News Archives: July, 2019
The Investment Company Institute released its monthly "Trends in Mutual Fund Investing" and its latest monthly "Month-End Portfolio Holdings of Taxable Money Funds" reports yesterday. The latest numbers show money fund assets jumping $41.5 billion to $3.202 trillion in June. This follows increases of $89.3 billion in May, a decrease of $8.8 billion in April and $11.5 billion in March, and an increase of $45.5 billion in February. In the 12 months through June 30, 2019, money fund assets have increased by $381.0 billion, or 13.5%.
The release states, "The combined assets of the nation's mutual funds increased by $777.62 billion, or 4.1 percent, to $19.87 trillion in June, 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 $14.49 billion in June, compared with an inflow of $14.30 billion in May.... Money market funds had an inflow of $37.93 billion in June, compared with an inflow of $86.12 billion in May. In June funds offered primarily to institutions had an inflow of $24.10 billion and funds offered primarily to individuals had an inflow of $13.83 billion."
The latest statistics show that Taxable and Tax Exempt MMFs gained assets last month. Taxable MMFs increased by $40.8 billion in June to $3.065 trillion. Tax-Exempt MMFs increased $0.7 billion in June to $136.4 billion. Taxable MMF assets increased year-over-year by $380.4 (14.2%). Tax-Exempt funds rose by $0.7 billion over the past year (0.5%). Bond fund assets increased by $62.5 billion in June (1.4%) to $4.440 trillion; they've risen by $326.7 billion (7.9%) over the past year.
Money funds represent 16.1% of all mutual fund assets (down from 16.6% the previous month), while bond funds account for 22.3%, according to ICI. The total number of money market funds was 367, down one fund from May and down from 383 a year ago. Taxable money funds numbered 286 funds, and tax-exempt money funds remained at 81 funds.
ICI's "Month-End Portfolio Holdings" update show a jump in CDs and Repo last month. Repurchase Agreements remained in first place among composition segments; they increased by $10.7 billion, or 1.0%, to $1.134 trillion, or 37.0% of holdings. Repo holdings have risen by $225.3 billion, or 24.8%, over the past year.
Treasury holdings in Taxable money funds dropped by $5.4 billion, or -0.7%, to $742.7 billion, or 24.2% of holdings. Treasury securities have increased by $14.5 billion, or 2.0%, over the past 12 months. U.S. Government Agency securities were the third largest segment; they decreased $12.2 billion, or -1.8%, to $675.8 billion, or 22.0% of holdings. Agency holdings have risen by $12.5 billion, or 1.9%, over the past 12 months.
Certificates of Deposit (CDs) stood in fourth place; they increased by $20.2 billion, or 8.4%, to $260.5 billion (8.5% of assets). CDs held by money funds have grown by $80.8 billion, or 45.0%, over 12 months. Commercial Paper remained in fifth place, up $2.7 billion, or 1.2%, to $226.2 billion (7.4% of assets). CP has increased by $56.5 billion, or 33.3%, over one year. Notes (including Corporate and Bank) were up $1.7 billion, or 22.4%, to $9.2 billion (0.3% of assets), while Other holdings increased to $13.3 billion.
The Number of Accounts Outstanding in ICI's series for taxable money funds increased by 268.3 thousand to 35.119 million, while the Number of Funds decreased by one to 286. Over the past 12 months, the number of accounts rose by 2.775 million and the number of funds decreased by 13. The Average Maturity of Portfolios was 30 days, the same as May. Over the past 12 months, WAMs of Taxable money funds have decreased by 1 day.
In other news, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics and summary Tuesday. Our weekly holdings track a shifting subset of our monthly Portfolio Holdings collection, and the latest cut (with data as of July 26) includes Holdings information from 67 money funds (down from 81 last week), representing $1.328 trillion (down from $1.803 trillion a week ago) of the $3.402 trillion (39.0%) in total money fund assets tracked by Crane Data.
Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $551.6 billion (down from $718.9 billion a week ago), or 41.5%, Treasury debt totaling $393.0 billion (down from $513.8 billion) or 29.6%, and Government Agency securities totaling $224.2 billion (down from $301.3 billion), or 16.9%. Commercial Paper (CP) totaled $59.0 billion (down from $90.7 billion), or 4.4%, and Certificates of Deposit (CDs) totaled $55.3 billion (down from $87.0 billion), or 4.2%. A total of $27.3 billion or 2.1%, was listed in the Other category (primarily Time Deposits), and VRDNs accounted for $17.4 billion, or 1.3%.
The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $393.0 billion (29.6% of total holdings), Federal Home Loan Bank with $158.8B (12.0%), Fixed Income Clearing Co with $70.2B (5.3%), BNP Paribas with $57.9 billion (4.4%), RBC with $44.2B (3.3%), Federal Farm Credit Bank with $43.2B (3.3%), JP Morgan with $33.0B (2.5%), Credit Agricole with $32.1B (2.4%), Barclays PLC with $28.3B (2.1%) and Societe Generale with $27.0B (2.0%).
The Ten Largest Funds tracked in our latest Weekly include: Fidelity Inv MM: Govt Port ($115.0B), Goldman Sachs FS Govt ($107.5B), BlackRock Lq FedFund ($97.8B), Wells Fargo Govt MMkt ($82.3B), BlackRock Lq T-Fund ($72.5B), Fidelity Inv MM: MMkt Port ($64.2B), Goldman Sachs FS Trs Instruments ($62.1B), Morgan Stanley Inst Liq Govt ($57.7B), Dreyfus Govt Cash Mgmt ($56.3B) and First American Govt Oblg ($47.7B). (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.)
Barron's writes, "Robos Look Beyond Investing," which tells us, "In Barron's annual ranking of robo-advisors, the evolution continues. The next big thing? Checking and savings accounts." The piece explains, "Barron's third-annual robo ranking -- in partnership with Backend Benchmarking -- shows that robo assets continue to rise, to at least $440 billion at last count.... The increase has been driven by new services, including access to live advisors, sustainable-investing products, and higher-yielding cash accounts." We quote from the Barron's update below, and we also cover articles on fin-tech firm Betterment by the Financial Times and BankRate.
The Barron's article continues, "Assets are being driven by products that are new to the robos, but effectively old hat elsewhere in the financial world: cash management, spending and budgeting, and sustainable investing. 'When the markets got shaky, people weren't as hip on robos,' says Ken Schapiro, Backend Benchmarking's founder and CEO. 'They were more interested in cash options they had. So that seems to be a growing thing.'"
It tells us, "Wealthfront's cash account, which offers a 2.57% interest rate and is FDIC-insured, brought in more than $1 billion in the month after it was announced. 'We want clients to be able to automatically deposit their paychecks into Wealthfront, and we will be able to optimize every single dollar that comes into our ecosystem, allocating it to the right accounts,' Wealthfront spokeswoman Kate Wauck wrote in an email. 'We believe that delivering this will allow us to remove the excess cost in the financial industry and give it back to the people.'"
Barron's writes, "Just this past week, fellow robo pioneer Betterment said that it would offer customers FDIC-insured checking and savings accounts. The savings account is available now and carries up to a 2.69% interest rate. Checking accounts will be available later this year.... 'To really serve our customers, we have to help them with their everyday money, as well as their long-term money,' CEO Jon Stein tells Barron's."
The piece adds, "The crowded field is helping to push down fees and boost interest rates on savings accounts. But don't expect many new entrants from here on, at least not from independent start-ups. 'It's really difficult to compete with Betterment, Personal Capital, and Wealthfront when it comes to ease of use and ability to streamline services,' Goldstone observes."
