close second with a sweep rate of 1.78%. LPL and SSN Securities are paying 0.10% and 0.12%, respectively. Edward Jones offers rates of 0.15% on 100K balances and Folio Institutional offers rates of 0.14%. JPMS Brokerage is paying 0.20%, while Commonwealth is paying 0.25%. TIAA is paying 0.30%, Cetera is paying 0.32%, Pershing and Ally Bank are paying 0.75%, Pershing Dreyfus is paying 0.80%. And, JPMS Advisory is paying 1.50% (down 0.05% from last week; it was the only change in balances at the 100K level).

Crane Data's demo Bank Deposit Intelligence collection shows the average high-yielding internet bank deposit product yielding 1.39%. HSBC Direct offers the highest rate currently at 2.05% while Vio Bank yields 2.02%. These are the only banks with yields still above 2.0%. The next highest yielding banks include: Comenity Direct and UFB Direct at 1.98%, Web Bank at 1.95% and My Savings Direct and Popular Direct at 1.90%.

MF Assets Retake $3.6 Trillion, Up 18.3% in 2019; Hill on Year-End Repo

Dec 27 19

Money fund assets rebounded slightly in the latest week, moving back above the $3.6 trillion level. Money fund assets have increased in 8 out of the last 10 weeks and in 15 out of the past 17 weeks. ICI's latest "Money Market Fund Assets" report shows that MMF totals have increased by $557 billion, or 18.3%, year-to-date in 2019. Over the past 52 weeks, ICI's money fund asset series has increased by $566 billion, or 18.6%, with Retail MMFs rising by $192 billion (16.4%) and Inst MMFs rising by $374 billion (20.0%).

Money fund assets should end 2019 with the fastest growth rate since 2008 and the biggest asset increase since 2009. Assets should increase by more than 2 1/2 times 2018's 7.2% gain and more than 2009's 15.4% increase. Our MFI Daily shows money fund assets up by $42.7 billion month-to-date through 12/24 to $3.953 trillion.

ICI writes, "Total money market fund assets increased by $4.87 billion to $3.60 trillion for the week ended Tuesday, December 24, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $8.00 billion and prime funds decreased by $2.08 billion. Tax-exempt money market funds decreased by $1.05 billion." ICI's weekly series shows Institutional MMFs rising $0.1 billion and Retail MMFs increasing $4.7 billion. Total Government MMF assets, including Treasury funds, were $2.691 trillion (74.7% of all money funds), while Total Prime MMFs were $776.5 billion (21.5%). Tax Exempt MMFs totaled $136.9 billion, 3.8%.

They explain, "Assets of retail money market funds increased by $4.73 billion to $1.36 trillion. Among retail funds, government money market fund assets increased by $4.08 billion to $774.60 billion, prime money market fund assets increased by $739 million to $463.60 billion, and tax-exempt fund assets decreased by $88 million to $125.60 billion." Retail assets account for over a third of total assets, or 37.8%, and Government Retail assets make up 56.8% of all Retail MMFs.

The release adds, "Assets of institutional money market funds increased by $137 million to $2.24 trillion. Among institutional funds, government money market fund assets increased by $3.92 billion to $1.91 trillion, prime money market fund assets decreased by $2.82 billion to $312.94 billion, and tax-exempt fund assets decreased by $962 million to $11.31 billion." Institutional assets accounted for 62.2% of all MMF assets, with Government Institutional assets making up 85.5% of all Institutional MMF totals.

In other news, Federated Investors' Susan Hill writes, "Fed well prepared to corral repo at year-end." She explains, "The end of a year is a time to reflect on events that have transpired and to anticipate things to come. As we move to 2020, this will be particularly true of the repo market, which has dominated our conversations with clients in the fourth quarter. In light of this focus, we wanted to touch on the Federal Reserve's plans for the end of the year and our expectations for the repo market as a result."

Hill continues, "It didn't take long after the mid-September spike in repo rates for the market to fixate on the potential for similar volatility on Dec. 31. These concerns persisted in spite of Fed operations that have added liquidity to the market on both a temporary and permanent basis since then -- actions that have eliminated much of the day-to-day variability in repo rates. The worries may have begun to abate, however, with the Fed recently announcing plans for year-end operations to address any remaining liquidity needs. And they are substantial."

She tells us, "All told, through overnight and term operations, the Fed will make approximately $500 billion available to the market. This number gets even bigger when the permanent operations -- its ongoing purchases of Treasury bills -- are added in. With this enormous potential liquidity provision, the Fed cannot be faulted for failing to use its current tools to their full extent, although it deferred the decision to add new tools or address regulations that might be impacting the transmission of liquidity."

The Federated piece comments, "In fact, some of the onus must go on market participants to prepare, and indications are that they have. We are confident the combination should prevent a repeat of September's volatility. Repo rates could still be higher than normal, as is typically the case on the last day of the year, but we are comfortable that any pressure will subside quickly and would reflect the plumbing of the repo market rather than credit stress. Finally, it is worth noting that the repo rates cited in the media most often reference borrowing costs for counterparties who do not meet our rigorous credit standards."

Finally, it adds, "Many have speculated that the Fed's actions are another wave of quantitative easing in disguise, a characterization that the Fed has vehemently denied. It cannot be denied, however, that the Fed's presence in the repo market at the end of this year will be profound. We expect the Fed to gradually reduce its footprint in early 2020, as permanent bill purchases boost reserves to a level that lessens the need for liquidity injections, at least on a regular basis. In the meantime, however, policymakers' full attention is on mitigating potential dislocations on Dec. 31, and we think they will be successful."

SEC Stats: MMF Assets Poised to Break $4.0 Tril, Up 17th Month in a Row

Dec 26 19

The Securities and Exchange Commission released its latest "Money Market Fund Statistics" summary Tuesday, which confirms that total money fund assets increased in November, rising by $45.6 billion to a record $3.984 trillion. It was the 17th straight month of gains for money fund assets overall. Prime MMFs increased $20.2 billion in November to close at $1.122 trillion, their highest level since July 2016, while Govt & Treasury funds rose by $24.2 billion to a record $2.718 trillion. Tax Exempt funds rose by $1.2 billion to $143.8 billion. Yields fell across the board with Prime MMFs, Govt MMFs and Tax-Exempt MMFs all decreasing in November. The SEC's Division of Investment Management summarizes monthly Form N-MFP data and includes asset totals and averages for yields, liquidity levels, WAMs, WALs, holdings, and other money market fund trends. We review their latest numbers below.

November's asset gains follow increases of $88.6 billion in October, $82.9 billion in September, $76.3 billion in August, $75.6 billion in July, $41.9 billion in June, $78.2 billion in May, $690 million in April, $87.9 billion in March, $76.9 billion in February and $31.4 billion in January. Over the 12 months through 11/30/19, total MMF assets have increased $730.5 billion, or 22.5%, according the SEC's series. (Note that the SEC's series includes a number of internal money funds not reported to ICI or others, though Crane Data tracks most of these.) (Note: Crane Data's separate monthly series shows money fund assets increased by $40.9 billion in November 2019.)

The SEC's stats show that of the $3.984 trillion in assets, $1.122 trillion was in Prime funds, which rose $20.2 billion in November after increasing $38.4 billion in October, $11.7 billion in September, $10.6 billion in August, $22.3 billion in July and $9.6 billion in June. Prime funds represented 28.2% of total assets at the end of November. They've increased by a stunning $349.9 billion, or 45.3%, over the past 12 months.

Government & Treasury funds totaled $2.718 trillion, or 68.2% of assets. They rose $24.2 billion in November, $46.6 billion in October, $72.9 billion in September, $66.0 billion in August, $53.5 billion in July and $31.8 billion in June. Govt & Treas MMFs are up $380.0 billion over 12 months, or 16.3%. Tax Exempt Funds increased $1.2B to $143.8 billion, or 3.6% of all assets. The number of money funds was 365 in November, down seven from the previous month and down 14 funds from a year earlier.

Yields for Taxable MMFs were lower in November for the 9th month in a row. This year's declines follow almost 24 months of straight increases. The Weighted Average Gross 7-Day Yield for Prime Institutional Funds on Nov. 30 was 1.83%, down 16 basis points from the previous month. The Weighted Average Gross 7-Day Yield for Prime Retail MMFs was 1.91%, down 15 basis points. Gross yields fell to 1.71% for Government Funds, down 18 bps from last month. Gross yields for Treasury Funds decreased 15 basis points to 1.71%. Gross Yields for Muni Institutional MMFs fell from 1.22% in October to 1.14%. Gross Yields for Muni Retail funds fell from 1.26% to 1.17% in November.

The Weighted Average 7-Day Net Yield for Prime Institutional MMFs was 1.75%, down 14 bps from the previous month and down 55 bps since 11/30/18. The Average Net Yield for Prime Retail Funds was 1.65%, down 15 bps from the previous month and down 0.55% since 11/30/18. Net yields fell to 1.44% for Government Funds, down 18 bps from last month. Net yields for Treasury Funds decreased 16 basis points to 1.48%. Net Yields for Muni Institutional MMFs fell from 1.10% in October to 1.01%. Net Yields for Muni Retail funds decreased from 0.98% to 0.90% in November. (Note: These averages are asset-weighted.)

WALs and WAMs were mixed in November, with Prime Inst, Tax Exempt Inst and Tax Exempt Retail all decreasing in both WALs and WAMs while Government WALs decreased. The average Weighted Average Life, or WAL, was 64.7 days (down 1.0 days from last month) for Prime Institutional funds, and 78.2 days for Prime Retail funds (up 1.5 days). Government fund WALs averaged 97.6 days (down 0.1 days) while Treasury fund WALs averaged 99.6 days (up 1.0 days). Muni Institutional fund WALs were 19.2 days (down 0.3 days), and Muni Retail MMF WALs averaged 40.5 days (down 1.3 days).

The Weighted Average Maturity, or WAM, was 33.8 days (down 0.4 days from the previous month) for Prime Institutional funds, 43.7 days (up 0.2 days from the previous month) for Prime Retail funds, 34.3 days (up 2.5 days) for Government funds, and 44.1 days (up 3.2 days) for Treasury funds. Muni Inst WAMs were down 0.1 days to 19.0 days, while Muni Retail WAMs decreased 1.1 days to 38.1 days.

Total Daily Liquid Assets for Prime Institutional funds were 35.4% in November (down by 2.3% from the previous month), and DLA for Prime Retail funds was 23.9% (down 1.3% from previous month) as a percent of total assets. The average DLA was 45.5% for Govt MMFs and 90.7% for Treasury MMFs. Total Weekly Liquid Assets was 52.0% (down 0.5% from the previous month) for Prime Institutional MMFs, and 38.8% (down 0.3% from the previous month) for Prime Retail funds. Average WLA was 69.3% for Govt MMFs and 97.5% for Treasury MMFs.

In the SEC's "Prime MMF Holdings of Bank-Related Securities by Country table for November 2019," the largest entries included: Canada with $160.3 billion, the Japan with $111.6 billion, the U.S. with $108.2 billion, France with $93.3B, New Zealand/Australia with $52.0B, Germany with $51.3B, the UK with $49.3B, the Netherlands with $42.6B and Switzerland with $31.2B. The biggest gainers among the "Prime MMF Holdings by Country" include: Canada (up $11.7B), France (up $8.4B), Switzerland (up $8.2B), and Australia/New Zealand (up $1.9B). The biggest decreases were the US (down $16.3B), the UK (down $5.2B), the Netherlands (down $4.7B), Japan (down $1.8B) and Germany (down $1.8B).

The SEC's "Trend in Prime MMF Holdings of Bank-Related Securities by Major Region" table shows Europe had $135.7B (up $5.9B from last month), the Eurozone subset had $199.3B (up $2.2B). The Americas had $269.0 billion (down $4.7B), while Asia Pacific had $188.0B (down $1.9B).

The "Prime MMF Portfolio Composition" chart shows that of the $1.122 trillion in Prime MMF Portfolios as of November 30, $346.1B (30.9%) was in CDs and Time Deposits (up from $332.7), $314.8B (28.1%) was in Government & Treasury securities (direct and repo) (down from $322.1B), $158.0B (14.1%) was held in Non-Financial CP and Other securities (up from $150.0), $236.5B (21.1%) was in Financial Company CP (up from $236.4) and $64.0B (5.7%) was in ABCP (up from $62.9B).

The SEC's "Government and Treasury MMFs Bank Repo Counterparties by Country" table shows the U.S. with $181.2 billion, Canada with $170.4 billion, France with $202.1 billion, Germany with $21.5 billion, Japan with $159.8 billion, the U.K. with $82.2 billion and Other with $36.1 billion. All MMF Repo with the Federal Reserve fell by $2.6 billion in November to $0.5 billion.

Finally, a "Percent of Securities with Greater than 179 Days to Maturity" table shows Prime Inst MMFs with 10.0%, Prime Retail MMFs with 10.9%, Muni Inst MMFs with 2.9%, Muni Retail MMFs 9.7%, Govt MMFs with 17.5% and Treasury MMFs with 14.5%.

MF Yields Flat at 1.46%; Sweeps 0.14%; Fed Caused Schwab, TDA Merger

Dec 24 19

Rates on money market funds, brokerage sweep accounts and bank accounts remained flat in December after falling in the weeks after the Fed's last (Oct. 30) rate cut. Our Money Fund Intelligence Daily shows that the flagship Crane 100 MF Index held at 1.46% over the past week. The Crane 100 is down from 1.81% on Sept. 30, down from 2.18% on June 30, and down from 2.23% at the start of the year. Following a flurry of cuts in November, our latest Brokerage Sweep Intelligence publication, with data as of Friday, Dec. 20, shows every major brokerage keeping rates steady in the past week. As we move into 2020, we expect rates to remain flat at least during the first part of the New Year.

Our broader Crane Money Fund Average, which includes all taxable funds tracked by Crane Data, shows a 7-day yield of 1.34%, unchanged in the week through Friday, Dec. 20. Treasury Inst MFs were down by 1 bps to 1.35%. Government Inst MMFs and Prime Inst MMFs remained unchanged at 1.41% and 1.56%, respectively. Treasury Retail MFs currently yield 1.09%, (down 0.01%), Government Retail MFs yield 1.10% (unchanged) and Prime Retail MFs yield 1.39% (unchanged). Tax-exempt MF 7-day yields increased 0.09% to 0.80%.

Crane's Brokerage Sweep Index remained flat at 0.14% in the week ended December 20 (for balances of $100K). No firms changed rates. E*Trade and TD Ameritrade currently have the lowest rate for balances at the $100K level (0.01%). Meanwhile, Fidelity continues to have the highest sweep rate (0.82%). (Fidelity also have a higher-yielding money fund option for new accounts.) Morgan Stanley is paying 0.03%. UBS, Merrill and Wells Fargo are all paying 0.05%, and Schwab is paying 0.06%. Raymond James and Ameriprise are paying 0.08%. RW Baird is paying 0.33% for balances of $100K.

Crane Data has also started tracking some of the other brokerages beyond the largest ones in our Brokerage Sweep Intelligence, just for internal purposes. (Let us know if you'd like to receive this "shadow" BSI report if you're a subscriber to Brokerage Sweep Intelligence.) Below, we list some of the rates (for balances of $100K) for some of these lesser-known or up-and-coming sweep programs.

Securities America currently has the lowest rate for balances at the $100K level (0.05%). Meanwhile, Robinhood has the highest sweep rate (1.80%). LPL and SSN Securities are paying 0.10% and 0.12%, respectively. Edward Jones offers rates of 0.15% on 100K balances and Folio Institutional offers rates of 0.14%. JPMS Brokerage is paying 0.20%, while Commonwealth is paying 0.25%. TIAA is paying 0.30%, Cetera is paying 0.32%, Pershing and Ally Bank are paying 0.75%, Pershing Dreyfus is paying 0.80%. And, JPMS Advisory is paying 1.55% for balances of $100K.

In brokerage sweep news, Barron's wrote recently about the "Charles Schwab-TD Ameritrade Merger." They tell us that, "Schwab also negotiated lower payments to Canada's TD Bank -- 43% owner of Ameritrade -- for cash deposits held by Ameritrade customers. TD Bank will retain 13% ownership of Schwab."

Barron's continues, "Brokers, and Schwab in particular, are also likely to keep paying skimpy yields on cash in customers' accounts. Though rivals Fidelity Investments and Vanguard Group offer higher-yielding money-market funds for brokerage customers' cash, less competition gives Schwab less incentive to offer higher-yielding alternatives.... Fidelity, meanwhile, seemed to taunt Schwab in August, issuing a press release and ads that touted its money-market yields on cash held in 'sweep' accounts -- way higher than the yields that Schwab customers get on cash sweeps (which are funneled to Schwab Bank)."

The article says, "While the commission cuts were the spark that led to a deal, the tipping point for Schwab came this summer when the Fed started cutting rates for the first time in over a decade -- only a few years after it had begun raising them. Analysts cut revenue and profit forecasts for brokerages to account for lower interest income, and the stocks sank. The Fed's interest-rate cuts threatened Schwab's strategy of gathering assets by slashing prices on trading, investing, and financial advice. Those concessions were subsidized by interest income from its bank."

The Barron's piece continues, "The firm generates more than half of its revenue from interest, much more than rivals -- meaning that it's effectively a bank with a brokerage arm.... Aside from rates, there were several other parts to the deal rationale. Ameritrade's active trader and options platforms are considered top-notch, and in striking the deal, Schwab is landing a big pool of advisor accounts. Schwab also gets an infusion of up to $10 billion a year in deposits from TD Bank and Ameritrade customers for 10 years, starting in 2021."

Finally, it adds, "Gaining brokerage assets will lift custodians' interest revenue and fees off money-market funds (if they're sponsored in-house), and they'll have more opportunities to cross sell other services and securities.... [B]anks with large capital pools and lending operations could monetize E*Trade's customer cash more than a broker that invests it in low-risk, highly liquid securities."

December BFI Profile's Invesco's Matt Brill: All Roads Lead to Bonds

Dec 23 19

This month, BFI speaks with Matt Brill, Head of US Investment Grade Credit at Invesco and a Portfolio Manager on Invesco's Core Plus Bond Fund and Invesco Corporate Bond Fund. Invesco has been expanding its fixed income presence through acquisitions, most recently taking over Guggenheim's ETFs and the Oppenheimer Funds. Brill tells us about Invesco's history and lineup in the bond fund space, strategies for 2020 and a number of other major issues confronting bond fund managers. Our Q&A follows. (Note: The following is reprinted from the December issue of Bond Fund Intelligence, which was published on Dec. 13. Contact us at info@cranedata.com to request the full issue or to subscribe. Note too that we published our latest Bond Fund Portfolio Holdings on Friday; let us know if you'd like to see our latest "cut".)

BFI: Give us some history. Brill: Invesco Fixed Income (IFI) manages about $370 billion across multiple asset classes. We are headquartered in Atlanta, and [our group] has offices in Atlanta, London and Hong Kong. The Global Investment Grade Group manages about $50 billion across retail and institutional strategies. I started in the industry in 2002 doing commercial mortgage backed securities then eventually investment grade corporates [at ING]. In 2013, Michael Hyman and I were both brought over by Greg McGreevy, [who was] looking to build out the investment grade debt and the overall [core] fixed income platform at Invesco.... Since then, our team has raised roughly $30 billion dollars of investment grade assets, and our track record is very strong.

BFI: Tell us about the bond fund lineup. Brill: My group manages four main mutual funds in the U.S., including Invesco Core Plus, which is really our flagship product. This is the large space, the intermediate 'Agg' space, and is the largest fixed income subclass, if you will, or asset class.... We view this [fund] as your one-stop shop, if you want to take one bond fund that's going to be able to get you the expertise of multiple different asset classes and [reduce] risk. It has the stability of having Treasuries and U.S. agencies, but also has the flexibility and the risk-taking ability to add some EM [emerging market] and high yields. It's about a $4.5 billion fund, give or take ... and the track record is very strong.

The other three [funds] would be GTO, which is an ETF of Core Plus.... It's basically a mirror-like product. Nothing is exact in the fixed income world, but it's intended to be very similar to the retail fund, and GTO has been growing like crazy. It's about tripled in the last year to about $200 million.

Then Invesco Corporate Bond Fund is about $2 billion.... [As of today], it is the number one performing corporate bond fund of 2019. It is investment grade with some high yield and some emerging markets, versus Core Plus, which is going to have structured securities in it, including U.S. asset backed securities [and] mortgages.... You might even have some collateralized loan obligations. Core Plus is a lot more diversified and has more asset classes at its disposal, that’s why we kind of view it as the flagship product. The Corporate Fund is more concentrated in that it is all corporate.

Last would be our Short-Term Bond Fund, which is very similar to Core Plus [but] shorter in duration.... We view it as more of a 'cash plus'.... You're outside the realm of a Conservative Income fund but you’re still intended to be low volatility, with a very minimally changing NAV.

BFI: What are you buying? Brill: Right now, we've been overweight in high yield.... We have about 10% exposure to high yield in Core Plus, most of that is double-B rated high yield. For 2019, double-B's have been the best performer out of high yield. Triple-C's have really been the worst performer, and we essentially have no triple-C's.... Our view has been that the search for yield globally, with ... anywhere between $12 to $17 trillion dollars in negative-yielding securities, is forcing global investors into the U.S. to buy yield.

The other key trade [for 2019 and] going into 2020 is to overweight the triple-B's. Triple-B's are a sensitive subject within the investment grade world. You go back a year ago, a lot of investors were screaming that the sky was falling in the triple-B space, and they thought that this was a canary in the coal mine.... But we took the opposite approach.

Our view was that these corporations had identified that they had a problem, that they were over-levered.... While the economy was still in good shape, they could de-lever their balance sheet. So our view is that triple-B's were attractive from a valuation standpoint and from a fundamental standpoint.... Triple-B has been the best performer ... of 2019, of any part of the ratings spectrum, and we feel like there is still more room to run.

BFI: What's your biggest challenge? Brill: The way that I describe fixed income in general to people is that the risks are asymmetric. You don't get the upside that you get in the equity world.... We don't have the ability to hit that homerun.... What we're trying to do all year long is hit singles and doubles.... We can't have those large credit losses or downgrades that you get owning something that goes to high yield or has a perceived risk of default (or does default).... That's the number one task is to avoid these large losers, because it's a lot more difficult to make it up.

Getting it right from a macro standpoint is [also] important.... But the time that's going to matter is when the next recession happens. Predicting the next recession and being out in front of it is going to be the most important call for any manager to make from a macro standpoint ... in the next two to four years. But the question is, when is it going to happen? Our view is that 2020 is not a recession, it's not a pivot year. So we don't think you need to start de-risking your portfolio yet.

But ... that's the trillion-dollar question. When is the longest expansion in U.S. economic history going to stop? When it does, owning double-B's and triple-B's, there are certain select names that are going to be fine. But you want to own less of them. You're going to want to own materially less corporate credit [and] want to be more in Treasuries and more in agency mortgages, which will fare much better.... That's the balance we, as risk managers, have to take.... But our view is that we do have at least another 12 months of runway before we have to start being overly concerned.

BFI: Talk about fund flows. Brill: In general, it's easier to manage inflows than outflows and we've been fortunate enough to not have any material outflows over the last six years.... Core Plus, when I started in 2013 was about $600 million. So it's up from about $600 million to $4.5 billion.... Keeping enough risk in the portfolio can be challenging if you get too many inflows at any given time. The new issue market and the new issue calendar has been very robust for the last several years in both investment grade, high yield and EM, [and] our fund is a flexible, manageable size. [So this] gives us the opportunity to take advantage of the new issue concessions.... We're actually able to buy cheaper than the secondary market.

BFI: Who are the big buyers of the fund? Brill: Core Plus, specifically, is primarily purchased by individual retail investors.... [But] about two thirds of the assets we manage as a group are institutional.... High yield is the more retail-oriented product line, but IG is more driven by large institutional pension plans, insurance companies, etc.

BFI: How do you feel about the future? Brill: All year long, you've seen outflows from the equity market and you've seen large inflows into the fixed income market. We think this is a secular trend; we think this is here to stay. The reasons why are, that you have aging demographics that require fixed income. Whether it's a retail fund of a retiree or it's embedded in an insurance product or a pension plan, all roads lead back to fixed income. Our view is that this insatiable demand for fixed income is here to stay.

The nuances that will occur are that, the ETF space is going to continue to get more and more competitive and more built out.... We think fees are going to continue to go lower as the product becomes easier and easier to trade.... As technology improves in terms of trading, this is enabling investment managers, like ourselves, to do things for cheaper. With that, it is able to make active managers more competitive with passive.

The data shows that active management within fixed income does still work.... Our fund has done very well versus the index -- you can look at some other of our competitors as well. I think that the key here is active will win out.... The index is made up of companies or countries that have the most debt. Do you want to give more of your money to somebody that has more debt? That's how the index is structured, and we don't think that that leads to the best credit picks. That's why, again, we think the future is still active management, more ETFs, and we also believe that the retail fund and the retail flows should remain strong, because the aging demographics aren't going away anytime soon.

Worldwide MF Assets Hit $6.6T: US Jumps, China Falls Below $1T in Q3

Dec 20 19

The Investment Company Institute latest "Worldwide Regulated Open-Fund Assets and Flows, Third Quarter 2019" shows that money fund assets globally rose by $51.6 billion, or 0.3%, in Q3'19, breaking above the $6.6 trillion level to $6.626T. The increase was driven by big gains U.S.-based money funds, while money fund assets in China dropped again. MMF assets worldwide have increased by $646.6 billion, or 10.8%, the past 12 months, and money funds in the U.S. now represent 51.9% of worldwide assets. We review the latest Worldwide MMF totals, below.

ICI's release says, "Worldwide regulated open-end fund assets increased 3.0 percent to $51.61 trillion at the end of the third quarter of 2019, excluding funds of funds. Worldwide net cash inflow to all funds was $676 billion in the third quarter, compared with $339 billion of net inflows in the second quarter of 2019. The Investment Company Institute compiles worldwide open-end fund statistics on behalf of the International Investment Funds Association, the organization of national fund associations. The collection for the third quarter of 2019 contains statistics from 47 jurisdictions."

It explains, "The growth rate of total regulated open-end fund assets reported in US dollars was reduced by US dollar appreciation over the third quarter of 2019. For example, on a US dollar-denominated basis, fund assets in Europe decreased by 0.6 percent in the third quarter, compared with an increase of 3.9 percent on a euro-denominated basis."

ICI's quarterly continues, "On a US dollar–denominated basis, equity fund assets decreased by 0.4 percent to $22.64 trillion at the end of the third quarter of 2019. Bond fund assets increased by 2.6 percent to $11.39 trillion in the third quarter. Balanced/mixed fund assets increased by 1.7 percent to $6.47 trillion in the third quarter, while money market fund assets increased by 3.0 percent globally to $6.63 trillion."

The release also says, "At the end of the third quarter of 2019, 44 percent of worldwide regulated open-end fund assets were held in equity funds. The asset share of bond funds was 22 percent and the asset share of balanced/mixed funds was 13 percent. Money market fund assets represented 13 percent of the worldwide total."

ICI adds, "Net sales of regulated open-end funds worldwide were $676 billion in the third quarter of 2019. Flows out of equity funds worldwide were $3 billion in the third quarter, after experiencing $45 billion of net inflows in the second quarter of 2019. Globally, bond funds posted an inflow of $271 billion in the third quarter of 2019, after recording an inflow of $235 billion in the second quarter.... Money market funds worldwide experienced an inflow of $311 billion in the third quarter of 2019 after registering an inflow of $72 billion in the second quarter of 2019."

According to Crane Data's analysis of ICI's "Worldwide" fund data, the U.S. strengthened its position as the largest money fund market in Q319 with $3.441 trillion, or 51.9% of all global MMF assets. U.S. MMF assets increased by $239.6 billion (7.5%) in Q3'19 and increased by $577.5B (20.2%) in the 12 months through Sept. 30, 2019. China remained in second place among countries overall, despite assets declining in the latest quarter. China saw assets decrease $70.2 billion (-6.6%) in Q3, falling below $1.0 trillion for the first time in 2 years to $990.2 billion (14.9% of worldwide assets). Over the 12 months through Sept. 30, 2019, Chinese MMF assets have fallen by $212.0 billion, or -17.6%.

Ireland remained third among country rankings, ending Q3 with $599.8 billion (9.1% of worldwide assets). Dublin-based MMFs were up $41.1B for the quarter, or 7.3%, and up $44.4B, or 8.0%, over the last 12 months. Luxembourg remained in fourth place with $391.1 billion (5.9% of worldwide assets). Assets there increased $6.2 billion, or 1.6%, in Q3, and were up $31.1 billion, or 8.7%, over one year. France was in fifth place with $368.4B, or 5.6% of the total, down $2.8 billion in Q3 (-0.8%) and down $25.1B (-6.4%) over 12 months.

Australia was listed in sixth place with $235.1 billion (3.5%) Note that ICI's data includes this footnote for Australia: "Due to a reclassification, a portion of the assets from the 'other' category have been moved into the money market and real estate categories." Australia's MMF assets were mysteriously shifted into the "Other" category several years ago but just reappeared this quarter. Japan was in seventh place with $104.5 billion (1.6%); assets there rose $1.8 billion (1.8%) in Q3 and increased by $1.2 billion 1.2%) over 12 months.

Korea, the 8th ranked country, saw MMF assets decreased $4.1 billion, or -4.5%, in Q3'19 to $86.3 billion (1.3% of the world's total MMF assets); they've risen $3.3 billion (4.0%) for the year. Brazil was in 9th place, as assets decreased $3.1 billion, or -3.7%, to $80.9 billion (1.2% of total assets) in Q3. They've increased $9.6 billion (13.5%) over the previous 12 months. ICI's statistics show Mexico increased to 10th place with $65.1B, or 1.0% of total, down $969M (-1.5%) in Q3 and up $3.8 (6.2%) for the year. India was in 11th place, decreasing $2.4 billion, or -3.7%, to $63.8 billion (1.0% of total assets) in Q3 and increasing $9.4 billion (17.2%) over the previous 12 months.