Finally, they write, "Shifting demographics and new customer bases are indeed pushing the robos to evolve on the fly, sometimes pushing investing into the background. 'Mark my words,' says Goldstone, 'six months or a year from now, we're going to be talking a lot more about cash management, spending and where your direct deposit is going.'" Barron's includes a table showing Betterment with $17.6 billion in AUM, Wealthfront with $15B and Personal Capital with $10.0B.
In related news, Bankrate informs us that, "Betterment launches Everyday Savings, a cash management account offering 2.69% APY." They explain, "Betterment ... unveiled Everyday Savings, which offers up to 2.69 percent annual percentage yield (APY). The account requires a $10 minimum deposit to open but no minimum balance. To get the top APY, you must also sign up for the waitlist for Betterment Everyday Checking, which is scheduled to be released later this year. Betterment Everyday Savings insures funds up to $1 million through its partner banks, though the money will be uninsured while being transferred to those institutions."
The brief states, "The 2.69 percent APY on Betterment's cash management account is higher than yields on top savings accounts and is nearly 27 times the national average APY on savings accounts (0.1 percent). It also tops Wealthfront's cash management account, which offers 2.57 percent APY. However, if you don't sign up for the Betterment Everyday Checking waitlist, you will earn 2.43 percent APY."
They comment, "The product has savings in its name, but it doesn't work the same as a typical savings account or money market account, particularly with how the funds are insured.... The Betterment Everyday Savings, meanwhile, is a cash management program that works with program banks. The account is insured up to $1 million through those program banks. Deposits made from a linked checking account reach the program banks one to two business days after they're initiated, according to Betterment. Deposits at Betterment aren't covered by the Securities Investor Protection Corporation (SIPC)."
BankRate adds, "Program banks for the Everyday Savings are Citi, Barclays, Valley National Bank, Seaside National Bank & Trust and Georgia Banking Co. The program bank for the Everyday Checking will be NBKC. If you open the Betterment account and have money deposited at one of these institutions, you could exceed FDIC limits. Keep track of the program banks because the deposit bank list may change. The account's terms and conditions note that it is meant for you to earn interest on cash you intend to use to buy securities with through Betterment and isn't meant to be a long-term investment option."
Finally, the Economist also covered the news, writing, "Betterment wants your bank account as well your investments." They say, "Robo-advisers have made big inroads. They still need to work out how to make profits." The piece explains, "Rock-bottom fees, usually just 0.25% of assets, have helped them grow fast. Betterment, a robo-adviser based in New York that was founded in 2008, manages $18bn-worth of assets. Wealthfront, a rival from San Francisco, manages $11bn. But skimpy fees mean they need hefty assets to survive. In a report in March, HSBC claimed that robo-advisers need to oversee $11bn-21bn of assets to break even."
It adds, "But Betterment is taking a different route. On July 23rd Mr Stein announced that it was launching savings and current (checking) accounts, with the aim of becoming a 'one-stop shop' for money management. Betterment will not become a bank. Instead it has agreements with regional banks, which will hold deposits. This, says Mr Stein, allows it to offer generous terms. Rather than leaving deposits with one bank, Betterment will place them wherever rates are highest."
The FT states, "It can split customer deposits between banks, meaning greater federal-insurance coverage. Less concerned about the stickiness of deposits, it can offer unlimited withdrawals. The result is compelling for customers. The savings account offers a juicy interest rate of 2.69%, around 0.2 percentage points higher than the best high-yield savings accounts elsewhere. Federal insurance covers $1m, four times the usual limit. The current account, due to launch later this year, will have no minimum balance or account or overdraft fees, and will reimburse all fees for using an ATM."
The article adds, "If successful, the shift in strategy could put to rest worries about profitability that have dogged both Betterment and the robo-advisory industry more broadly. New account customers might be tempted to use advisory services, too. Mr Stein also hopes that the firm can encourage account-holders to save more. More than half of Betterment's customers transfer money automatically into their investment funds. If the firm manages more current and savings accounts, it may be able to increase that share. The launch comes with risks, however. The first is that it may irk regulators. Deposits are supposed to be a reliable source of funds for banks. If Betterment gets them to compete for its customers' funds, not only would banks' margins be squeezed but deposits could become flightier."
For more on Fin-Tech, see these recent Crane Data News articles: More Arrows Hit Robinhood (7/12/19), June MFI: Consolidation, Morgan Stanley Ultra Short, Fin-Tech Invasion (6/7), Personal Capital Cash Latest Fin-Tech Attack on Banks (6/18), Investment News on Fin-Techs Invading Cash Mgmt (5/13), WSJ Says Robos Taking Deposits (3/4) and Barron's Hits FinTech Money Markets (1/2).
Federated Investors released its latest earnings report late last week and hosted a conference call on Friday. President & CEO J. Christopher Donahue comments in the release, "Investors also continued to choose money market strategies for liquidity solutions, especially our prime money market products.... Money market assets were $333.1 billion at June 30, 2019, up $77.9 billion or 31% from $255.2 billion at June 30, 2018 and up $14.7 billion or 5% from $318.4 billion at March 31, 2019. Money market fund assets were $231.3 billion at June 30, 2019, up $58.6 billion or 34% from $172.7 billion at June 30, 2018 and up $16.5 billion or 8% from $214.8 billion at March 31, 2019. Federated's money market separate account assets were $101.7 billion at June 30, 2019, up $19.1 billion or 23% from $82.6 billion at June 30, 2018 and down $1.9 billion or 2% from $103.6 billion at March 31, 2019."
The release says, "Revenue increased $65.5 million or 26% primarily due to the consolidation of Hermes' revenue and higher average domestic money market assets. These increases in revenue were partially offset by a decrease in revenue from lower average domestic equity assets.... During Q2 2019, Federated derived 61% of its revenue from long-term assets (42% from equity assets, 14% from fixed-income assets and 5% from multi-asset and alternative/private markets assets), 38% from money market assets, and 1% from sources other than managed assets.... Operating expenses increased $61.3 million or 35% primarily due to the consolidation of Hermes' expenses and an increase in distribution expenses associated with higher average money market fund assets."
On their Q2 2019 Earnings Conference Call, Donahue comments, "Now looking at money markets. These assets increased about $15 billion in the second quarter. We saw positive money market fund flows from a variety of institutional and intermediary clients in the second quarter. Money market strategies continue to have a significant yield advantage compared to average deposit rates. Prime money fund assets increased $8 billion were about 15% in the second quarter. Our money market mutual fund market share including sub-advised funds at the end of the second quarter, increased to just over 8%."
When asked about recent gains, he responds, "Generally when you've been committed to this business as long as we have ... many decades, the customers and the marketplace realized that we are a go-to player in the money market space. And so when the products and the sales force and the story align ... we get back to the thrilling days of yesteryear when our market share was at 8%. And I'll let Debbie comment on a little bit on some of the specifics.
Money Market CIO Deborah Cunningham answers, "Basically I think you have to do with a couple of different things. As Chris mentioned, dedication to this business for nearly 50 years at this point, I think breadth of product-mix. We still have a large group of products to offer in all aspects of our governments money market funds, of our prime money market funds and of our tax-free money market funds both on a national as well as the state-specific basis. So I think we're a one-stop shop for a lot of different options for people to maybe not place their trade with just one specific fund but across several categories."
She continues, "We've also seen a broad selection of both institutional players in the market as well as the traditional ticket trade coming through the retail marketplace. With the ... yield curve ... being slightly inverted at this point ... and the products on a yield basis looking particularly attractive versus what's ... offered from the deposit base, all of those things make the money market fund product mix very attractive at this point. So it's a combination of having a lot of experience in this marketplace, having yields that are very competitive and having a solution for clients and the base of clients that is not just one particular asset, but across all assets of this business in the marketplace."