The United Kingdom ($26.2B, up $97M and down $664M over the quarter and year, respectively) ranked 12th ahead of Chinese Taipei ($24.9B, up $1.2B and up $1.0B). Canada ($24.6B, up $1.5B and up $4.1B) and South Africa ($24.1B, down $738M and up $633B), rank 13th through 15th, respectively. Switzerland, Chile, Norway, Germany and Belgium round out the 20 largest countries with money market mutual funds.

ICI's quarterly series shows money fund assets in the Americas total $3.634 trillion, up $234.9 billion in Q3. Asian MMFs increased by $162.3 billion to $1.512 trillion, while Europe saw its money funds increase by $36.8 billion in Q3'19 to $1.453 trillion. Africa saw its money funds decrease $738M to $24.1 billion.

Note that Ireland and Luxembourg's totals are primarily "offshore" money funds marketed to global multinationals, while most of the other countries in the survey have mainly domestic money fund offerings. Contact us if you'd like our latest "Largest Money Market Funds Markets Worldwide" spreadsheet, based on ICI's data or if you'd like to see our MFI International product.

December MFI Profile: Cavanal Hill's Mike Kitchen: There Will Be Yield

Dec 18 19

This month, MFI interviews Cavanal Hill Investment Management VP & Senior Money Market Portfolio Manager Mike Kitchen, who runs Cavanal Hill's Government Securities Money Market Fund and U.S. Treasury Fund, Senior Tax-Free Fixed Income Manager Rich Williams, and Repo Trader Ryan Friedl. They tell us about the history and latest priorities at Cavanal Hill, whose tagline is "Long live your money." We also discuss the outlook and challenges facing money market funds in general. Our Q&A follows. (Note: The following is reprinted from the December issue of Money Fund Intelligence, which was published on Dec. 6. Contact us at info@cranedata.com to request the full issue or to subscribe.)

MFI: Give us some history. Kitchen: Cavanal Hill began managing its first money market fund in the '90s. Our wealth management group itself traces its roots back to 1910, when Harry Sinclair, of Sinclair Oil, and some other oil men, founded what's now called Bank of Oklahoma. What we at BOK's Wealth Management Division, which Cavanal Hill is part of, traditionally do is manage money for ultra-wealthy clients and institutions, including one of the nation's oldest charitable trusts. We've got over 35 investment strategies: taxable fixed income, tax free, fundamental and quantitative equity and, of course, cash management.

Cavanal Hill itself has about $8.0 billion under management and roughly $3.0 billion of that is in money market funds. According to MFI, we're the 36th largest out of 67 money fund families. So we're bigger than one might think.... There's a presence not just in Oklahoma, but places like Arkansas, Arizona, Texas and Colorado. We've got a big footprint in the heartland.... I've been here 20 years and this is all I've done here; manage the money market funds.

MFI: What's your major priority? Kitchen: It's always the same. It's the classic money fund value proposition -- balancing safety, liquidity and yield. We're always responsive to the competitive environment. As you know, right now we have a Government fund and a Treasury fund. Before 2016, we had a Prime fund and a Treasury fund. But like so many others, we transitioned the Prime to a government security or 'govie,' due to the 2016 Money Fund reforms.

We had lengthy discussions with shareholders and internally, and there just was no appetite for a Prime fund with gates and fees. We do have our ears to the ground, in case there's an appetite for a Prime fund again. I think right now our shareholders, who tend to be institutional, are content with what we've got. I don't think interest rates are high enough to interest too many people in a new Prime offering. But at some point, hopefully in my lifetime, interest rates will be reasonably high again, and at that point, I think we may get some interest. Then it's just a question of getting critical mass.

MFI: What's your biggest challenge? Kitchen: Even with a Government fund, you want to run things smoothly without any mistakes. The big challenge now is with the shape of the curve. There isn't a lot of extra yield to be had. And we're not foreseeing any movement in the near-term levels. It's much more fun as a manager being in an environment where rates go up, or are expected to go up. But ... being a relatively small money manager, we're very accessible to shareholders. We're more than happy to speak with them at a moment's notice, and that's kind of a differentiator. A lot of our shareholders, most of them, in fact, come from an existing relationship with Bank of Oklahoma. So we're convenient for bank customers to deal with. We're [also] rated by Standard and Poor's and Moody's. That's a distinguishing factor too, because we're under the strictures of those two ratings agencies.

MFI: What are you buying now? Friedl: We began using FICC-sponsored repo last year.... It's been a great help for our funds. They're one of the better-rated counterparties that we have, which allows a lot of flexibility to use them. It's been nice building that relationship.

Kitchen: It provides a lot of flexibility, and they've been very accommodative. As you well know ... they've become the largest single counterparty. We started getting into that, I guess maybe September or something like that last year. As far as what else we're doing, we stopped buying LIBOR floaters within the past year just because of the phase out that's upcoming. We bought a fair amount of SOFR-based floaters in the Government fund. To use your phrase, 'So far, so good,' as far as those go. I've been very pleased with these.... We usually have a lot in overnight repurchase agreements, kind of in keeping with our institutional customers' need for liquidity. We are heavily biased towards institutional on the shareholder side.

We balance that with some floating rate notes; and the longer-term fixed positions a little bit out on the curve to lock in a bit of yield when we can. But repo is the main liquidity tool.... We like floaters, though, since they offer a little yield, a little bit of an advantage over repo levels and they don't really weigh on your WAM much, even in a declining interest rate environment.

MFI: Any agencies you like? Kitchen: Home Loan is the main story as far as agencies go. Our philosophy is: customers want to put their money in, get interest and get their money back with no problem.... So we try to stay fairly plain vanilla, I'll put it that way. If you look at our government fund, you'll see Home Loan and sometimes the other two major agencies. And that's basically it.

MFI: What are customers asking about? Kitchen: I think they were so used to rates being so low for so long -- that they're not yet worried [about rates going back down].... I am pleased to hear that there is some push back against negative rates. Looking at what it's done overseas, I don't think it's the solution to anything. Certainly, it would do us no good. But ... barring a huge dislocation, we're probably not going to see rates go too much lower this time around. Let's hope.

MFI: How about a word on fees? Kitchen: Sure. For the mutual fund industry as a whole, fees have always been and always will be, I think, an issue. We have a sizable number of share classes. I haven't heard any real negative feedback.... We work really closely with our treasury and corporate trust areas to accommodate the needs of the large institutional shareholders.... Our other mutual funds tend to use us as their money market sweep.

MFI: Talk about tax exempt options. Williams: We closed our tax-exempt money market fund due to the last round of Money Market Reform. The tax-exempt cash strategy SMAs are fairly small, about $27 million. After we closed the Tax-Free Money Market Fund, we looked at the ultra-short tax-free space and found out there weren't too many funds there. That's when we opened the Ultra-Short Tax-Free Income Fund. There's also an ultra-short tax-free strategy with an additional $100 million or so. When the Fed was raising rates, they saw a great deal of interest. But it's slowed down a bit for obvious reasons.

MFI: How important is the Fed? Kitchen: We kind of do both [macro and micro analysis], but it all starts with a good macro call. You position yourself with a good macro outlook while not putting all your money on that one outlook being correct. Repo is helpful there because you'll always have liquidity. If you're in a rate environment where things are going up, that will capture the yield that moves very quickly. It keeps you liquid even when rates are declining. Floating rate notes are helpful because they can do a little bit better than repo in any environment. We extend out the curve a little bit when we can to kind of lock in rates when we think things are going down. Right now, it's pretty 'flattish,' so you're not really being paid much to go out the curve.

MFI: How important is repo collateral? Friedl: We look through to the collateral. We get reports every day and spend time reviewing these, making sure they're Treasuries and agencies.... We've spent a lot of time making sure that we're getting that high-quality collateral and working with the dealers. Kitchen: Our collateral has always been govie collateral that qualifies as 2a-7, so you get the look through. But S&P does mandate ratings on the repo counterparty, so that's a constraint there.

MFI: Do think we're done with the Fed? Kitchen: Well, the markets are assigning a bit of a chance out towards June, so [another cut is] possible. I think the bar is somewhat high for them to actually do it. My sense is they want to preserve some ammunition if they can.... So if something really bad happens they aren't left with no bullets, so to speak.

MFI: Are you optimistic on money funds? Kitchen: We're definitely helping pay the rent. I think there are a lot of advantages to having a money fund complex here. For one thing, it generates discussion internally that can be of use.... For instance, when we had that repo spike back in September. It's easy to forget if you're not in this industry like we are, people wouldn't necessarily know what the media was referring to. We did a presentation on what that spike meant, what caused it and what might happen going forward. That was well received and that was good exposure for us and it produced some talking points for people.

I think, as long as there's cash, you're going to have to have a liquid investment class to put it in. Back in '08, things looked so gloomy, but the industry adapted very well to the large number of challenges.... That speaks to the flexibility of the industry.

MFI: Will we keep seeing inflows? Kitchen: Well, we hope so. It's funny, sometimes I’ll read about the equity markets going down ... and outflows and things like that. Our asset base really isn’t like that. It's driven more by the institutions involved, our shareholders and their own internal cash needs and flows. So you don't really see a lot of response to macro events in our asset flows. It's more specific to the individual shareholders. That's really something completely controlled by their own needs, not something we see in the environment or the marketplace.

MFI Intl: USD, GBP and EUR MMF Assets Rise; Offshore, ICI Holdings

Dec 17 19

Crane Data's latest MFI International shows assets in "offshore" European money market mutual assets rising in US Dollar, Sterling and Euro funds in the 30 days through December 13. These U.S.-style funds, domiciled in Ireland or Luxemburg and denominated in US Dollars, Sterling and Euro, increased by $27.3 billion to $876.5 billion over the period of 11/14 through 12/13, and they're up by $30.5 billion year-to-date. Offshore USD money funds are up $14.2 billion over 30 days and up $36.6 billion YTD. Euro funds are up E4.0 billion over a month, but YTD they're down E1.6 billion. GBP funds have risen by L7.1 billion from Nov. 14 through December 13, and they're up by L19.7 billion YTD. U.S. Dollar (USD) money funds (190) account for over half ($490.6 billion, or 56.0%) of our "European" money fund total, while Euro (EUR) money funds (88) total E97.4 billion (12.3%) and Pound Sterling (GBP) funds (123) total L229.2 billion (31.7%). We summarize our latest "offshore" money fund statistics and our Money Fund Intelligence International Portfolio Holdings (which went out to subscribers Friday), below.

Offshore USD MMFs yield 1.59% (7-Day) on average (as of 12/13/19), down from 2.29% on 12/31/18, but up from 1.19% at the end of 2017. EUR MMFs yield -0.57 on average, compared to -0.49% at year-end 2018 and -0.55% on 12/29/17. Meanwhile, GBP MMFs yielded 0.63%, one less than 0.64% on 12/31/18 but up from 0.24% at the end of 2017. (See our latest MFI International for more on the "offshore" money fund marketplace. Note that these funds are only available to qualified, non-U.S. investors.)

Crane's MFII Portfolio Holdings, with data (as of 11/30/19), show that European-domiciled US Dollar MMFs, on average, consist of 29% in Commercial Paper (CP), 21% in Certificates of Deposit (CDs), 18% in Repo, 17% in Treasury securities, 13% in Other securities (primarily Time Deposits) and 2% in Government Agency securities. USD funds have on average 35.5% of their portfolios maturing Overnight, 8.4% maturing in 2-7 Days, 12.8% maturing in 8-30 Days, 11.0% maturing in 31-60 Days, 14.4% maturing in 61-90 Days, 14.4% maturing in 91-180 Days and 3.6% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (28.6%), France (13.7%), Canada (10.7%), Japan (10.6%), Germany (7.2%), the United Kingdom (5.7%), the Netherlands (4.3%), Sweden (3.7%), Australia (3.2%), China (2.1%), Switzerland (2.0%), Belgium (1.6%), Norway (1.5%) and Singapore (1.3%).

The 10 Largest Issuers to "offshore" USD money funds include: the US Treasury with $93.9 billion (17.2% of total assets), BNP Paribas with $18.3B (3.4%), Mitsubishi UFJ Financial Group Inc with $15.6B (2.9%), Bank of Nova Scotia with $14.4B (2.6%), Barclays PLC with $13.8B (2.5%), Credit Agricole with $12.6B (2.3%), Mizuho Corporate Bank Ltd with $12.5B (2.3%), Toronto-Dominion Bank with $12.4B (2.3%), RBC with $12.0B (2.2%) and Sumitomo Mitsui Banking Co with $11.5B (2.1%).

Euro MMFs tracked by Crane Data contain, on average 46% in CP, 22% in Other (primarily Time Deposits), 21% in CDs, 8% in Repo, 2% in Treasuries and 1% in Agency securities. EUR funds have on average 23.1% of their portfolios maturing Overnight, 7.8% maturing in 2-7 Days, 12.0% maturing in 8-30 Days, 21.3% maturing in 31-60 Days, 15.1% maturing in 61-90 Days, 17.4% maturing in 91-180 Days and 3.4% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (30.3%), Japan (11.5%), the US (11.4%), the U.K. (8.2%), Sweden (7.8%), Germany (7.6%), the Netherlands (4.5%), Switzerland (3.6%), Belgium (3.1%), Canada (3.1%), China (3.0%), Finland (1.8%) and Qatar (1.0%).

The 10 Largest Issuers to "offshore" EUR money funds include: Credit Agricole with E7.3B (7.7%), BNP Paribas with E4.3B (4.5%), BPCE SA with E3.4B (3.6%), Nordea Bank with E3.3B (3.5%), Republic of France E2.9B (3.1%), Societe Generale with E2.9B (3.1%), Mizuho Corporate Bank Ltd with E2.8B (3.0%), Procter & Gamble Co with E2.8B (2.9%), Mitsubishi UFJ Financial Group Inc with E2.7B (2.9%) and Svenska Handelsbanken with E2.7B (2.8%).

The GBP funds tracked by MFI International contain, on average (as of 11/30/19): 36% in CDs, 26% in Other (Time Deposits), 19% in CP, 14% in Repo, 5% in Treasury and 0% in Agency. Sterling funds have on average 28.6% of their portfolios maturing Overnight, 9.2% maturing in 2-7 Days, 7.6% maturing in 8-30 Days, 17.3% maturing in 31-60 Days, 16.2% maturing in 61-90 Days, 15.6% maturing in 91-180 Days and 5.6% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: the United Kingdom (20.0%), France (17.1%), Japan (16.1%), Canada (8.6%), Germany (5.8%), Netherlands (4.6%), Australia (4.2%), United States (3.8%), Sweden (3.7%), Switzerland (3.3%) and Singapore (3.0%).

The 10 Largest Issuers to "offshore" GBP money funds include: the UK Treasury with L19.9B (11.5%), BPCE SA with L8.2B (4.7%), Mizuho Corporate Bank Ltd with L7.6B (4.4%), Credit Agricole with L7.6B (4.4%), Sumitomo Mitsui Banking Co with L7.2B (4.2%), BNP Paribas with L5.8B (3.3%), Mitsubishi UFJ Financial Group with L5.2B (3.0%), DZ Bank AG with L5.1B (2.9%), Standard Chartered Bank with L5.0B (2.9%) and Sumitomo Mitsui Trust Bank with L4.9B (2.8%).