On Fed cuts, Cunningham states, "So the 25 basis points, I think is pretty much baked in the cake at this point, and then it will depend on how the yield curve looks after that and what the expectations would be for continuing movement. Certainly, what we don't see is the Fed returning rate to the zero-rate environment.... In a decreasing rate environment, even if it's a mildly decreasing rate environment, generally speaking, managed products like money market funds and other, short-term liquidity products look very, very attractive versus the direct market. And as such it's a prime time for gathering assets into this asset class reallocating into this asset class. So we would expect that to continue."
Donahue adds, "Another observation here is this despite whatever the Fed does these are overwhelmingly cash management service products. Yes, they have yield. Yes, they count [as] investments. [But] there is an underlying force that causes people to want to have the money market fund regardless of what the Fed does. And I agree that, once you get down in the 1% and below, [then] you're waiving and you have a slightly different situation.... But in any of these kind of situations, including the new dynamic of them lowering rates and us having a higher yield, historically that has, as Debbie pointed out, been a time for more assets rather than less assets ... coming into the funds."
When asked about the PNC funds merger, Donahue comments, "Well, we're pretty busy working the [PNC] transaction ... that's a pretty significant deal for us in terms of the number of funds, their money market business [was] $9 billion when we announced the deal.... In terms of looking for future deals, we have our team ... continually out there. And I can't have anything that I'm pointing to or anything more to say than other than we are going to be active and that will certainly consider roll-ups, and then other areas that we are lacking in we continue to look around. Like for instance, the SMA Muni business we are not a significant player there and that's one of the areas that we would have interest of finding somebody who is a significant player there."
Cunningham was also asked about ESG issues. She responds, "Certainly, this is an area that we have been focusing on, for the entire year of 2019. As well as the end of 2018 once we began to understand a little bit more about the ESG and the EOS processes from the -- our Hermes brethren. And ultimately, what has been accomplished within the liquidity team at Federated is an integration of the unique aspects of ESG, information and qualifications if you will, into our internal credit process.... Ultimately, we've always taken into consideration, when doing that minimal credit risk analysis, the various aspects of environmental, social and governance aspects when we're talking about the qualitative association of the various issuers that we're using. What ultimately we have to decide then was after taking the new material that we are using on an input basis from the Hermes folks, is how that plays through within our internal ratings scores."
She adds, "For our largest industry, that being financial services and banking, certainly the governance aspect is a very large influence on how we are reviewing the issuers and the credits that we're using. Probably one of the more important items that we had to decide in this integration is how we look at what I'll call non-traditional type of issuers. So, issuers that may be our repurchase agreements that have collateral behind them and counterparties rather than traditional issuances. Another type that we had to look at was credit enhanced issuers, where you may small municipalities or project finance that was a bank that's providing the guarantee.... And then thirdly would be our asset-backed exposure on mostly the prime side of the equation.... All of that had to be worked out. But I'm proud to say and happy to say that at this point, we have worked it out, we've got our own methodology and we are integrating this ESG assessment into our daily credit work that we perform with the input the valuable input and the proprietary input that comes from the Hermes folks in London."
When asked how a Fed cut might impact retail MMF flows, Cunningham states, "So we've actually seen bank deposit products already being lowered. So despite the fact that the Fed hasn't made any move since December of last year, there are banks that have begun their declining rate environment already. So, although banks are ready then to move their deposit rates in an increasing rate environment, they're quickly adjusting usually on a downside. So if the Fed acts, as we would expect them to ... `we still feel that compared to what deposit products are providing ... a nice return that is commensurate with what they're getting from inflationary perspective in the marketplace."
Finally, she tells us, "As such, we'll continue to find their flows being more likely to be placed in a managed product, such as the money market fund rather than a deposit product at this point. It just really continues to make sense for the retail investor, even if we see a 25 basis point decline in July followed by another one later in the year. It's still will allow the retail customer to have some sort of a return on its cash, which is a pleasant ... increase in their income that they've not been experiencing for too long now at this point. I think they will continue to move their assets into the space."
Money fund assets rose for the 14th week in a row, hitting their highest levels in a decade. The Investment Company Institute's latest "Money Market Fund Assets" report shows that MMF assets have increased by $241.2 billion, or 7.9%, since April 17, and they've increased by $237 billion, or 7.8%, year-to-date. Over the past 52 weeks, ICI's money fund asset series has increased by $442 billion, or 15.5%, with Retail MMFs rising by $217 billion (20.9%) and Inst MMFs rising by $225 billion (12.5%). We review the latest money fund asset totals below, and we also mention yet another longshot lawsuit over money market funds in 401k plans.
They write, "Total money market fund assets increased by $22.33 billion to $3.28 trillion for the week ended Wednesday, July 24, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $2.0 billion and prime funds increased by $5.41 billion. Tax-exempt money market funds decreased by $1.52 billion." ICI's weekly series shows Institutional MMFs rising $20.0 billion and Retail MMFs rising $2.3 billion. Total Government MMF assets, including Treasury funds, stood at $2.4 trillion (74.1% of all money funds), while Total Prime MMFs rose to $692.0 billion (21.1%). Tax Exempt MMFs totaled $138.7 billion, or 4.2%.
ICI states, "Assets of retail money market funds increased by $2.33 billion to $1.25 trillion. Among retail funds, government money market fund assets decreased by $32 million to $711.15 billion, prime money market fund assets increased by $3.38 billion to $415.97 billion, and tax-exempt fund assets decreased by $1.02 billion to $126.28 billion." Retail assets account for over a third of total assets, or 38.1%, and Government Retail assets make up 61.8% of all Retail MMFs.
The release adds, "Assets of institutional money market funds increased by $20.00 billion to $2.03 trillion. Among institutional funds, government money market fund assets increased by $18.48 billion to $1.74 trillion, prime money market fund assets rose by $2.03 billion to $281.46 billion, and tax-exempt fund assets decreased by $499 million to $10.90 billion." Institutional assets accounted for 61.8% of all MMF assets, with Government Institutional assets making up 85.6% of all Institutional MMF totals.
Crane Data's separate and broader Money Fund Intelligence Daily series shows money fund assets rising by $26.3 billion to $3.433 trillion in the week ended July 24, 2019. Month-to-date through 7/24, money fund assets have risen a stunning $104.6 billion, on pace for one of their strongest monthly gains ever. Our latest Money Fund Intelligence and MFI XLS, which track a broader set of funds than our MFI Daily, showed assets rising $78.3 billion to $3.407 trillion in June. We expect asset inflows to remain strong in coming months, particularly in the fourth quarter.
In other news, Website Alabama.com writes "Lawsuit claims BBVA investments like 'stuffing cash in a mattress'." They explain, "A lawsuit filed Thursday against BBVA called its 401(k) plan 'the investment equivalent of stuffing cash into a mattress.' The proposed class action lawsuit, filed in the Northern District of Alabama against BBVA Compass Bancshares, deals with the Compass SmartInvestor 401(k) Plan. The suit was filed on behalf of two Alabama residents who were members of the plan. According to the suit, the plan had more than $931 million in assets and 13,145 participants with account balances, as of the end of 2017."
The brief explains, "The 88-page lawsuit alleges that BBVA failed to monitor its money market fund and mutual fund plans to see that they were drawing sufficient interest. In some cases, the returns were 'woefully inadequate,' the suit states, calculating the participants lost out on as much as $54 million in potential returns if the plans were 'properly invested.'"
The piece adds, "According to the lawsuit, BBVA's plan ... consisted, according to the suit, of company stock; a money market fund; a series of blended mutual funds; a single bond mutual fund and various other fund options. The lawsuit says that, during the period in question, from 2013 to 2018, when ultra-short-term rates were at historic lows, the use of a money market fund was 'imprudent' as the returns would have been virtually nothing."
The suit states, "For the six years preceding the filing of this lawsuit, the Plan's money market funds returned 0.01 percent or less per year, close to nothing. Indeed, accounting for inflation, participants invested in these options actually lost money."
The Securities and Exchange Commission released its latest "Money Market Fund Statistics" summary late Tuesday, which shows that total money fund assets were up sharply again last month, rising by $41.9 billion in June to $3.615 trillion. Prime MMFs increased $9.6 billion in June to close at $1.018 trillion, Govt & Treasury funds rose by $31.8 billion to $2.455 trillion, and Tax Exempt funds rose by $0.4 billion to $141.1 billion. Yields fell for Prime MMFs and Govt MMFs in June. 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. (The SEC revised this report earlier this year to include more history and to split Prime into Prime Inst and Prime Retail and Muni into Muni Inst and Muni Retail.) We review their latest numbers below.
Overall assets surged $41.8 billion in June, following increases of $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 6/30/19, total MMF assets have increased $516.3 billion, or 16.7%. (Note that the SEC's series includes a number of private and internal money funds not reported to ICI or others, though Crane Data tracks most of these.)
Of the $3.615 trillion in assets, $1.018 trillion was in Prime funds, which rose $9.6 billion in June after increasing $8.9 billion in May, $27.8 billion in April and $99.2 billion in March. Prime funds represented 28.2% of total assets at the end of June. They've increased by a whopping $341.3 billion, or 50.4%, over the past 12 months! Government & Treasury funds totaled $2.455 trillion, or 67.9% of assets. They rose by $31.8 billion in June and $67.3 billion in May, but fell $20.7 billion in April and $12.7 billion in March. Govt & Treas MMFs are up $173.0 billion over 12 months, or 7.6%. Tax Exempt Funds increased $0.4B to $141.1 billion, or 3.9% of all assets. The number of money funds was 370 in June, unchanged from the previous month but down 11 funds from a year earlier.
Yields for Taxable MMFs were lower in June for the third month in a row (the 5th for Prime). This year's declines follow 24 months of (almost straight) increases. The Weighted Average Gross 7-Day Yield for Prime Institutional Funds on June 30 was 2.50%, down 4 basis points from the previous month. The Weighted Average Gross 7-Day Yield for Prime Retail MMFs was `2.55%, down 3 basis points. Gross yields fell to 2.43% for Government Funds, down 2 bps from last month. Gross yields for Treasury Funds decreased 6 basis point to 2.37%. Gross Yields for Muni Institutional MMFs rose from 1.58% in May to 1.88%. Gross Yields for Muni Retail funds rose from 1.52% to 1.88% in June.
The Weighted Average 7-Day Net Yield for Prime Institutional MMFs was 2.42%, down 4 bps from the previous month but up 0.39% since 6/30/18. The Average Net Yield for Prime Retail Funds was 2.28%, down 4 bps from the previous month but up 0.37% since 6/30/18. (Note: These averages are asset-weighted.)
WALs and WAMs were mixed in June. The average Weighted Average Life, or WAL, was 58.2 days (down 1.9 days from last month) for Prime Institutional funds, and 62.8 days for Prime Retail funds (down 0.3 days). Government fund WALs averaged 95.5 days (up 2.2 days) while Treasury fund WALs averaged 91.1 days (down 0.1 days). Muni Institutional fund WALs were 14.1 days (the same as the previous month), and Muni Retail MMF WALs averaged 32.5 days (up 7.5 days).
The Weighted Average Maturity, or WAM, was 32.4 days (down 1.2 days from the previous month) for Prime Institutional funds, 32.9 days (up 0.2 days from the previous month) for Prime Retail funds, 27.7 days (unchanged) for Government funds, and 31.6 days (down 0.8 days) for Treasury funds. Muni Inst WAMs were down 0.1 days to 13.7 days, while Muni Retail WAMs increased by 8 days to 30.6 days.
Total Daily Liquid Assets for Prime Institutional funds were 37.8% in June (up by 0.2% from the previous month), and DLA for Prime Retail funds was 21.5% (down 2.1% from previous month) as a percent of total assets. The average DLA was 43.4% for Govt MMFs and 90.1% for Treasury MMFs. Total Weekly Liquid Assets was 53.7% (up 1.1% from the previous month) for Prime Institutional MMFs, and 40.6% (down 0.9% from the previous month) for Prime Retail funds. Average WLA was 69.9% for Govt MMFs and 97.7% for Treasury MMFs.
In the SEC's "Prime MMF Holdings of Bank-Related Securities by Country table for June 2019," the largest entries included: Canada with $147.8 billion, the U.S. with $121.1 billion, Japan with $96.8 billion, France with $72.4B, the UK with $48.7B, Germany with $42.9B, Australia/New Zealand with $38.2B, the Netherlands with $28.8B and Switzerland with $21.9B. The biggest gainers among the "Prime MMF Holdings by Country" include: Canada (up $18.3B), the U.K. (up $6.1B), the US (up $3.6B) and Australian/New Zealand (up $2.1B). The biggest drops include: France (down $14.4B), Switzerland (down $4.1B), Japan (down $3.1B) and Germany (down $0.7B).
The SEC's "Trend in Prime MMF Holdings of Bank-Related Securities by Major Region" table shows Europe had $277.7B (down $9.6B from last month), the Eurozone subset had $152.3B (down $16.6B). The Americas had $269.6 billion (up $22.0B), while Asia Pacific had $161.3 billion (up $2.1B).
The "Prime MMF Portfolio Composition" chart shows that of the $1.018 trillion in Prime MMF Portfolios as of June 30, $321.8B (31.6%) was in CDs and Time Deposits (up from $302.6B), $281.6B (27.6%) was in Government & Treasury securities (direct and repo) (down from $301.1B), $147.7B (14.5%) was held in Non-Financial CP and Other securities (up from $145.4B), $205.1B (20.1%) was in Financial Company CP (up from $197.0B), and $62.07 (6.1%) was in ABCP (up from $62.0B).
The SEC's "Government and Treasury MMFs Bank Repo Counterparties by Country" table shows the U.S. with $209.5 billion, Canada with $164.1 billion, France with $180.0 billion, Germany with $18.7 billion, Japan with $130.7 billion, the U.K. with $98.3 billion and Other with $32.2 billion. All MMF Repo with the Federal Reserve surged by $42.8 billion in June to $43.6 billion.
Finally, a "Percent of Securities with Greater than 179 Days to Maturity" table shows Prime Inst MMFs with 8.6%, Prime Retail MMFs with 6.8%, Muni Inst MMFs with 0.9%, Muni Retail MMFs with 5.3%, Govt MMFs with 18.0% and Treasury MMFs with 16.0%.
Fitch Ratings wrote recently on, "Local Government Investment Pools: 1Q19." The brief says, "Combined asset growth for the Fitch Local Government Investment Pool (LGIP) indices remained strong during 1Q19. The primary driver for the inflows was likely the seasonal nature of LGIP participants' tax collection schedule. Historically, asset flows into/out of LGIPs have followed a relatively consistent cyclical pattern, with heightened cash inflows during the first and fourth quarters of the year and slowdowns during the late summer/early fall months when tax collection revenues are limited." We quote from the Fitch update below, and we also review a recent article on repo and our latest Weekly Money Fund Portfolio Holdings.