In related news, ICI released its monthly "Money Market Fund Holdings" summary, which reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds. (For more, see our Dec. 11 News, "Dec. MF Portfolio Holdings: Treasuries at Record $1.1 Tril; Repos Slide.")

The MMF Holdings release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in November, prime money market funds held 26.4 percent of their portfolios in daily liquid assets and 40.9 percent in weekly liquid assets, while government money market funds held 60.3 percent of their portfolios in daily liquid assets and 77.2 percent in weekly liquid assets." Prime DLA decreased from 27.2% in October, and Prime WLA decreased from 41.2% the previous month. Govt MMFs' DLA decreased from 61.2% in October and Govt WLA decreased from 78.5% from the previous month.

ICI explains, "At the end of November, prime funds had a weighted average maturity (WAM) of 40 days and a weighted average life (WAL) of 78 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 38 days and a WAL of 99 days.." Prime WAMs decreased by one day from the previous month and WALs stayed the same. Govt WAMs increased by three days and WALs stayed the same as the previous month.

Regarding Holdings By Region of Issuer, ICI's release tells us, "Prime money market funds' holdings attributable to the Americas rose from $332.05 billion in October to $336.58 billion in November. Government money market funds' holdings attributable to the Americas rose from $2,157.99 billion in October to $2,179.84 billion in November."

The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $336.6 billion, or 43.5%; Asia and Pacific at $160.8 billion, or 20.8%; Europe at $268.6 billion, or 34.7%; and, Other (including Supranational) at $7.7 billion, or 1.0%. The Government Money Market Funds by Region of Issuer table shows Americas at $2.180 trillion, or 81.8%; Asia and Pacific at $150.9 billion, or 5.7%; Europe at $323.3 billion, or 12.1%, and Other (Including Supranational) at $11.3 billion, or 0.4%."

Fed's Z.1 Shows Households, Businesses w/ Big Jumps in MMFs in Q3'19

Dec 16 19

The Federal Reserve released its latest quarterly "Z.1 Financial Accounts of the United States statistical survey (formerly the "Flow of Funds") late last week. Among the 4 tables it includes on money market mutual funds, the Third Quarter 2019 edition shows that Total MMF Assets increased by $237 billion to $3.443 trillion in Q3'19. The Household Sector, by far the largest investor segment with $2.064 trillion, saw assets jump in Q3, as did the next largest segments, Nonfinancial Corporate Businesses and Other Financial Business (formerly Funding Corporations). Treasuries accounted for the vast majority of the increase in money fund assets in Q3, but Repos and Agencies rose as well.

The Fed's latest Z.1 numbers, which contain one of the few looks at money fund investor segments available, also show slight asset increases in MMF holdings for the Rest of the World, Life Insurance Companies and Property-Casualty Insurance categories in Q3 2019. Nonfinancial Noncorporate Business, State & Local Govts and Private Pension Funds also saw assets inch higher in Q3, while State & Local Govt Retirement MMF holdings saw a big decrease. Over the past 12 months, the Household Sector, Nonfinancial Corporate Businesses and Other Financial Business showed the biggest asset increases. Every category showed increases over the past year.

The Fed's "Table L.206," "Money Market Mutual Fund Shares," shows that total assets increased by $237 billion, or 7.4%, in the third quarter to $3.443 trillion. Over the year through Sept. 30, 2019, assets were up $575 billion, or 20.1%. The largest segment, the Household sector, totals $2.064 trillion, or 59.9% of assets. The Household Sector increased by $156 billion, or 8.2%, in the quarter, after increasing $82 billion in Q2'19. Over the past 12 months through Q3'19, Household assets were up $393 billion, or 23.5%.

Nonfinancial Corporate Businesses, the second-largest segment according to the Fed's data series, held $528 billion, or 15.3% of the total. Assets here rose by $36 billion in the quarter, or 7.4%, and they've increased by $79 billion, or 17.5%, over the past year. Other Financial Business was the third-largest investor segment with $290 billion, or 8.4% of money fund shares. They rose by $32 billion, or 12.2%, in the latest quarter. Other Financial Business has increased by $53 billion, or 22.5%, over the previous 12 months.

The fourth-largest segment, Private Pension Funds held 4.8% of money fund assets ($164 billion), up by $2 billion (0.9%) for the quarter, and up $12 billion, or 7.6%, for the year. Nonfinancial Noncorporate Businesses, which held $112 billion (3.3%), were in 5th place. The Rest of The World category remained in sixth place in market share among investor segments with 3.2%, or $111 billion, while Life Insurance Companies held $60 billion (1.7%), State and Local Government Retirement Funds held $58 billion (1.7%), Property-Casualty Insurance held $34 billion (1.0%), and State and Local Governments held $22 billion (0.7%) according to the Fed's Z.1 breakout.

The Fed's "Flow of Funds" Table L.121 shows "Money Market Mutual Funds" largely invested in "Debt Securities," or Credit Market Instruments, with $2.030 trillion, or 59.0% of the total. Debt securities includes: Open market paper ($242 billion, or 7.0%; we assume this is CP), Treasury securities ($946 billion, or 27.5%), Agency and GSE-backed securities ($696 billion, or 20.2%), Municipal securities ($130 billion, or 3.8%) and Corporate and foreign bonds ($16 billion, or 0.5%).

Other large holdings positions in the Fed's series include Security repurchase agreements ($1.173 trillion, or 34.1%) and Time and savings deposits ($256 billion, or 7.4%). Money funds also hold minor positions in Foreign deposits ($4 billion, or 0.1%), Miscellaneous assets ($11 billion, or 0.3%) and Checkable deposits and currency (-$30 billion, -0.9%). Note: The Fed also lists "Variable Annuity Money Funds;" they currently total $36 billion.

During Q3, Debt Securities were up $231 billion. This subtotal included: Open Market Paper (up $10 billion), Treasury Securities (up $202 billion), Agency- and GSE-backed Securities (up $20 billion), Corporate and Foreign Bonds (up $4 billion) and Municipal Securities (down $6 billion). In the third quarter of 2019, Security Repurchase Agreements were up $39 billion, Foreign Deposits were up $2 billon, Checkable Deposits and Currency were down $34 billion, Time and Savings Deposits were down by $3 billion, and Miscellaneous Assets were up $1 billion.

Over the 12 months through 9/30/19, Debt Securities were up $306B, which included Open Market Paper up $48B, Treasury Securities down $178B, Agencies up $75B, Municipal Securities (down $1), and Corporate and Foreign Bonds (up $6B). Foreign Deposits were up $2 billon, Checkable Deposits and Currency were down $50B, Time and Savings Deposits were up $61B, Securities repurchase agreements were up $252B and Miscellaneous Assets were up $4B.

Note that the Federal Reserve changed its numbers related to money market funds substantially in the second quarter of 2018. Its "Release Highlights Second Quarter 2018" tells us, "New source data for money market funds from the U.S. Securities and Exchange Commission's (SEC) form N-MFP have been incorporated into the sector's asset holdings (tables F.121 and L.121). Money market funds not available to the public, which are included in the SEC data, are excluded from Financial Accounts' estimates. Data revisions begin 2013:Q1. Holdings of money market fund shares by households and nonprofit organizations, state and local governments, and funding corporations (tables F.206 and L.206) have been revised due to a change in methodology based on detail from the Investment Company Institute. Data revisions begin 1976:Q1."

Dec. Bond Fund Intel: Vanguard Dominates Market Share; Invesco's Brill

Dec 13 19

The December issue of our Bond Fund Intelligence, which was sent out to subscribers Friday morning, features the lead story, "Bond Fund Market Share: Vanguard Dominates Ranks," which looks at the largest bond fund managers, and our profile, "Invesco's Matt Brill: All Roads Lead to Bonds," which interviews the PM of Invesco Core Plus Bond Fund. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show bond fund yields flat and returns up slightly in November. We excerpt from the new issue below. (Contact us if you'd like to see our Bond Fund Intelligence and BFI XLS spreadsheet, or our Bond Fund Portfolio Holdings data.)

Our "Market Share" article says, "Below, we review our latest Bond Fund Family Market Share rankings, which are included each month in our BFI XLS spreadsheet. Like we've seen all year, assets increased in November, led by massive gains from the market leader, Vanguard. Bond fund assets increased by $28.1 billion, or 0.8%, last month to $3.513 trillion. (Crane Data continues to grow its collections, and we're now at about 76.1% of ICI's monthly totals.) Vanguard, which broke over $1.0 trillion in bond fund assets a year ago, broke above the $1.2 trillion level."

It continues, "Bond fund assets have climbed by $80.6 billion, or 2.3%, over the past 3 months, and they've increased by $526.2 billion, or 17.6%, over the past 12 months through Nov. 30, 2019. The biggest increases among the 25 largest managers last month were seen by Vanguard, BlackRock, Invesco, PIMCO and Fidelity, which increased assets by $11.6 billion, $2.6B, $1.6B, $1.5B and $1.4B, respectively. Declines in assets among the largest complexes in November were seen by SSGA, DFA, Guggenheim and Loomis Sayles, which decreased by $1.0B, $565M, $170M and $146M."

Our "Invesco Profile" reads, "This month, BFI speaks with Matt Brill, Head of US Investment Grade Credit at Invesco and a Portfolio Manager on Invesco Core Plus Bond Fund and Invesco Corporate Bond Fund. Invesco has had a series of acquisitions recently which have expanded their fixed income lineup, including taking over Guggenheim's ETFs and OppenheimerFunds. Brill tells us about Invesco's history and lineup in the bond fund space, their strategies for 2020, and a number of other major issues confronting bond fund managers. Our Q&A follows."

BFI says, "Give us some history." Brill answers, "Invesco Fixed Income (IFI) manages about $370 billion across multiple asset classes. We are headquartered in Atlanta, and [our group] has offices in Atlanta, London and Hong Kong. The Global Investment Grade Group manages about $50 billion across retail and institutional strategies."

He continues, "I started in the industry in 2002 doing commercial mortgage backed securities then eventually investment grade corporates [at ING]. In 2013, Michael Hyman and I were both brought over by Greg McGreevy, [who was] looking to build out the investment grade debt and the overall [core] fixed income platform at Invesco.... Since then, our team has raised roughly $30 billion dollars of investment grade assets, and our track record is very strong."

Our Bond Fund News includes the brief, "Yields Flat, Returns Up in November," which tells us, "Bond fund yields were flat to lower and returns were up slightly last month. Our BFI Total Index returned 0.10% over 1-month and 7.47% over 12 months. The BFI 100 returned 0.05% in Nov. and 8.35% over 1 year. Our BFI Conservative Ultra-Short Index returned 0.13% over 1-mo and 2.81% over 1-yr; Ultra-Shorts averaged 0.16% in Nov. and 3.09% over 12 mos. Short-Term returned 0.07% and 5.07%, and Intm-Term lost 0.03% last month but rose 9.36% over 1-year. BFI's Long-Term Index returned 0.09% in Nov. and 13.00% for 1-yr; our High Yield Index rose 0.41% in Nov. and 7.95% for 1-year."

In another News brief, we quote the Investment News piece, "Flows into bond ETFs surpass those into equity ETFs for first time since 2009." They explain, "Whether it's in response to the nonstop efforts to impeach President Trump, the record-level stock market valuations or any of several geopolitical concerns, a growing risk-off mood among investors is sending money flooding into fixed-income funds. Through mid-November, bond ETFs have already seen nearly $130 billion worth of net inflows, which surpasses the full-year record of $125 billion set two years ago."

A third News update covers the Barron's article, "The 60/40 Stock/Bond Portfolio." It says, "A shorter-duration fixed-income portfolio would carry less risk from an uptick in yields. And that's what BCA Research is advising clients to hold, based on what it dubs 'the Golden Rule of Bond Investment.' ... Going shorter also was the advice offered by John Coumarianos last month in Barron's."

Finally, BFI features a sidebar entitled "Ultra-Shorts Show Gains." It says: "A brief entitled, 'Ultra-short Obligation Funds Wrap Up Third Consecutive Year of Impressive Net Inflows,' tells us, 'Lipper's Ultra-Short Obligation Funds (USO) peer group (including both mutual funds and ETFs) had net positive flows of $977 million for the fund-flows trading week ended Wednesday, December 4. This was the group's ninth-straight weekly net inflow. The USO group's hot streak extends well beyond the fourth quarter of 2019, as since the end of 2017 they've taken in net new money in 94 out of 101 weeks for a total net intake of $72.1 billion.'"

Fitch Ratings' 2020 Outlook Discusses U.S., European and Chinese MMFs

Dec 12 19

Fitch Ratings released its "2020 Outlook: Global Money Market Funds" recently, which tells us, "Fitch Ratings expects the combination of relatively higher yields versus bank deposits and potential continued market volatility to support steady demand for US money market funds (MMFs) in 2020. While the pace of growth may be slower in 2020, cash will likely continue to flow into the sector despite the Fed’s reversal in monetary policy. Fitch anticipates stable conditions for European MMFs in 2020. Attention to liquidity risk management will increase in 2020, when reporting on ESMA's stress test guidelines takes effect."

The Outlook continues, "Fitch expects an overall stable environment for Chinese MMFs in 2020. However, growth may come under pressure in the near term due to negative real yields, tight regulation and competition from wealth management products (WMPs). Several troubled small regional commercial banks required external support in 2019; however, these issues did not affect rated funds, which invest only with the highest-rated Chinese banks. Nonetheless, these events warrant increased investor monitoring of funds' portfolio allocations."

It explains, "Fitch forecasts broad stability in its global MMF ratings in 2020 supported by high quality, diversified investments, appropriate liquidity relative to investor composition, proactive risk management by MMF managers and continued adherence to updated regulatory frameworks. In the event of a more severe market dislocation, MMF flows could be more volatile, with a spike in inflows if MMFs are perceived to be a safe haven or a spike in outflows if MMFs hold underlying assets perceived to be at risk. Ratings would be sensitive to sustained, severe outflows, although this risk is mitigated by rated funds' conservative credit and market risk positioning and high liquidity levels."

Discussing "U.S. Money Market Funds," they state, "Fitch expects a continued re-allocation of MMF assets towards prime funds in 2020, due to the yield differential with government funds and other cash products, net asset value (NAV) stability and fund managers' growing track record managing liquidity post-reform. As of October 31, 2019, prime money fund assets were USD1.1 trillion, up by 49% year over year and up by 122% since reforms first went into effect in October 2016. Both institutional and retail money funds have experienced inflows since the beginning of 2019. Given the backdrop of slowing global growth and trade policy uncertainty, Fitch expects the trend into US money funds to continue."

Fitch writes, "While money fund yields declined slightly after the Fed cut interest rates three times throughout 2019, the average net yield for prime funds at October 31, 2019 was 1.62%, which is still 1.46 percentage points above the 0.16% average rate paid on money market deposit accounts by banks as of the same date. Investor sensitivity to the yield differential among cash products could create challenges for MMF managers, particularly as liquidity levels have declined. Average weekly liquidity for prime institutional and retail funds was 47% and 41%, respectively, as of October 31, 2019, compared to 46% across both categories, as of October 31, 2018, and 72% and 51%, respectively, as of October 31, 2016."