The LGIP article continues, "According to Fitch's 2019 Outlook for U.S. Local Governments, revenues for those entities that rely heavily on sales and other economically sensitive taxes should see modest growth assuming the economy does not head into a recession. Additionally, entities that rely on property taxes should observe some revenue growth as home values are anticipated to increase in some areas; this may be muted in other areas due to paucity of new construction."
Fitch adds, "Net yields of LGIPs continued their upward trend, albeit at a slower pace than in previous periods. U.S. Treasury yields dropped during 1Q19 as markets absorbed the increasingly dovish tone from the Fed. Concerns for U.S. economic growth prospects weighed on the fixed income markets given the uncertainty surrounding the trade deal discussions with China and the lack of clarity with Brexit."
The brief concludes, "With the Federal Reserve expected to slow or reverse the trajectory of rates this year, LGIPs may seek to extend durations to sustain yields. Longer durations have a marginally negative effect on Fitch’s risk measures, although Fitch-rated LGIPs have cushions within existing ratings." Fitch's piece shows total assets in its Liquidity LGIP Index of $164.2 billion as of March 2019, up $9.1B in the quarter. (The average rated fund size is $10.3 billion with a WAM of 42 days and net yield of 2.01%.)
In other news, the Weekend Wall Street Journal featured the piece, "Supply Surge Sends Overnight Rates Above 10-Year Yields." It says, "The persistent supply of U.S. government debt flooding the bond market this year has done little to raise bond yields, except in the market for the shortest-term securities. The cost to borrow cash overnight has been elevated in part of the market for repurchase agreements -- or repos -- where lenders such as money-market funds make short-term loans to bond brokers, often using government debt as collateral. The overnight rate on Treasury repos was 2.47% Friday, compared with the 2.35% rate for interest on excess reserves, or IOER, or 2.048% for 10-year Treasury notes."
It continues, "That surplus of bonds in the overnight market has forced bondholders seeking cash to offer higher yields. 'It's been quite welcome,' said Deborah Cunningham, who oversees money-market funds at Federated Investors. She said she frequently holds about half of her assets in overnight repos."
The article adds, "Repo rates are expected to fall should the Fed cut interest rates as expected at its meeting later this month. Analysts and investors expect that they will continue to trade at yields that are higher than other rates set by the Fed."
Finally, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics and summary Tuesday. Our weekly holdings track a shifting subset of our monthly Portfolio Holdings collection, and the latest cut (with data as of July 19) includes Holdings information from 81 money funds (up from 75 last week), representing $1.803 trillion (up from $1.619 trillion a week ago) of the $3.402 trillion (53.0%) in total money fund assets tracked by Crane Data.
Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $718.9 billion (up from $657.8 billion a week ago), or 39.9%, Treasury debt totaling $513.8 billion (up from $482.5 billion) or 28.5%, and Government Agency securities totaling $301.3 billion (up from $266.3 billion), or 16.7%. Commercial Paper (CP) totaled $90.7 billion (up from $73.8 billion), or 5.0%, and Certificates of Deposit (CDs) totaled $87.0 billion (up from $75.0 billion), or 4.8%. A total of $50.0 billion or 2.8%, was listed in the Other category (primarily Time Deposits), and VRDNs accounted for $41.2 billion, or 2.3%.
The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $513.8 billion (28.5% of total holdings), Federal Home Loan Bank with $210.2B (11.7%), Fixed Income Clearing Co with $116.7B (6.5%), BNP Paribas with $81.1 billion (4.5%), Federal Farm Credit Bank with $55.4B (3.1%), RBC with $55.0B (3.1%), JP Morgan with $40.1B (2.2%), Wells Fargo with $37.1B (2.1%), Credit Agricole with $34.1B (1.9%) and Barclays PLC with $32.9B (1.8%).
The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt ($146.5B), Fidelity Inv MM: Govt Port ($114.7B), Goldman Sachs FS Govt ($105.0B), BlackRock Lq FedFund ($100.2B), Federated Govt Oblg ($83.4B), Wells Fargo Govt MMkt ($79.2B), BlackRock Lq T-Fund ($72.7B), JP Morgan 100% US Trs MMkt ($63.7B), Fidelity Inv MM: MMkt Port ($62.9B) and Morgan Stanley Inst Liq Govt ($57.7B). (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.)
Today marks the five-year anniversary of the passage of Money Market Fund Reforms in the U.S., which brought major changes to the structure of money market funds over the past half-decade. Below, we reprint our July 23, 2014 Crane Data News, "SEC Passes Final MMF Reform Rule 3-2; Final Reforms Just Like Proposed." We wrote 5 years ago: The U.S. Securities & Exchange Commission (SEC), which discussed and passed its Final Money Market Fund Reforms Wednesday morning (July 23 10am) with a 3-2 vote, released the following press release and "Fact Sheet" outlining the new rules. (The SEC's full 869-page Final MMF Reform Rules are now available here. Visitors may also view the archived Webcast of the Sunshine Meeting here.)
The SEC's "Fact Sheet" on Money Market Fund Reform says, "The Commission will consider whether to adopt final rules that reform the way money market funds are structured and operate in order to better equip them to address run risks, while preserving the benefits of money market funds. The money market fund reforms would: Floating NAV - Require certain money market funds to maintain a floating net asset value (NAV) for sales and redemptions based on the current market value of the securities in their portfolios rounded to the fourth decimal place (e.g., $1.0000). The requirement, which would apply to institutional prime money market funds (including institutional municipal money market funds), would result in the daily share prices of the money market funds fluctuating along with changes in the market-based value of the funds' investments. Fees and Gates - Provide new tools to money market fund boards of directors to directly address a run on a fund. The new tools -- fees and gates -- would give fund boards the ability to impose liquidity fees or to suspend redemptions temporarily, also known as "gate," if a fund's level of weekly liquid assets falls below a certain threshold."
The release continues, "Portfolio Diversification, Disclosure and Stress Testing - Enhance diversification, disclosure and stress testing requirements as well as provide updated reporting by money market funds and private funds that operate like money market funds. Tax and Accounting - The SEC was informed that should these rules be adopted, the U.S. Department of the Treasury and the Internal Revenue Service today will release two types of tax guidance. They will propose new regulations to allow floating NAV money market fund investors to use a simplified tax accounting method to track gains and losses that could be used beginning today. The proposed regulation will eliminate the need to track individual purchase and sale transactions for tax reporting purposes. And, they will release a new revenue procedure that provides relief from the "wash sale" rules for any losses on shares of a floating NAV money market fund. Other Measures - In addition, the Commission will consider whether to re-propose amendments to the Commission's money market fund rules and Form N-MFP to address provisions that reference credit ratings, and propose an additional amendment to the issuer diversification provisions in the rule."
The "Fact Sheet" says on "Background," "Money market funds are a type of mutual fund registered under the Investment Company Act of 1940 and regulated under rule 2a-7 of the Act. Money market funds pay dividends that reflect prevailing short-term interest rates, are redeemable on demand, and, unlike other investment companies, seek to maintain a stable NAV, typically $1.00. This combination of principal stability, liquidity and payment of short-term yields has made money market funds popular cash management vehicles for both retail and institutional investors. There are many kinds of money market funds, including ones that invest primarily in government securities, tax-exempt municipal securities, or corporate debt securities. Money market funds that primarily invest in corporate debt securities are referred to as prime funds. In addition, money market funds are often structured to cater to different types of investors. Some funds are marketed to individuals and intended for retail investors, while other funds that typically require high minimum investments are intended for institutional investors."
It continues, "After the events of the 2008 financial crisis, in March 2010, the SEC adopted a number of amendments to rule 2a-7. These amendments were designed to make money market funds more resilient by reducing the interest rate, credit and liquidity risks of fund portfolios. When the SEC adopted the 2010 amendments, the SEC stated that money market funds’ experience during the 2008 financial crisis raised questions of whether more fundamental changes to money market funds might be warranted. Several significant market events since the 2010 reforms have allowed the SEC to evaluate the efficacy of those reforms. Specifically, in the summer of 2011, the Eurozone sovereign debt crisis and an impasse over the U.S. government's debt ceiling unfolded, and during the fall of 2013 another U.S. government debt ceiling impasse occurred."
The SEC's statement tells us, "Although the 2010 reforms were an important step in making money market funds better able to withstand heavy redemptions, analysis and data from the SEC's Division of Economic and Risk Analysis (DERA) suggested that additional reforms would assist in addressing potential future situations when credit losses may cause a fund's portfolio to lose value or when the short-term financing markets more generally come under stress. In response, in 2013, the SEC proposed alternative reforms that could also be adopted in combination. Those reforms were a floating NAV for institutional prime funds and permissible liquidity fees and redemption gates. After consideration of the approximately 1,400 comments received on the proposal, the SEC is now considering whether to adopt final rules that further amend the rules that govern money market funds."
It says of the "Money Market Fund Reform Package," "Floating NAV – Under the floating NAV amendments, institutional prime money market funds would be required to transact at a floating NAV, instead of at a $1.00 stable share price. The floating NAV amendments are designed to reduce the first mover advantage inherent in a stable NAV fund, by dis-incentivizing redemption activity that can result from investors attempting to exploit the possibility of redeeming shares at the stable share price even if the portfolio has suffered a loss. They are also intended to reduce the chance of unfair investor dilution and make it more transparent to certain of the impacted investors that they, and not the fund sponsors or the Federal government, bear the risk of loss. Floating the NAV – Institutional prime money market funds would no longer be able to use amortized cost to value their portfolio securities. Daily share prices of these money market funds would fluctuate along with changes in the market-based value of their portfolio securities."
The release continues, "Showing Fluctuations in Price – Institutional prime money market funds would be required to price their shares using a more precise method so that investors are more likely to see fluctuations in value. Currently, money market funds "penny round" their share prices to the nearest one percent (to the nearest penny in the case of a fund with a $1.00 share price). Under the floating NAV amendments, institutional prime money market funds instead would be required to "basis point round" their share price to the nearest 1/100th of one percent (the fourth decimal place in the case of a fund with a $1.0000 share price)."
It adds, "Government and Retail Money Market Funds – Government and retail money market funds would be allowed to continue using the amortized cost method and/or penny rounding method of pricing to seek to maintain a stable share price. A government money market fund would be defined as any money market fund that invests 99.5 percent (formerly 80 percent) or more of its total assets in cash, government securities and/or repurchase agreements that are collateralized solely by government securities or cash. A retail money market fund would be defined as a money market fund that has policies and procedures reasonably designed to limit all beneficial owners of the money market fund to natural persons. A municipal (or tax-exempt) fund would be required to transact at a floating NAV unless the fund meets the definition of a retail money market fund, in which case it would be allowed to use the amortized cost method and/or penny rounding method of pricing to seek to maintain a stable share price."
The release also states, "Notice of Proposed Rule 10b-10 Exemptive Relief – The SEC today would issue a Notice of Proposed Rule 10b-10 Exemptive Relief, soliciting comment on a proposal to exempt broker-dealers from the written notification requirement under Rule 10b-10(a) of the Securities Exchange Act of 1934 for transactions effected in shares of floating NAV money market funds. The proposed order would, subject to certain conditions, grant exemptive relief from the immediate confirmation delivery requirements of Rule 10b-10 for such floating NAV transactions."
On "Liquidity Fees and Redemption Gates," it says, "The SEC would adopt a new liquidity fees and gates regime to give fund boards a new tool to directly address runs. Liquidity Fees – Under the rules, if a money market fund's level of "weekly liquid assets" falls below 30 percent of its total assets (the regulatory minimum), the money market fund's board would be allowed to impose a liquidity fee of up to two percent on all redemptions. Such a fee could be imposed only if the money market fund's board of directors determines that such a fee is in the best interests of the fund. If a money market fund's level of weekly liquid assets falls below 10 percent, the money market fund would be required to impose a liquidity fee of one percent on all redemptions. However, such a fee would not be imposed if the fund's board of directors determines that such a fee is not in the best interests of the fund or that a lower or higher (up to two percent) liquidity fee is in the best interests of the fund. Weekly liquid assets generally include cash, U.S. Treasury securities, certain other government securities with remaining maturities of 60 days or less, and securities that convert into cash within one week."
The SEC's "Fact Sheet" continues, "Redemption Gates – Under the rules, if a money market fund's level of weekly liquid assets falls below 30 percent, a money market fund's board could in its discretion temporarily suspend redemptions (gate). To impose a gate, the board of directors would find that imposing a gate is in the money market fund's best interests. A money market fund that imposes a gate would be required to lift that gate within 10 business days, although the board of directors could determine to lift the gate earlier. Money market funds would not be able to impose a gate for more than 10 business days in any 90-day period. Prompt Public Disclosure - Money market funds would be required to promptly and publicly disclose instances in which the fund's level of weekly liquid assets falls below the 10 percent threshold and the imposition and removal of any liquidity fee or gate."
It says of "Government Money Market Funds – Government money market funds would not be subject to the new fees and gates provisions. However, under the proposed rules, these funds could voluntarily opt into them, if previously disclosed to investors. Enhanced Disclosure Requirements – The final rules would seek to improve the transparency of money market fund operations and risks by, among other things: Website Disclosure – Money market funds would be required to disclose on their website, on a daily basis, their levels of daily and weekly liquid assets, net shareholder inflows or outflows, market-based NAVs per share, imposition of fees and gates, and any use of affiliate sponsor support. New Material Event Disclosure – Money market funds would be required to promptly disclose certain events on a new Form N-CR. These events would include the imposition or removal of fees or gates and the primary considerations or factors taken into account by a board of directors in its decision related to fees and gates; portfolio security defaults; sponsor or fund affiliate support, including the amount of support and a brief description of the reason for support; and–for retail and government funds–a fall in the fund’s market-based NAV per share below $0.9975."
It also says, "Disclosure of Sponsor Support – Money market funds would be required to provide in their statements-of-additional-information (SAIs) disclosure regarding any occasion during the last 10 years (but not for occasions that occurred before the compliance date) in which the money market fund received sponsor or fund affiliate support. This disclosure would be in addition to the current-event disclosures required on Form N-CR. Immediate Reporting of Fund Portfolio Holdings – Money market funds currently report detailed information about their portfolio holdings to the SEC each month on Form N-MFP. The final rules would amend Form N-MFP to clarify existing requirements and require reporting of additional information relevant to assessing money market fund risk. In addition, the final rules would eliminate the current 60-day delay on public availability of the information filed on the form and make it public immediately upon filing. Improved Private Liquidity Fund Reporting – To better monitor whether substantial assets migrate to private "liquidity funds" in response to money market fund reforms, the final rules would amend Form PF, which private fund advisers use to report information about certain private funds they advise. The final rules would require a large liquidity fund adviser (a liquidity fund adviser managing at least $1 billion in combined money market fund and liquidity fund assets) to report substantially the same portfolio information on Form PF as registered money market funds are required to report on Form N-MFP. A liquidity fund is essentially an unregistered money market fund."