The Outlook comments, "The US market is showing increasing interest in ESG in the money market space, with the launch of new funds and the conversion of existing funds. However, movement into these products continues to be slow. We have found fund managers primarily perform their own ESG research while incorporating data from third parties, and fully integrate ESG factors into their normal credit screening process. We expect more fund managers to incorporate ESG into their products as existing ESG funds attract more assets. ESG screening has been a neutral factor in Fitch's ratings of MMFs."

It tells us, "Repurchase agreements (repos) continue to dominate MMF portfolios, representing 32% of all outstanding money market securities as of October 31, 2019. Participation in the repo services offered by the Fixed Income Clearing Corp has continued to grow since 2017 when MMFs first began investing in the product, increasing 124% between October 2018 and October 2019 and up significantly since October 2017 when repo balances with the FICC were only USD12 billion. Fitch expects utilization of sponsored repo to continue to increase throughout 2020, especially considering that the number of sponsoring entities is likely to expand. Fitch-rated MMFs maintain limited exposure to any one repo counterparty."

Looking at "European Money Market Funds," they write, "Fitch views the weekly liquidity levels of rated MMFs as sufficiently high with around 50% weekly liquidity on average as of end-September 2019. Investor and fund attention to liquidity risk management will increase in 2020 when reporting on ESMA's stress test guidelines take effect. ESMA published stress test guidelines on liquidity, redemption levels, credit risk, interest rates and exchanges rates in July 2019."

The Outlook continues, "Fitch views a material disruption to money funds post a disruptive 'no-deal' Brexit as unlikely. Most funds have been granted approval via applying for temporary permissions regime, while seeking full UK authorisation, to temporarily continue operating and marketing in the UK if the passporting regime falls away abruptly. Average exposure to UK entities across Fitch-rated prime sterling MMFs increased to 17% at end-September 2019 from 13% at end-August 2018, with government securities and certificate of deposits as the most popular security types."

It adds, "Fitch views the upcoming review of the 2017 MMF regulation as a key uncertainty facing the low volatility NAV (LVNAV) segment (approximately USD0.67 trillion as of end September 2019). The five-year review due by 21 July 2022 under Article 46 in MMF Regulation will focus on LVNAV and public debt CNAV MMFs. The European Commission will assess the viability of LVNAV MMFs as an alternative to non-EU public debt CNAV MMFs, as well as the feasibility of establishing an 8% EU public debt quota for public debt CNAV MMFs. The scope of the review has created a degree of uncertainty for the future of LVNAV and public debt CNAV MMFs, and the outcome will directly affect the industry landscape in the short-term MMF domain. As of end-September 2019, 57% of European MMF AUM is under the scope of the five-year review, with VNAV (both short-term and standard) MMFs representing the remaining 43%."

Finally, Fitch reviews "Chinese Money Market Funds," explaining, "Fitch expects the growth of Chinese MMFs to come under pressure in the short- to medium-term as a result of negative real yields, tight regulatory requirements, and competition from certain WMPs provided by banks. Total assets in Chinese MMFs declined to CNY7.1 trillion (USD1.0 trillion) by September 2019 from a peak of CNY8.9 trillion (USD1.3 trillion) in 2H18."

They add, "The Chinese MMF market has become more diversified as ... the country's largest MMF, Yu'E Bao, reduced size and assets flow[ed] into other funds. This redistribution means the sector is now more comparable to the US and Europe in terms of top-five fund concentration, although Yu'E Bao continues to hold a disproportionately large share of the total Chinese MMFs' AUM. Recent stress at small regional banks in China, including the coupon skip of Jinzhou Bank and the state takeover of Baoshang Bank, highlights the credit vulnerability of these entities, and by extension, Chinese MMFs which invest in them."

In related news, a separate Fitch press release," tells us, "Fitch Ratings has assigned Morgan Stanley Liquidity Funds - US Dollar Treasury Liquidity Money Market Fund a 'AAAmmf' rating. The rating of the fund reflects its sustained overall high credit quality; its low exposure to interest rate and spread risks; and its daily and weekly liquid assets being consistent with the fund's shareholder profile and concentration. The rating also reflects the adequate capabilities and resources of Morgan Stanley Investment Management (MSIM) as investment manager.... The fund is a sub-fund of Morgan Stanley Liquidity Funds, a Luxembourg-domiciled Société d'Investissement à Capital Variable (SICAV), registered and authorised by the Luxembourg Commission de Surveillance du Secteur Financier as an undertaking for collective investment in transferable securities fund. The fund is classified as short-term public debt constant net asset value fund under the European money market fund regulation. As of end-October 2019, the fund's total assets under management stood at USD6.46 billion."

Dec. MF Portfolio Holdings: Treasuries at Record $1.1 Tril; Repos Slide

Dec 11 19

Crane Data released its December Money Fund Portfolio Holdings Tuesday, and our most recent collection, with data as of Nov. 30, 2019, shows a big increase in Treasuries and another drop in Repo. Money market securities held by Taxable U.S. money funds (tracked by Crane Data) increased by $20.8 billion to $3.786 trillion last month, after increasing $75.8 billion in October, $92.6 billion in September and $93.0 billion in August. Repo continues to be the largest portfolio segment closely followed by Treasury securities, then Agencies. CP remained fourth ahead of CDs, Other/Time Deposits and VRDNs. Below, we review our latest Money Fund Portfolio Holdings statistics. (Visit our Content center to download the latest files, or contact us to see our latest Portfolio Holdings reports.)

Among taxable money funds, Repurchase Agreements (repo) fell by $35.2 billion (-3.0%) to $1.158 trillion, or 30.6% of holdings, after decreasing $24.7 billion in October and $76.8 billion in September but increasing $20.5 billion in August. Treasury securities rose $55.3 billion (5.2%) to $1.126 trillion, or 29.7% of holdings, after increasing $30.2 billion in October, $134.7 billion in September and $89.8 billion in August. Government Agency Debt decreased by $19.2 billion (-2.4%) to $765.8 billion, or 20.2% of holdings, after increasing $39.4 billion in October and $39.2 billion in September but decreasing $9.9 billion in August. Repo, Treasuries and Agencies totaled $3.050 trillion, representing a massive 80.6% of all taxable holdings.

Money funds' holdings of CP, CD and Other (mainly Time Deposits) securities all rose in November. Commercial Paper (CP) increased $5.1 billion (1.5%) to $346.9 billion, or 9.2% of holdings, after increasing $13.9 billion in October and $7.4 billion in September but decreasing $15 billion in August. Certificates of Deposit (CDs) rose by $12.6 billion (4.8%) to $275.2 billion, or 7.3% of taxable assets, after increasing $12.6 billion in October, decreasing $7.5 billion in September and increasing $4.5 billion in August. Other holdings, primarily Time Deposits, increased $2.3 billion (2.2%) to $107.0 billion, or 2.8% of holdings, after increasing $5.0 billion in October, decreasing $4.6 billion in September and increasing $3.4 billion in August. VRDNs dropped to $6.7 billion, or 0.2% of assets. (Note: This total is VRDNs for taxable funds only. We will publish Tax Exempt MMF holdings separately late Wednesday.)

Prime money fund assets tracked by Crane Data increased $14 billion to $1.093 trillion, or 28.9% of taxable money funds' $3.786 trillion total. Among Prime money funds, CDs represent 25.2% (up from 24.3% a month ago), while Commercial Paper accounted for 31.7% (down from 31.9%). The CP totals are comprised of: Financial Company CP, which makes up 20.2% of total holdings, Asset-Backed CP, which accounts for 6.5%, and Non-Financial Company CP, which makes up 5.0%. Prime funds also hold 5.7% in US Govt Agency Debt, 10.5% in US Treasury Debt, 6.5% in US Treasury Repo, 1.3% in Other Instruments, 5.9% in Non-Negotiable Time Deposits, 4.9% in Other Repo, 5.4% in US Government Agency Repo and 0.5% in VRDNs.

Government money fund portfolios totaled $1.829 trillion (48.3% of all MMF assets), down $4.0 billion from $1.833 trillion in October, while Treasury money fund assets totaled another $864 billion (22.8%), up from $853 billion the prior month. Government money fund portfolios were made up of 38.5% US Govt Agency Debt, 18.9% US Government Agency Repo, 20.5% US Treasury debt and 21.9% in US Treasury Repo. Treasury money funds were comprised of 73.7% US Treasury debt, 26.2% in US Treasury Repo, and 0.0% in Government agency repo, Other Instrument, and Investment Company shares. Government and Treasury funds combined now total $2.693 trillion, or 71.1% of all taxable money fund assets.

European-affiliated holdings (including repo) fell by $17.5 billion in November to $694.0 billion; their share of holdings fell to 18.3% from last month's 18.9%. Eurozone-affiliated holdings fell to $461.4 billion from last month's $488.0 billion; they account for 12.2% of overall taxable money fund holdings. Asia & Pacific related holdings rose by $11.1 billion to $362.9 billion (9.6% of the total). Americas related holdings rose $25.0 billion to $2.724 trillion and now represent 72.0% of holdings.

The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (up $9.1 billion, or 1.3%, to $698.8 billion, or 18.5% of assets); US Government Agency Repurchase Agreements (down $41.4 billion, or -9.2%, to $406.0 billion, or 10.7% of total holdings), and Other Repurchase Agreements (down $3.0 billion, or -5.4%, from last month to $53.3 billion, or 1.4% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (down $0.7 billion to $221.2 billion, or 5.8% of assets), Asset Backed Commercial Paper (up $2.6 billion to $71.4 billion, or 1.9%), and Non-Financial Company Commercial Paper (up $3.3 billion to $54.3 billion, or 1.4%).

The 20 largest Issuers to taxable money market funds as of Nov. 30, 2019, include: the US Treasury ($1,126.3 billion, or 29.7%), Federal Home Loan Bank ($596.6B, 15.0%), Fixed Income Clearing Co ($140.2B, 3.7%), RBC ($134.9B, 3.6%), BNP Paribas ($104.7B, 2.8%), Federal Farm Credit Bank ($87.0B, 2.3%), JP Morgan ($83.8B, 2.2%), Mitsubishi UFJ Financial Group Inc ($83.6B, 2.2%), Federal Home Loan Mortgage Co ($80.3B, 2.1%), Credit Agricole ($77.7B, 2.1%), Wells Fargo ($72.5B, 1.9%), Barclays ($66.6B, 1.8%), Sumitomo Mitsui Banking Co ($61.7B, 1.6%), Bank of America ($52.5B, 1.4%), Societe Generale ($52.2B, 1.4%), Natixis ($49.6B, 1.3%), Bank of Montreal ($49.4B, 1.3%), Toronto-Dominion Bank ($46.0B, 1.2%), Canadian Imperial Bank of Commerce ($46.0B, 1.2%) and Bank of Nova Scotia ($44.4B, 1.2%).

In the repo space, the 10 largest Repo counterparties (dealers) with the amount of repo outstanding and market share (among the money funds we track) include: Fixed Income Clearing Co ($140.2B, 12.1%), RBC ($102.3B, 8.8%), BNP Paribas ($93.3B, 8.1%), JP Morgan ($71.4B, 6.2%), Wells Fargo ($59.1B, 5.1%), Credit Agricole ($56.8B, 4.9%), Barclays ($55.4B, 4.8%), Mitsubishi UFJ Financial Group ($53.7B, 4.6%), Bank of America ($45.7B, 3.9%) and Societe Generale ($42.2B, 3.6%). Fed Repo positions among MMFs on 11/30/19 include just one fund, Goldman Sachs FS Govt ($0.5B).

The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: Toronto-Dominion Bank $33.0B, 5.3%), RBC ($32.5B, 5.2%), Mitsubishi UFJ Financial Group Inc ($29.9B, 4.8%), Credit Suisse ($28.3B, 4.5%), Bank of Nova Scotia ($24.8B, 4.0%), Sumitomo Mitsui Banking Co ($21.8B, 3.5%), Credit Agricole ($20.9B, 3.3%), Canadian Imperial Bank of Commerce ($19.2B, 3.1%), Bank of Montreal ($18.6B, 3.0%) and Australia & New Zealand Banking Group ($18.4B, 2.9%).

The 10 largest CD issuers include: Mitsubishi UFJ Financial Group Inc ($22.5B, 8.2%), Sumitomo Mitsui Banking Co ($16.7B, 6.1%), Bank of Montreal ($16.0B, 5.8%), Toronto-Dominion Bank ($14.5B, 5.3%), Mizuho Corporate Bank ($14.0B, 5.1%), Wells Fargo ($13.1B, 4.8%), Credit Suisse ($10.7B, 3.9%), Sumitomo Mitsui Trust Bank ($10.0B, 3.6%), Landesbank Baden-Wurttemberg ($9.8B, 3.6%) and Bank of Nova Scotia ($9.5B, 3.5%).

The 10 largest CP issuers (we include affiliated ABCP programs) include: RBC ($22.1B, 7.6%), Toronto-Dominion Bank ($17.2B, 5.9%), Credit Suisse ($17.1B, 5.9%), Bank of Nova Scotia ($14.6B, 5.0%), JP Morgan ($12.4B, 4.2%), National Australia Bank Ltd ($9.6B, 3.3%), Toyota ($9.0B, 3.1%), Societe Generale ($8.8B, 3.0%), DBS Bank ($8.5B, 2.9%) and BNP Paribas ($8.2B, 2.8)%.

The largest increases among Issuers include: US Treasury (up $55.3B to $1,126.3B), RBC (up $25.8B to $134.9B), Canadian Imperial Bank of Commerce (up $9.0B to $46.0B), Goldman Sachs (up $6.1B to $24.4B), Mitsubishi UFJ Financial Group (up $5.8B to $83.6B), Bank of Montreal (up $5.4B to $49.4B), Natixis (up $5.1B to $49.6B), Credit Agricole (up $4.9B to $77.7B), Sumitomo Mitsui Banking Co (up $3.7B to $61.7B) and Federal Farm Credit Bank (up $3.6B to $87.0B).

The largest decreases among Issuers of money market securities (including Repo) in Nov. were shown by: BNP Paribas (down $28.0B to $104.7B), Fixed Income Clearing Co (down $25.6B to $140.2B), Federal Home Loan Bank (down $13.3B to $569.6B), Wells Fargo (down $9.4B to $72.5B), Federal Home Loan Mortgage Co (down $5.9B to $80.3B), Societe Generale (down $4.8B to $52.2B), Federal National Mortgage Association (down $3.8B to $23.1B), Citi (down $3.2B to $33.3B), Commonwealth Bank of Australia (down $1.6B to $9.3B) and Daiwa Securities Group (down $1.5B to $10.1B).

The United States remained the largest segment of country-affiliations; it represents 63.0% of holdings, or $2.384 trillion. Canada (9.0%, $339.3B) was number two, and France (8.1%, $306.8B) was third. Japan (7.5%, $281.9B) occupied fourth place. The United Kingdom (3.6%, $134.3B) remained in fifth place. Germany (2.0%, $75.9B) was in sixth place, followed by The Netherlands (1.8%, $67.1B), Australia (1.5%, $56.7B), Sweden (1.1%, $41.3B) and Switzerland (1.1%, $40.4B). (Note: Crane Data attributes Treasury and Government repo to the dealer's parent country of origin, though money funds themselves "look-through" and consider these U.S. government securities. All money market securities must be U.S. dollar-denominated.)