The Fact Sheet adds, "Stronger Diversification Requirements – The final rules would also include the following changes to the diversification requirements for money market funds' portfolios: Aggregation of Affiliates – Money market funds would be required to treat certain entities that are affiliated with each other as single issuers for purposes of determining whether they are complying with money market funds' five percent issuer diversification limit. Under this limitation, a fund generally could not invest more than five percent of its assets in any one issuer, or group of affiliated issuers. Removal of the 25 Percent Basket – For money market funds other than tax-exempt money market funds, the final rules would require that all of a money market fund's assets meet the 10 percent diversification limit for guarantors and demand feature providers, thereby removing the so-called 25 percent basket that permitted as much as 25 percent of the value of securities held in a money market fund's portfolio to be subject to guarantees or demand features from a single institution. For tax-exempt money market funds (also referred to as municipal money market funds), the 25 percent guarantor basket would be reduced to 15 percent so that no more than 15 percent of the value of securities held in a tax-exempt money market fund's portfolio could be subject to guarantees or demand features from a single institution."
It continues, "Asset-Backed Securities – Money market funds would be required to treat the sponsors of asset-backed securities as guarantors subject to the 10 percent diversification limit applicable to guarantees and demand features, unless the money market fund's board of directors (or its delegate) determines that the fund is not relying on the sponsor's financial strength or its ability or willingness to provide liquidity, credit or other support to determine the asset-backed security’s quality or liquidity. Enhanced Stress Testing – The final rules would further enhance the stress testing requirements adopted by the SEC in 2010. In particular, a money market fund would be required to test its ability to maintain weekly liquid assets of at least 10 percent and to minimize principal volatility in response to certain specified hypothetical stress scenarios. In addition, the SEC would be adopting modifications to the current reporting requirements to boards of directors regarding stress testing aimed at improving the quality of reports the boards receive."
The statement comments, "Removal of References to Credit Ratings and Amendment to Issuer Diversification Provisions - In addition to the broad reforms to money market fund regulation discussed above, the SEC today would re-propose amendments to rule 2a-7 and Form N-MFP to address provisions that reference credit ratings. The SEC would also propose an amendment to the issuer diversification provisions of rule 2a-7. Re-proposed Ratings Removal – The re-proposed amendments would implement section 939A of the Dodd-Frank Act, which requires the SEC to remove any reference to or requirement of reliance on credit ratings in its regulations and to establish appropriate standards of creditworthiness in place of certain references to credit ratings in SEC rules. Currently, to ensure that these funds are invested in high quality short-term securities, rule 2a-7 requires that money market funds invest only in securities that have received one of the two highest short-term ratings (that is, are rated either "first tier" or "second tier") or if they are not rated, are of comparable quality. It also currently requires that a money market fund invest at least 97 percent of its assets in first tier securities. In addition, rule 2a-7 requires that a fund's board of directors (or its delegate) determine that the security presents minimal credit risks. This determination must be based on factors pertaining to credit quality in addition to any rating assigned to the security."
It adds, "Credit Quality Determinations for Money Market Fund Portfolio Securities – The re-proposed amendments to rule 2a-7 would eliminate the credit ratings requirements for money market funds. Instead, a money market fund could invest in a security only if the fund's board of directors (or its delegate) determines that it presents minimal credit risks, and that determination would require the board of directors to find that the security's issuer has an exceptionally strong capacity to meet its short-term obligations. Amendments to Form N-MFP – Currently money market funds report their portfolio holdings and other information to the Commission each month on Form N-MFP, including certain credit ratings assigned to each portfolio security. The re-proposed amendments to Form N-MFP would require that a money market fund disclose any credit rating that the fund's board considered in determining that a portfolio security presents minimal credit risk. Proposed Issuer Diversification Exclusion – The proposed amendment to rule 2a-7 would eliminate an exclusion from the issuer diversification provisions for securities with certain guarantees."
Finally, the release says, "Compliance Dates for Money Market Fund Reform The amendments would become effective 60 days after the date of publication of the rules in the Federal Register. The compliance dates would be as follows: The compliance date for the floating NAV amendments and fees and gates amendments would be two years after the date of publication of the release in the Federal Register. The compliance date for a new Form N-CR would be nine months after the date of publication of the rules in the Federal Register. The compliance date for the amendments to diversification, stress testing, disclosure, Form PF, Form N-MFP and clarifying amendments would be 18 months after the date of publication of the rules in the Federal Register."
While there are now a handful of "ESG" or "green" money funds in the U.S., there haven't been any in Europe (at least not among true "U.S.-style" or "short-term" money funds), until now. Last week, BlackRock converted its ICS Euro Asset Liquidity Fund into BlackRock ICS Euro Liquid Environmentally Aware Fund, or "LEAF." While they are not live yet, a BlackRock publication, "The new environment for cash investing," tells us that USD and Sterling ICS LEAF funds are imminent. The brochure says, "Assets in dedicated sustainable investing strategies have grown at a rapid pace in recent years, and this trend is showing no signs of slowing. Yet limited product offering exist today that allow Cash investors to act on these priorities. BlackRock is seeking to change that with an innovative new investment option for ESG-focused cash investors."
They explain, "The BlackRock Institutional Cash Series (ICS) Liquid Environmentally Aware Fund Series ('LEAF' series or the 'Funds') provide investors an opportunity of a short-term variable net asset value (VNAV) money market fund through investment in securities issued or guaranteed by entities that meet the Funds' ESG criteria. The ICS LEAF series are a part of BlackRock Global Cash Management's effort to incorporate ESG factors into Cash investing. Companies are evaluated and selected based on their commitments to positive ESG business practices."
BlackRock writes, "In order to achieve the LEAF series' ESG goals, BlackRock will consider ESG risk metrics in addition to our standard credit risk assessment process. To evaluate performance in ESG practices, BlackRock will use data or other ESG risk metrics, including ratings provided by independent research vendors, in determining whether to invest (or continue to invest) in securities issued or guaranteed by a particular entity. Additionally, BlackRock is seeking to enhance core credit research through proprietary models that incorporate ESG factors into traditional credit analysis to determine an investment's ESG score for eligibility for inclusion in the LEAF series."
They tell European and non-U.S. investors, "The LEAF series will prohibit investment in issuers that fall within the exclusionary screens defined for the LEAF series. These screens include controversial weapons, fossil fuels, thermal coal, nuclear energy, civilian firearms, tar/oil sands, tobacco.... In addition to the LEAF series' ESG-focused investment strategy, 5% of the net revenue from BlackRock's management fee from the Funds will be used to purchase and retire carbon offsets either directly or through a third-party organization."
BlackRock states, "The LEAF series operate within our existing Institutional Cash Series and are managed to the same investment objectives of preservation of principal, liquidity and yield. At BlackRock, we believe that ESG strategies can be implemented without compromising risk-adjusted returns. The Funds operate as short-term VNAV MMFs and adhere to the required liquidity requirements for this fund type; minimum of 7.5% daily maturing assets and minimum of 15% weekly maturing assets. The Funds are rated Aaa-mf by Moody's, additionally the US Dollar Fund is AAAm rated by S&P."
They add, "In an attempt to achieve its ESG goals, the LEAF series will invest at least 80% of the value of its net assets in securities whose issuer or guarantor, in the opinion of BlackRock, meet LEAF's ESG criteria, at time of purchase. Investments will be in a broad range of money market instruments, including: Time deposits (TD), Reverse Repurchase Agreements (Repo), Certificates of deposits (CD), Commercial paper (CP), Floating Rate Notes (FRN), Eurobonds/Bonds fund range, Government Bonds and Bills, Sovereign, Supranational and Agency Bonds."