As of Nov. 30, 2019, Taxable money funds held 34.0% (down from 36.4%) of their assets in securities maturing Overnight, and another 15.9% maturing in 2-7 days (up from 14.8% last month). Thus, 49.8% in total matures in 1-7 days. Another 15.6% matures in 8-30 days, while 12.4% matures in 31-60 days. Note that over three-quarters, or 77.8% of securities, mature in 60 days or less (down slightly from last month), the dividing line for use of amortized cost accounting under SEC regulations. The next bucket, 61-90 days, holds 9.3% of taxable securities, while 10.2% matures in 91-180 days, and just 2.7% matures beyond 181 days.

MMF Market Share: Fidelity, Goldman, Vanguard Up; Yields Down Again

Dec 10 19

Crane Data's latest Money Fund Market Share rankings show assets were up again for the majority of U.S. money fund complexes in November. Money fund assets increased by $40.9 billion, or 1.0%, last month to $3.915 trillion. Assets have climbed by $211.7 billion, or 5.7%, over the past 3 months, and they've increased by $742.7 billion, or 23.4%, over the past 12 months through Nov. 30, 2019. The biggest increases among the 25 largest managers last month were seen by Goldman Sachs, Fidelity, Morgan Stanley, Vanguard, JP Morgan, BlackRock and Schwab, which increased assets by $21.0 billion, $11.3B, $8.8B, $8.6B, $7.7B, $5.6B and $4.9B, respectively. Declines in assets among the largest complexes in November were seen by UBS, Dreyfus, Invesco, First American and DWS, which decreased by $8.1B, $5.8B, $5.7B, $3.3B and $2.6B. Our domestic U.S. "Family" rankings are available in our MFI XLS product, our global rankings are available in our MFI International product. The combined "Family & Global Rankings" are available to Money Fund Wisdom subscribers. We review the latest market share totals below, and we also look at money fund yields in November.

Over the past year through Nov. 30, 2019, Fidelity (up $141.7B, or 22.0%), American Funds (up $120.B, or 707.5%; this was inflated by the addition earlier this year of the $108 billion American Funds Central Cash Fund), Federated (up $81.2B, or 36.8%), Vanguard (up $73.9B, or 22.0%), Schwab (up $59.3B, or 43.0%), BlackRock (up $57.3B, or 20.5%) and JP Morgan (up $52.3B, or 17.6%) were the largest gainers. These complexes were followed by Goldman Sachs (up $40.0B, or 19.8%), SSGA (up $38.3B, or 45.6%), Morgan Stanley (up $26.8B, or 25.0%) and Wells Fargo (up $21.3B, or 19.6%). Fidelity, Vanguard, BlackRock, Goldman Sachs and JP Morgan had the largest money fund asset increases over the past 3 months, rising by $44.4B, $31.0B, $27.8B, $22.2B and $18.4B, respectively. Decliners over 3 months included: Invesco (down $9.8B, or -13.6%), DFA (down $3.2B, or -16.4%), UBS (down $3.0B, or -4.5%), First American (down $1.3B, or -$1.9) and Dreyfus (down $1.2B, or -0.7%).

Our latest domestic U.S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $786.5 billion, or 20.1% of all assets. That was up $11.3 billion in November, up $44.4 billion over 3 mos., and up $141.7B over 12 months. Vanguard ranked second with $409.2 billion, or 10.5% market share (up $8.6B, up $31.0B and up $73.9B for the past 1-month, 3-mos. and 12-mos., respectively). JPMorgan was third with $349.2 billion, or 8.9% market share (up $7.7B, up $18.4B and up $52.3B). BlackRock ranked fourth with $337.3 billion, or 8.6% of assets (up $5.6B, up $27.8B and up $57.3B for the past 1-month, 3-mos. and 12-mos.), while Federated remained in fifth with $301.5 billion, or 7.7% of assets (up $1.9B, up $18.4B and up $81.2B).

Goldman Sachs remained in sixth place with $241.5 billion, or 6.2% of assets (up $21.0 billion, up $22.2B and up $40.0B), while Schwab was in seventh place with $197.2 billion, or 5.0% (up $4.9B, up $18.3B and up $59.3B). Dreyfus ($157.2B, or 4.0%) was in eighth place (down $5.8B, down $1.2B and down $11.0B), followed by American Funds ($137.1B, or 3.5%, unchanged, up $9.2B and up $120.1B). Morgan Stanley was in 10th place ($134.0B, or 3.4%; up $8.8B, up $13.2B and up $26.8B).

The 11th through 20th-largest U.S. money fund managers (in order) include: Wells Fargo ($129.7B, or 3.3%), Northern ($124.1, or 3.2%), SSGA ($122.3B, or 3.1%), First American ($69.5B, or 1.8%), UBS ($63.8B, or 1.6%), Invesco ($62.0B, or 1.6%), T Rowe Price ($39.2B, or 1.0%), DWS ($24.3B, or 0.6%), Franklin ($22.3B, or 0.6%) and Western ($22.1B, or 0.6%). Crane Data currently tracks 67 U.S. MMF managers, the same as last month.

When European and "offshore" money fund assets -- those domiciled in places like Ireland, Luxembourg and the Cayman Islands -- are included, the top 10 managers match the U.S. list, except JPMorgan and BlackRock move ahead of Vanguard, Goldman moves ahead of Federated, and Morgan Stanley, SSGA and Northern move ahead of Wells Fargo and American Funds. Our Global Money Fund Manager Rankings include the combined market share assets of our MFI XLS (domestic U.S.) and our MFI International ("offshore") products.

The largest Global money market fund families include: Fidelity ($796.9 billion), J.P. Morgan ($514.3B), BlackRock ($500.4B), Vanguard ($409.2B) and Goldman Sachs ($364.7B). Federated ($311.2B) was sixth, Schwab ($197.2B) was in seventh, followed by Dreyfus/BNY Mellon ($175.7B), Morgan Stanley ($170.3B) and Northern ($149.3B) which round out the top 10. These totals include "offshore" U.S. Dollar money funds, as well as Euro and Pound Sterling (GBP) funds converted into U.S. dollar totals.

The November issue of our Money Fund Intelligence and MFI XLS, with data as of 11/30/19, shows lower yields in November across all of our taxable Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 745), fell 15 basis points to 1.36% for the 7-Day Yield (annualized, net) Average, and the 30-Day Yield decreased by 17 bps to 1.38%. The MFA's Gross 7-Day Yield decreased by 15 bps to 1.76%, while the Gross 30-Day Yield fell 17 bps to 1.78%.

Our Crane 100 Money Fund Index shows an average 7-Day (Net) Yield of 1.50% (down 17 bps) and an average 30-Day Yield that decreased to 1.52%. The Crane 100 shows a Gross 7-Day Yield of 1.76% (down 17 bps), and a Gross 30-Day Yield of 1.79%. Our Prime Institutional MF Index (7-day) yielded 1.57% (down by 17 bps) as of November 30, while the Crane Govt Inst Index was 1.44% (down 13 bps) and the Treasury Inst Index was 1.38% (down 16 bps). Thus, the spread between Prime funds and Treasury funds is 19 basis points, while the spread between Prime funds and Govt funds is 13 basis points. The Crane Prime Retail Index yielded 1.41% (down 17 bps), while the Govt Retail Index was 1.15% (down 14 bps) and the Treasury Retail Index was 1.13% (down 16 bps). The Crane Tax Exempt MF Index yield fell in November to 0.72% (down 8 bps).

Gross 7-Day Yields for these indexes in November were: Prime Inst 1.89% (down 17 bps), Govt Inst 1.72% (down 13 bps), Treasury Inst 1.69% (down 16 bps), Prime Retail 1.90 (down 17 bps), Govt Retail 1.72% (down 14 bps) and Treasury Retail 1.69% (down 16 bps). The Crane Tax Exempt Index decreased 8 basis points to 1.17%. The Crane 100 MF Index returned on average 0.13% over 1-month, 0.43% over 3-months, 1.90% YTD, 2.09% over the past 1-year, 1.45% over 3-years (annualized), 0.92% over 5-years, and 0.49% over 10-years. The total number of funds, including taxable and tax-exempt, decreased by ten to 927. There are currently 745 taxable funds, ten less than the previous month, and 182 tax-exempt money funds (the same as last month). (Contact us if you'd like to see our latest MFI XLS, Crane Indexes or Market Share report.

SEC Stats: MMF Assets Close in on $4.0 Trillion, Up 16th Month in a Row

Dec 09 19

After a lengthy delay, the Securities and Exchange Commission finally released its latest "Money Market Fund Statistics" summary, which confirms that total money fund assets jumped in October, rising by $88.6 billion to a record $3.938 trillion. It was the 16th straight month of gains for money fund assets overall. Prime MMFs increased $38.4 billion in October to close at $1.102 trillion, their highest level since July 2016, while Govt & Treasury funds rose by $46.6 billion to a record $2.694 trillion. Tax Exempt funds rose by $3.6 billion to $142.6 billion. Yields fell across the board with Prime MMFs, Govt MMFs and Tax-Exempt MMFs all decreasing in October. The SEC's Division of Investment Management summarizes monthly Form N-MFP data and includes asset totals and averages for yields, liquidity levels, WAMs, WALs, holdings, and other money market fund trends. We review their latest numbers below.

October's big asset gains follow increases of $82.9 billion in September, $76.3 billion in August, $75.6 billion in July, $41.9 billion in June, $78.2 billion in May, $690 million in April, $87.9 billion in March, $76.9 billion in February and $31.4 billion in January. Over the 12 months through 10/31/19, total MMF assets have increased $782.4 billion, or 24.7%, according the SEC's series. (Note that the SEC's series includes a number of internal money funds not reported to ICI or others, though Crane Data tracks most of these.) (Note: Crane Data's separate monthly series shows money fund assets increased by $40.9 billion in November 2019.)

The SEC's stats show that of the $3.938 trillion in assets, $1.102 trillion was in Prime funds, which rose $38.4 billion in October after increasing $11.7 billion in September, $10.6 billion in August, $22.3 billion in July, $9.6 billion in June and $8.9 billion in May. Prime funds represented 28.0% of total assets at the end of October. They've increased by a stunning $358.2 billion, or 48.2%, over the past 12 months.

Government & Treasury funds totaled $2.694 trillion, or 68.4% of assets. They rose $46.6 billion in October, $72.9 billion in September, $66.0 billion in August, $53.5 billion in July, $31.8 billion in June and $67.3 billion in May. Govt & Treas MMFs are up $411.7 billion over 12 months, or 18.0%. Tax Exempt Funds increased $3.6B to $142.6 billion, or 3.6% of all assets. The number of money funds was 372 in October, up three from the previous month and down 9 funds from a year earlier.

Yields for Taxable MMFs were lower in October for the 8th month in a row. This year's declines follow almost 24 months of straight increases. The Weighted Average Gross 7-Day Yield for Prime Institutional Funds on Oct. 31 was 1.99%, down 14 basis points from the previous month. The Weighted Average Gross 7-Day Yield for Prime Retail MMFs was 2.06%, down 12 basis points. Gross yields fell to 1.89% for Government Funds, down 14 bps from last month. Gross yields for Treasury Funds decreased 17 basis points to 1.86%. Gross Yields for Muni Institutional MMFs fell from 1.58% in September to 1.22%. Gross Yields for Muni Retail funds fell from 1.56% to 1.26% in October.

The Weighted Average 7-Day Net Yield for Prime Institutional MMFs was 1.90%, down 15 bps from the previous month and down 35 bps since 10/31/18. The Average Net Yield for Prime Retail Funds was 1.80%, down 12 bps from the previous month and down 0.32% since 10/31/18. Net yields fell to 1.62% for Government Funds, down 13 bps from last month. Net yields for Treasury Funds decreased 17 basis points to 1.64%. Net Yields for Muni Institutional MMFs fell from 1.45% in September to 1.10%. Net Yields for Muni Retail funds decreased from 1.28% to 0.98% in October. (Note: These averages are asset-weighted.)

WALs and WAMs were predominately up in October, with only Govt Fund WALs falling. The average Weighted Average Life, or WAL, was 65.7 days (up 3.6 days from last month) for Prime Institutional funds, and 76.7 days for Prime Retail funds (up 3.9 days). Government fund WALs averaged 97.7 days (down 0.4 days) while Treasury fund WALs averaged 98.7 days (up 3.5 days). Muni Institutional fund WALs were 19.5 days (up 3.3 days), and Muni Retail MMF WALs averaged 41.7 days (up 3.3 days).

The Weighted Average Maturity, or WAM, was 34.1 days (up 3.2 days from the previous month) for Prime Institutional funds, 43.5 days (up 2.8 days from the previous month) for Prime Retail funds, 31.8 days (up 2.0 days) for Government funds, and 40.9 days (up 4.1 days) for Treasury funds. Muni Inst WAMs were up 3.1 days to 19.1 days, while Muni Retail WAMs increased by 3.3 days to 39.2 days.

Total Daily Liquid Assets for Prime Institutional funds were 37.7% in September (up by 0.1% from the previous month), and DLA for Prime Retail funds was 25.1% (down 0.4% from previous month) as a percent of total assets. The average DLA was 47.0% for Govt MMFs and 91.9% for Treasury MMFs. Total Weekly Liquid Assets was 52.5% (down 1.3% from the previous month) for Prime Institutional MMFs, and 39.2% (down 2.7% from the previous month) for Prime Retail funds. Average WLA was 70.5% for Govt MMFs and 98.6% for Treasury MMFs.

In the SEC's "Prime MMF Holdings of Bank-Related Securities by Country table for October 2019," the largest entries included: Canada with $148.6 billion, the U.S. with $124.6 billion, Japan with $113.4 billion, France with $85.0B, the UK with $54.5B, Germany with $52.8B, New Zealand/Australia with $50.0B, the Netherlands with $47.2B and Switzerland with $23.1B. The biggest gainers among the "Prime MMF Holdings by Country" include: the UK (up $15.6B), the Netherlands (up $9.9B), France (up $9.7B), Japan (up $8.3B), Australia/New Zealand (up $5.3B) and Switzerland (up $1.5B). The biggest decreases were Canada (down $9.8B), the US (down $8.3B) and Germany (down $3.2B).

The SEC's "Trend in Prime MMF Holdings of Bank-Related Securities by Major Region" table shows Europe had $326.9B (up $39.1B from last month), the Eurozone subset had $197.1B (up $18.6B). The Americas had $273.7 billion (down $18.1B), while Asia Pacific had $189.9B (up $14.1B).

The "Prime MMF Portfolio Composition" chart shows that of the $1.102 trillion in Prime MMF Portfolios as of October 31, $332.7B (30.2%) was in CDs and Time Deposits (up from $316.3B), $322.1B (29.2%) was in Government & Treasury securities (direct and repo) (down from $326.3B), $150.0B (13.6%) was held in Non-Financial CP and Other securities (up from $141.7B), $236.4B (21.5%) was in Financial Company CP (up from $226.7B) and $62.9B (5.7%) was in ABCP (down from $63.5B).

The SEC's "Government and Treasury MMFs Bank Repo Counterparties by Country" table shows the U.S. with $183.1 billion, Canada with $146.5 billion, France with $235.7 billion, Germany with $20.3 billion, Japan with $149.3 billion, the U.K. with $73.5 billion and Other with $41.0 billion. All MMF Repo with the Federal Reserve fell by $4.2 billion in October to $2.9 billion.

Finally, a "Percent of Securities with Greater than 179 Days to Maturity" table shows Prime Inst MMFs with 11.0%, Prime Retail MMFs with 11.3%, Muni Inst MMFs with 3.4%, Muni Retail MMFs 10.0%, Govt MMFs with 18.8% and Treasury MMFs with 17.6%.

Dec. MFI Features: MF Assets Kill It, Cavanal Hill Profile, Social MFs

Dec 06 19

The December issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Friday morning, features the articles: "MMF Assets Kill It in 2019; Signs of Slowdown in '20?," which discusses torrid but slowing money fund asset growth; "Cavanal Hill's Kitchen: There Will Be Yield," which profiles VP & Senior Money Market Portfolio Manager Mike Kitchen; and, "Dreyfus 'Impact' Govt MMF Opens Social Front vs. ESG," which discusses the newest breed of social money funds. We've also updated our Money Fund Wisdom database with Nov. 30 statistics, and sent out our MFI XLS spreadsheet Friday a.m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our December Money Fund Portfolio Holdings are scheduled to ship on Tuesday, Dec. 10, and our Dec. Bond Fund Intelligence is scheduled to go out Friday, Dec. 13.

MFI's "MMF Assets Kill It" article says, "Money fund assets moved higher again in November, and they're on pace to have their best year in a decade. But there are signs of a slowdown, and flat to lower rates in 2020 should begin tempering 2019's smoking inflow pace. Instead of 20% returns like we've seen this year, we should be lucky to get 10% in '20."

It continues, "Crane Data shows money fund assets increasing by $40.9 billion in November to $3.918 trillion, following gains of about $80 billion the previous 4 months in a row. While we've still got a shot at breaking $4.0 trillion by year end, it'll take a big December to do it."

Our "Cavanal Hill" piece reads, "This month, MFI interviews Cavanal Hill Investment Management VP & Senior Money Market Portfolio Manager Mike Kitchen, who runs Cavanal Hill's Government Securities Money Market Fund and U.S. Treasury Fund, Senior Tax Free Fixed Income Manager Rich Williams, and Repo Trader Ryan Friedl. They tell us about the history and latest priorities at Cavanal Hill, whose new tagline is 'Long live your money.' We also discuss the outlook and challenges facing money market funds in general. Our Q&A follows."

MFI says, "Give us some history. Kitchen responds, "Cavanal Hill began managing its first money market fund in the '90s. Our wealth management group itself traces its roots back to 1910, when Harry Sinclair, of Sinclair Oil, and some other oil men, founded what's now called Bank of Oklahoma. What we at BOK's Wealth Management Division, which Cavanal Hill is part of, traditionally do is, we manage money for ultra-wealthy clients and institutions, including one of the nation's oldest charitable trusts. We've got over 35 investment strategies, taxable fixed income, tax free, fundamental and quantitative equity and, of course, cash management."

He continues, "Cavanal Hill itself has about $8.0 billion under management and roughly $3.0 billion of that is in money market funds. According to MFI, we're the 36th largest out of 67 money fund families. So we're bigger than one might think.... There's a presence not just in Oklahoma, but places like Arkansas, Arizona, Texas and Colorado. We've got a big footprint in the heartland.... I've been here 20 years and this is all I've done here, manage the money market funds."

When asked, "What's your major priority?" Kitchen tells us, "It's always the same. It's the classic money fund value proposition -- balancing safety, liquidity and yield. We're always responsive to the competitive environment. As you know, right now we have a Government fund and a Treasury fund. Before 2016, we had a Prime fund and a Treasury fund. But like so many others, we transitioned the Prime to a government security or 'govie,' due to the 2016 Money Fund reforms."

Our "Impact" update says, "Dreyfus recently filed to change one of its Government money market mutual funds into a new breed of 'impact' or socially responsible funds, making it the second fund to date to funnel business through minority and other 'diversity' dealers. In related news, one of these diversity dealers, Mischler Financial, is ramping up its presence in 'cash'. (See yesterday's News, 'Mischler Financial Joins 'Impact' or Social Money Market Investing Wave.')"

The Prospectus Supplement for the $4.6 billon Dreyfus Government Securities Cash Management Fund tells us, "BNY Mellon Investment Adviser, Inc. generally will seek to place, over time, a majority of the aggregate dollar value of purchases and sales orders for Dreyfus Government Securities Cash Management's portfolio securities with dealers that are owned by minorities, women, disabled persons, veterans and members of other qualified and recognized diversity and inclusion groups, subject to the Adviser's duty to seek the best execution for the fund's orders."

The latest MFI also includes the News brief, "MMF Yields Flatten at 1.5%." It tells us, "Rates on money funds and brokerage sweep accounts are flattening out after declining in the weeks after the Fed's third, and possibly final, rate cut on Oct. 30. Our flagship Crane 100 MF Index inched down 0.01% to 1.50% over the past month. The Crane 100 is down from 1.81% on Sept. 30 and down from 2.18% June 30 and 2.23% at the start of 2019."

A second News piece, "SEC Warns on Brokerage Sweeps," reads, "Stephanie Avakian, the SEC's Co-Director, Division of Enforcement, commented in a recent speech, "We are also looking at cash sweep arrangements. Cash in advisory accounts is often automatically swept into a money market mutual fund or a bank deposit sweep program. A dually-registered adviser or an adviser with an affiliated broker-dealer may have a financial interest, a conflict, in recommending one cash investment over another."

Our December MFI XLS, with Nov. 30 data, shows total assets rose by $40.9 billion in November to $3.917 trillion, after rising $85.2 billion in October, $80.2 billion in September and $86.9 billion in August. Our broad Crane Money Fund Average 7-Day Yield fell to 1.36% during the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) was down 17 basis points to 1.50%.

On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA fell 16 basis points to 1.76% and the Crane 100 fell to 1.76%. Charged Expenses averaged 0.40% (down one basis point from last month) and 0.26% (unchanged), respectively for the Crane MFA and Crane 100. The average WAM (weighted average maturity) for the Crane MFA and Crane 100 was 34 and 37 days, respectively (up one day for both the Crane MFA and Crane 100). (See our Crane Index or craneindexes.xlsx history file for more on our averages.)

Mischler Financial Joins "Impact" or Social Money Market Investing Wave

Dec 05 19

A press release entitled, "Mischler Expands Cash Management & Liquidity Solutions Platform; Former BofA Execs to Lead Initiative," and subtitled, "Nation's Oldest Veteran-Owned Broker-Dealer Marks 25th Anniversary and Grows Institutional Cash Management Products & Services," tells us, "Mischler Financial Group, Inc. ('Mischler'), the financial industry's oldest diversity-certified investment bank owned and operated by service-disabled veterans today announced a further expansion of the firm's institutional cash management services and ESG-powered money market fund platform that partners with the financial industry's top fund managers. The firm's liquidity solutions group will be led by former Bank of America executives La-Yona Rauls and Christopher Walsh."

Mischler CEO Dean Chamberlain comments, "As we celebrate our 25th anniversary, our imperative is to always remain relevant to our institutional and corporate treasury clients by having domain experts deliver the best quality products and services that are germane to our clients' specific needs. This latest expansion of our team with highly-regarded industry veterans who can introduce clients to a broad menu of ESG-centric money market funds, and further complemented by our offering a matrix of liquidity solutions for cash market strategies enables us to stay true to our mission."

He adds, "We know that clients have many options within the context of firms they look to for value-added solutions. The corporate treasury executives and asset managers who are already acquainted with La-Yona and Chris know they can be counted on to provide a truly bespoke approach for any client who requires objective guidance for cash market products and smart liquidity management strategies."

The release continues, "La-Yona Rauls joins Mischler as Managing Director, Head of Corporate Cash Strategies. She brings the firm and its clients more than two decades of experience and product fluency across the spectrum of domestic/offshore money market mutual funds, rates, money markets, structured products, municipals and IG Corporate debt. Prior to joining Mischler, Ms. Rauls held successively senior roles for Bank of America Merrill Lynch, where she most recently served as Director, Western Region Sales.... Ms. Rauls is also credited with creating and hosting an annual round-table event for Fortune 100 finance executives and securities industry thought leaders focused on ESG and Green investing themes, governance, as well as Diversity and Inclusion best practices."

Mischler's announcement explains, "Chris Walsh joins Mischler as Head of Short-Term Fixed Income and Global Liquidity Solutions. A 25-year cash markets veteran, Mr. Walsh has held senior roles for BGC Partners and Bank of America Merrill Lynch, where he was Head of Short-Duration Sales and Global Investment Solutions. Mr. Walsh was also Director of Fixed Income Institutional Sales for Credit Suisse."

Walsh states, "As my career evolves, I wanted to join an organization that blends the highest quality service and talent with a strong, value-based mission. Mischler's boutique-style firm combines these elements in a unique way, and I'm very excited to join a team that has become forefront in the industry."

Mischler is the latest to jump aboard the "impact" or social money market bandwagon (which follows a flurry of "ESG" (environmental, social, governance) offerings. We wrote on November 21, "Dreyfus Launches "Impact" or Diversity Government Money Market Fund," which explains, "Dreyfus recently filed to change one of its Government money market mutual funds into a new breed of "impact" or socially responsible funds, making it the second fund to date to funnel business through minority and other "diversity" dealers. A Prospectus Supplement for the $4.6 billon Dreyfus Government Securities Cash Management Fund tells us, "BNY Mellon Investment Adviser, Inc. generally will seek to place, over time, a majority of the aggregate dollar value of purchases and sales orders for Dreyfus Government Securities Cash Management's portfolio securities with dealers that are owned by minorities, women, disabled persons, veterans and members of other qualified and recognized diversity and inclusion groups, subject to the Adviser's duty to seek the best execution for the fund's orders."

The article cited the Federal Home Loan Bank's "Dealer Page," which says, "The Office of Finance is committed to diversity and inclusion in our authorized dealer group, and actively seeks opportunities to work with dealers that are owned by minorities, women, disabled persons, veterans, and members of the lesbian, gay, bisexual, and transgender (LGBT) community. The Office of Finance promotes diverse dealer opportunities through increased access to debt programs, focused training for dealer sales and trading staff, and co-marketing programs with fixed-income investors." Examples of the FHLB's D&I Dealer Group include: Academy Securities, Blaylock Van, CastleOak Securities, Loop Capital Markets, MFR Securities, Mischler Financial Group and Stern Brothers.

In addition to minority money market broker-dealer services, Mischler is expected to offer an online money market fund trading "portal". The platform is reported to be a white-labelled version of State Street's Fund Connect offering.

For more on Impact and ESG Money Market Funds, see our recent Crane Data News: BNP Insticash Adds ESG Overlay (11/29/19), Goldman Adds ESG Screen (11/14/19), Aviva Investors Discusses ESG MMFs; Fitch Rates MS ESG (11/6/19), UBS Asset Mgmt Files to Launch Select ESG Prime Institutional Fund (11/4/19), BlackRock Launches First Offshore ESG MMF; ICS LEAF in EUR, GBP, USD (7/22/19), SSGA Goes Live with ESG Money Market Fund (7/3/19) and Academy Securities, JPMAM Launch First Veteran-Affiliated Money Fund (5/16/19).

Franklin Merges Money Funds; More Repo Concerns; Weekly MF Holdings

Dec 04 19

Franklin, the 20th largest manager of money market funds with $22.3 billion, merged two of its Government MMFs, follows its recent filing for a Blockchain money market fund. A Prospectus Supplement filing for Franklin Templeton U.S. Government Money Market Fund, a series of Franklin Templeton Money Fund Trust, tells us, "On May 21, 2019, the Board of Trustees of Franklin Templeton Money Fund Trust, on behalf of Franklin Templeton U.S. Government Money Fund (the 'Fund'), approved a proposal to reorganize the Fund with and into the Franklin U.S. Government Money Fund." We look at the brief below, and we also quote from a Bloomberg article on repo and summarize our latest Weekly Money Fund Portfolio Holdings below.

Franklin's filing explains, "It is anticipated that in the third calendar quarter of 2019, shareholders of the Fund will receive a Prospectus/Information Statement detailing the reasons for, and other matters relating to, the reorganization. The reorganization does not require the approval of shareholders. The transaction is currently expected to be completed on or about October 18, 2019. The Fund will not accept any additional purchases after the close of market on or about October 16, 2019. The Fund reserves the right to change this policy at any time."

A notice on Franklin's website entitled, "Franklin Templeton U.S. Government Money Fund Reorganization Effective 10/18/19 - Read More," comments, "Effective 10/18/19, this fund reorganized into Franklin U.S. Government Money Fund. Please contact your financial advisor or call Shareholder Services for more information."

Franklin continues to offer the $19.5 billion Franklin Inst Fiduciary Trust US Govt MM (INFXX) and the $2.8 billion Franklin US Govt Money Market Fund (FMFXX), but there is no sign yet of the pending Franklin Blockchain Enabled U.S. Government Money Fund. (See Crane Data's Sept. 4 News, "Franklin Files for Blockchain Enabled U.S. Govt Money Market Fund.")

In other news, Yahoo Finance posted a Bloomberg article, entitled, "Repo Fretting Shifts to Treasuries as Market Faces Next Test." It explains, "Flare-ups in the repo market could still cause worries across the global banking system, more than two months after chaos subsided in this vital corner of finance. Of particular concern: U.S. Treasuries, the world's biggest bond market and the place where the federal government funds its escalating deficit. If repo rates become jumpy again -- and many are girding for that to happen in the middle and end of this month -- some of those leveraged investors may have to unwind Treasury holdings."

The piece tells us, "Mid-December will see a recurrence of the same circumstances that apparently led to the September eruption -- quarterly corporate tax payments that drained cash from the banking system, coupled with Treasury settlements that prompted a rush for scarce reserves. Also, many analysts believe banks, particularly those based in Europe, will retreat around New Year's Eve from the repo market, driving up rates by pulling cash from the system as others try to secure financing. European banks face slightly different capital rules, encouraging them to reduce their end-of-year footprint and the amount of equity financing they need to back up their assets."

Bloomberg writes, "While the Fed has taken steps to bring order back to repo, adding liquidity by buying Treasury bills and doing overnight repo operations, many fret that won't be enough to keep rates under control. For those still scarred by the financial crisis a decade ago, the spike in repo rates in September triggered painful memories of the credit contagion in 2008 that took down some of the largest U.S. banks. The risk has since shifted to hedge funds and independent broker-dealers, the primary users of short-term repos used to finance positions in U.S. government debt."

They quote Scott Skyrm of Curvature Securities LLC, "As banks got smaller in the repo market, non-bank dealers like us filled the void. We absorbed what used to go to the banks, and it's all divvied up among lots of small firms. Banks are still active, but they're not as big as they used to be."

The article adds, "Hedge funds and broker-dealers aren't the only buyers of U.S. government debt, of course. There are also cash buyers, such as mutual funds, foreign central banks and sovereign wealth funds, who buy the Treasuries with money they have, without any need to borrow. But leveraged buyers have gained importance as others slowed their purchases."

Finally, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics and summary yesterday. Our weekly holdings track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of Nov. 29) includes Holdings information from 68 money funds (down 25 from last week), which represent $1.725 trillion (down from $2.081 trillion) of the $3.765 trillion (45.8%) in total money fund assets tracked by Crane Data.

Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Treasury debt totaling $595.7 billion (down from $687.2 billion a week ago), or 34.5%, Repurchase Agreements (Repo) totaling $569.4 billion (down from $703.7 billion) or 33.0%, and Government Agency securities totaling $325.8 billion (down from $385.0 billion), or 18.9%. Certificates of Deposit (CDs) totaled $91.1 billion (down from $104.5 billion), or 5.3%, and Commercial Paper (CP) totaled $79.0 billion (down from $99.8 billion), or 4.6%. A total of $32.3 billion or 1.9%, was listed in the Other category (primarily Time Deposits), and VRDNs accounted for $31.9 billion, or 1.8%.

The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $595.7 billion (34.5% of total holdings), Federal Home Loan Bank with $236.7B (13.7%), Fixed Income Clearing Co with $90.6B (5.3%), BNP Paribas with $52.2 billion (3.0%), Federal Farm Credit Bank with $51.6B (3.0%), RBC with $41.5B (2.4%), Mitsubishi UFJ Financial Group Inc with $31.2B (1.8%), JP Morgan with $28.7B (1.7%), Societe Generale with $28.3B (1.6%) and Natixis with $28.0B (1.6%).

The Ten Largest Funds tracked in our latest Weekly include: JP Morgan US Govt ($155.9B), Fidelity Inv MM: Govt Port ($140.0B), Goldman Sachs FS Govt ($120.9B), BlackRock Lq FedFund ($113.4B), Wells Fargo Govt MM ($87.1B), BlackRock Lq T-Fund ($73.9B), Fidelity Inv MM: MM Port ($73.8B), JP Morgan 100% US Treas MMkt ($70.3B), Goldman Sachs FS Treas Instruments ($69.1B) and Morgan Stanley Inst Liq Govt ($64.5B). (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.)

MMF Yields Flatten at 1.5%; Sweeps at 0.14%; Federated on Fed Minutes

Dec 03 19

Rates on money market funds, brokerage sweep accounts and bank accounts are flattening out after declining in the four weeks after the Fed's third, and possibly final, rate cut on Oct. 30. Our Money Fund Intelligence Daily shows that the flagship Crane 100 MF Index inched down 0.01% to 1.50% over the past week. The Crane 100 is down from 1.81% on Sept. 30 and down from 2.18% on June 30 and 2.23% at the start of the year. Our latest Brokerage Sweep Intelligence publication, with data as of Friday, Nov. 29, shows only Wells Fargo lowering rates in the past week. (See our Oct. 31 Link of the Day, "Fed Cuts Rates a Third Time.")

Our broader Crane Money Fund Average, which includes all taxable funds tracked by Crane Data, shows a 7-day yield of 1.38%, down 0.01% in the week through 11/29. Treasury Inst and Prime Inst MFs were down by 1 bps to 1.40% and 1.59%, respectively. Government Inst MMFs remained unchanged at 1.46%. Treasury Retail MFs currently yield 1.13%, (down 0.01%), Government Retail MFs yield 1.16% (down 0.01%) and Prime Retail MFs yield 1.42% (down 0.01%). Tax-exempt MF 7-day yields remained unchanged at 0.72%.

Crane's Brokerage Sweep Index inched down to 0.14% from 0.15% in the week ended November 29 (for balances of $100K) as Wells Fargo cut rates across the board by 2 bps to 0.05% (for most tiers). E*Trade and TD Ameritrade currently have the lowest rate for balances at the $100K level (0.01%). Meanwhile, Fidelity continues to have the highest sweep rate (0.82%). (Fidelity also have a higher-yielding money fund option for new accounts.) Morgan Stanley is paying 0.03%. UBS, Merrill and Wells Fargo are all paying 0.05%, and Schwab is paying 0.06%. Raymond James is paying 0.08% and Ameriprise is paying 0.09%. RW Baird is paying 0.33% for balances of $100K.

LPL currently has the lowest rate for balances at the $100K level (0.10%). Meanwhile, Robinhood has the highest sweep rate (1.80%) (see today's "Link of the Day"). SSN Securities and Securities America are paying 0.12% and 0.13%, respectively. Edward Jones and Folio Institutional both offer rates of 0.15% on 100K balances. Betterment and Commonwealth are both paying 0.25% while TIAA and JPMS Brokerage are paying 0.30%. Cetera is paying 0.40%, Pershing and Ally Bank are paying 0.75%, Pershing Dreyfus is paying 0.79% and JPMS Advisory is paying 1.60% for balances of $100K.

In related news, the Minneapolis Star-Tribune website recently featured an AP story on the Schwab/TD Ameritrde merger, entitled, "This stock trade isn't free: Schwab scoops up rival for $26B." It says, "Beyond commissions, brokerages make money from account fees and from interest earned on customers' cash, among other things. Schwab and TD Ameritrade made a combined $2 billion in net interest revenue in their latest quarters, for example. Rival Fidelity pointed out how Schwab and TD Ameritrade make some of that money by paying customers lower rates for cash in their trading accounts, known as 'sweep accounts.' Fidelity, which is privately held, would still have more in total customer assets than a combined Schwab."

In other news, Federated Investors' Debbie Cunningham asks, "Could Fed voters finally be on the same page?" In her latest commentary, she explains, "'Some,' 'a couple,' 'a few,' 'most.' If you are looking for precise numbers in the minutes of a Federal Open Market Committee (FOMC) meeting, you will be disappointed. They don't mention names at all, and when they refer to how many officials agreed on a given point, they use vague quantifiers."

Cunningham writes, "With the Federal Reserve shifting policy after a summer and fall of rate cuts, scouring the document is still worthwhile. In this case, the minutes from the October FOMC meeting simply confirmed what the statement and Chair Jerome Powell said. Policymakers feel it's time to see what the effect of the rate cuts are on the economy. They are going to rely on the data -- there's the precision! -- to give them direction. With the economy showing moderate growth, underpinned by that remarkable labor market and moderate inflation, they are on hold now unless something drastic alters the economic path. The Fed doesn't generally act on a month’s worth of data."

She continues, "Actually, the last policy-setting meeting of the year on Dec. 10-11 might result in an 'all.' A flurry of speeches by Fed governors and regional presidents in the last few weeks suggest there won't be any dissenters to the vote, which will almost certainly be to leave rates unchanged. If so, that would be the first unanimous vote since May."

Federated's update tells us, "How this all shakes out in 2020 depends on many factors, but fed funds futures aren't predicting any move until the second half. One thing certain is the complexion of the FOMC will change. Every year, four of the regional presidents roll off from being voting members and four new ones take their place. The two who dissented the most this year -- Esther George and Eric Rosengren -- will not have a vote in 2020. However, as best we can tell, the new group will be a mix of hawks and doves, on net not changing the overall policy stance."

It adds, "So where does this put liquidity products? In a good position again. The prevailing expectation this year that the Fed would not take rates to post-financial crisis lows has proven true. With cuts likely behind us for now, money market funds' core attributes of relative safety, liquidity and diversity can play their traditional role for portfolios -- especially as other asset classes have swayed with the state of the U.S.-China trade war and other uncertainties. With the Treasury yield curve no longer inverted and the London interbank offered rate (Libor) positively sloped, investors are getting some risk premium for going out the curve."

Finally, the monthly says, "A few comments on the repo markets. The Fed continues to do everything it can to control the volatility in the overnight rate with temporary and permanent open market operations. It continues to consider creating a repo facility and also issuing a 1-year Treasury bill floater indexed to the Secured Overnight Finance Rate (SOFR). It seems this combination is working, as repo rates held pretty well in the 1.50-1.60% range in November. We were opportunistic with our purchases in November, open to just about any approved investment: asset-back securities, bank instruments, commercial paper, government securities, Treasuries, etc. The target weighted average maturity (WAM) of our funds remained in a range of 35-45 days for government and 40-50 days for prime and municipal."

HSBC Global AM on Retailers and Black Friday Cash; PlanSponsor and Yi

Dec 02 19

HSBC Global Asset Management published the paper, "A Big Deal for Retailers this Black Friday – But What to Do with the Cash?" It explains, "For many retailers the months of November and December involve intense pressure and a focus on tight revenue and expenditure management. Hugo Parry-Wingfield, HSBC Global Asset Management, explains that, due to their high level of diversification, Money Market Funds are an investment product that retailers should consider keeping in their arsenal." We review HSBC's latest update below, and we also quote from a piece on DB (defined benefit) plans with comments from Northern Trust on cash.

The website Treasury Management International, which has the full HSBC article, explains, "As December creeps ever closer, for many in the workplace this means finalising year-end performance and setting plans, targets and budgets for the next year; 'top-down,' 'bottom-up' and 'stretch' become the business buzzwords of choice. However, for many retailers the months of November and December mean an intense pressure and focus on tight revenue and expenditure management, because for many around the world, this is the most expensive time of the year. That's right -- it's shopping season!"

It continues, "The retail sector relies heavily on big shopping events in the year with many depending on the key holiday periods to meet their targets. For those corporations used to more stable revenue flows, it can be a significant contrast. For example, the National Retail Federation (NRF) is expecting this year's holiday retail sales in November and December in the US to total up to $730bn, a staggering amount. And lest we fear any lull in consumer confidence, that's a predicted increase of around 4% compared with the same period in 2018. The NRF also estimates that this period is responsible for as much as 30% of a US retailer's sales for the entire year."

HSBC explains, "This period includes the phenomenon of discounted sale events prior to year end, and even more specifically the concept of very short or single-day discounted sales. An explosion of sales after Christmas, often starting on Boxing Day (26 December) or on New Year's Day were the norm in many markets including the US and the UK as recently as a decade ago. While these sales traditions still exist, we now have events such as Black Friday and Cyber Monday enticing consumers with discounted products. Black Friday, which started in the US, but now permeates in various forms to many other markets, is according to McKinsey, the top holiday shopping event in the US, Canada, and the UK."

They tell us, "Contrastingly, Singles' Day in China, which happens earlier in November than Black Friday and Cyber Monday, was the largest shopping event to ever happen globally in 2018. A total of RMB314bn ($45bn) was spent on goods and services in a 24-hour period. To add some perspective -- that's three times the combined value of Black Friday and Cyber Monday online sales in 2018. The immense popularity of Singles' Day shows no sign of abating with another record-breaking year in 2019."

HSBC also comments, "For retailers, a successful sales period means a sharp increase in their cash balances which, at a practical level, can be a mixed blessing. It is critical to place and deploy that cash as efficiently and as safely as possible. This cash may be used to reduce debt, to fund internal or external dividends and to invest in the business. However, there can be a lag for deploying this for its intended use. There may also be excess cash above the levels needed to meet the aforementioned obligations. Problems may present themselves if treasury or investment policies are geared more towards the lower average balances of the year rather than larger seasonal flows. For example, retailers will need to question if there are sufficient counterparty limits, counterparties for the sizeable spikes and whether sufficient diversification can be achieved."

The paper states, "Money market funds (MMFs) -- pooled investment funds that invest in short-dated money market instruments such as bank and government debt -- are well equipped to manage such cash flows and are an example of an investment product that retailers should consider keeping in their arsenal. MMFs typically provide daily liquidity and a high level of diversification. These factors can support the needs of retailers and other investors looking to have their balance professionally managed and spread across counterparties."

Finally, they write, "Those funds with a large scale of assets under management are especially well placed to be able to service investors with seasonal or temporary balance increases as well as more sticky balances, while the fund manager maintains investor concentration limits as an important risk management tool. Global retailers can also look to the truly global asset managers who operate with a consistent risk and investment framework. This ensures, for example, that the proceeds of Singles' Day RMB cash in China is invested to similarly high standards as their Black Friday or Cyber Monday USD cash in the United States, and in turn for GBP and EUR investment in Europe. So, we wish retailers a successful season and a happy end to the year."

In other news, PlanSponsor writes, "DB Plan Cash Flow Needs Are Greater Than Ever." This piece explains, "In these days of low interest rates, and following money market reform, investing strategies are needed to meet cash-flow needs from retiring Baby Boomers and pension risk transfer actions.... Peter Yi, director of short-duration fixed income and head of credit research at Northern Trust Asset Management (NTAM) in Chicago, says his firm is having conversations with DB plan sponsors about how they can be more thoughtful on optimizing cash holdings. 'We are challenging our client to rethink cash and more effectively and efficiently use it. For the time being, DB plans are holding more liquidity and less risk assets,' he says."

It continues, "Money market funds were at one time an effective cash preservation vehicle. NTAM believes the Securities and Exchange Commission (SEC) money market fund reforms requiring higher cash (or similarly liquid vehicle) ratios at daily and weekly intervals redefined 'illiquid' securities, restricted lower quality securities in fund makeup and stricter maturity limits on fund components, resulting in their income levels becoming extremely modest."

PlanSponsor quotes a Northn paper, which says, "Investors are developing a sharper understanding of the tradeoffs among safety of principal, income and access to funds in managing liquidity. Many now recognize a single product solution may no longer be viable. The regulatory and ultra-low rate environment is forcing them to be more open-minded about the broader menu of investment options available in today’s liquidity investing marketplace.... [W]hat most DB plan sponsors do is either raise money every quarter by selling assets from certain funds or maintain a short-term bond fund (duration of 2) and raise money from that."

The article adds, "DB plans don't want to hold too much cash -- if they are raising money once a quarter, they could have at least three months of cash on their balance sheet only earning 1.5% or 2%. [Yi] suggests combining cash and a short-term bond fund customized to the plan with inflows coming in and outflows going out -- a portfolio that provides money as needed month after month. 'If a plan has cash and a short-term bond fund, which most would, take those asset allocations and add some other fixed income allocation to create a special portfolio,' he suggests."

It explains, "The three segments, or portfolio buckets, plans need are Operational, Reserve and Strategic. Yi explains that Operational is the most critical bucket for immediate or very short-term liquidity needs (1 day to 30 days).... The Reserve bucket is for intermediate spending needs (up to 90 days), according to Yi. Investment vehicles used for this bucket offer investors a better balance between risk and reward -- e.g., separately managed accounts (SMAs), conservative ultra-short funds, and prime money market funds.... The Strategic bucket covers a DB plan's longer-term spending needs (six months to 18 months). Yi says investment vehicles are still high-quality but designed to have a better balance of risk and reward. DB plan investors turn to ultra-short bond investment vehicles."

Finally, PlanSponsor adds, "According to Yi, ultra-short product use has been growing. 'Low interest rates and how long they've been low has brought a lot of investors into ultra-short products,' he says.... With cash segmentation, Yi says the goal is to find the right allocation between the buckets. It will create a portfolio optimizing cash but with a better balance of risk and reward across cash holdings."