For more on ESG and Green Money Market Funds, see the following Crane Data News articles: Fitch on ESG in Money Funds (7/19/19), SSGA Goes Live with ESG Money Market Fund (7/3/19), Cap Advisors Group Demystifies ESG Investing (6/19/19), State Street Files to Launch ESG Liquid Reserves Fund; LEAF Now Live (4/25/19), Moody's Rates BlackRock LEAF Aaa-mf (4/10/19), More on Green, ESG Money Funds: What's Not There, Barron's (2/11/19), SSGA's 2019 Global Cash Outlook Discusses ESG MMF Challenges, Tech, AI (2/4/19), FT Says China's Ant Shrinks; More on BlackRock LEAF (1/30/19), BlackRock to Launch Environmental MF (1/23/19) and DWS ESG Liquidity Goes Live (9/17/18).
In related news, BlackRock also hosted its Q2'19 earnings call Friday. While they didn't mention the ESG money market fund, they did make a few comments on cash. President Rob Kapito says, "We saw $26 billion of cash management net inflows in the second quarter and we are now number three globally as a money market provider. And these flows come from both large separate accounts wins and strong flows into our institutional money market funds as we continue to innovate, leverage scale and deliver digital distribution and risk management solutions." (Note: Crane Data shows BlackRock's U.S. money funds increasing $16 billion during the quarter.)
He continues, "More than 95% of BlackRock's cash assets under management is institutional, where we are differentiated with our scale, risk management and technology. So, we believe this differentiated set of cash offerings, including money market funds, separate accounts, ... ETFs and other short duration strategies help us to serve our clients."
Kapito adds, "And lastly, I would say, in cash, we are transforming our cash management business by delivering distribution and risk management technology through a portal that we have called Cachematrix and also through Aladdin. So, we are creating a technology-first distribution strategy, and this is driving our success in cash as well as holistic approaches to get these large strategic wins."
Money fund assets rose for the 13th week in a row and rose above the $3.26 trillion level for the first time since January 2010. The Investment Company Institute's latest "Money Market Fund Assets" report shows that MMF assets have increased by $218.9 billion, or 7.2%, since April 17, and they've increased by $214 billion, or 7.0%, year-to-date. Over the past 52 weeks, ICI's money fund asset series has increased by $416 billion, or 14.6%, with Retail MMFs rising by $212 billion (20.4%) and Inst MMFs rising by $205 billion (11.3%). We review the latest asset totals and also quote from a Fitch Ratings update on ESG Money Funds.
They write, "Total money market fund assets increased by $9.28 billion to $3.26 trillion for the week ended Wednesday, July 17, the Investment Company Institute reported today. Among taxable money market funds, government funds decreased by $225 million and prime funds increased by $9.98 billion. Tax-exempt money market funds decreased by $472 million." ICI's weekly series shows Institutional MMFs rising $1.98 billion and Retail MMFs rising $7.30 billion. Total Government MMF assets, including Treasury funds, stood at $2.431 trillion (74.5% of all money funds), while Total Prime MMFs rose to $692.0 billion (21.2%). Tax Exempt MMFs totaled $138.7 billion, or 4.3%.
ICI states, "Assets of retail money market funds increased by $7.30 billion to $1.25 trillion. Among retail funds, government money market fund assets increased by $4.65 billion to $711.18 billion, prime money market fund assets increased by $2.91 billion to $412.58 billion, and tax-exempt fund assets decreased by $259 million to $127.30 billion." Retail assets account for over a third of total assets, or 38.4%, and Government Retail assets make up 56.8% of all Retail MMFs.
The release adds, "Assets of institutional money market funds increased by $1.98 billion to $2.01 trillion. Among institutional funds, government money market fund assets decreased by $4.87 billion to $1.72 trillion, prime money market fund assets increased by $7.07 billion to $279.43 billion, and tax-exempt fund assets decreased by $212 million to $11.40 billion." Institutional assets accounted for 61.6% of all MMF assets, with Government Institutional assets making up 85.5% of all Institutional MMF totals.
Crane Data's separate and broader Money Fund Intelligence Daily series shows money fund assets rising by $10.3 billion to $3.407 trillion in the week ended July 17, 2019. Month-to-date in July, MFI Daily shows money fund assets up by $78.3 billion, with $44.0 billion of the gains coming from Govt MMFs and $32.0 billion coming from Prime MMFs. Our latest monthly Money Fund Intelligence and MFI XLS, which tracks an even broader set of funds than our MFI Daily, showed assets rising $78.3 billion to $3.407 trillion in June. We expect asset inflows to remain strong in coming months, particularly in the fourth quarter.
In other news, Fitch Ratings released a brief entitled, "ESG in Money Market Funds" earlier this week. The article says, "Fitch Ratings says that money market funds (MMFs) readily adjust portfolio holdings in response to environmental, societal and governance (ESG) factors, although only recently has market attention turned to explicit ESG strategies within MMFs. For example, rated MMFs reduced their exposure to Danske Bank AS in 2018 in response to governance risk factors, despite its stable short-term credit profile at the time." (See our July 15 Link of the Day, "FT, Fitch Say ESG MMFs Growing.")
It explains, "Recent launches of ESG MMFs -- and conversions of existing MMFs -- may signal increasing demand for MMFs with an explicit ESG overlay. On the other hand, assets under management (AUM) in existing ESG MMFs are low, albeit growing.... Fitch estimates that total global AUM in ESG MMFs was $44.9 billion at 31 December 2018, compared with AUM of $6.1 trillion in global MMFs. ESG MMF AUM increased 15% in 1H19. Existing ESG MMFs are highly concentrated in France in terms of size, accounting for approximately 88% of total ESG MMF assets."
Fitch tells us, "Interest in ESG as applied to MMFs has increased recently, consistent with the wider market's growing interest. Fitch recently surveyed senior professionals at major MMF managers for their post-reform priorities in Europe: the two top-ranked options were getting back to business as usual in managing MMFs and ESG. These views are consistent with recent developments: SSGA's ... ESG MMF launch in July 2019, while BlackRock launched an environmental-focused MMF (the BlackRock Liquid Environmentally Aware Fund) in April 2019. DWS converted an existing MMF to an ESG-focused MMF in September 2018. These new or converted funds complement a number of existing [European] ESG MMFs."
They write, "Fitch counts 19 MMFs that follow explicit ESG strategies (i.e. their investment objective makes specific reference to ESG factors) at end-June 2019. France and Norway hold the reins of MMFs with sustainable focus, since 14 out of 19 funds are domiciled in France and Norway. Fitch believes investor demand is the reason there are so many ESG MMFs in Europe. The ESG MMF universe is concentrated in France, accounting for approximately 88% of total ESG MMF AUM."
The report also comments, "Fitch anticipates that future developments in the ESG MMF sector may move beyond exclusions to other ESG techniques, such as portfolio 'tilts' with higher exposures to higher-ranked ESG issuers, or potentially to issuers showing the strongest improvements in ESG factors, while underweighting issuers with lower or weakening ESG credentials. Some funds have also considered approaches for emphasizing ESG in their distribution channels (rather than in portfolio construction) since the way ESG is implemented by MMFs can show material variation."
It adds, "A key issue market participants raise with regard to implementing ESG strategies is a lack of standardisation of approach or terms of reference.... Fitch believes that Governance will be the most pertinent factor in driving exclusions from MMF portfolios, given that the primary constituent of MMF portfolios is bank securities.... A key complexity faced by MMF managers is applying an ESG approach to asset-backed commercial paper (ABCP) which is typically bank-backed (allowing for an assessment at the level of the bank) but also engages in other activities, such as funding trade finance receivable, thus entailing a look through in the ESG analysis to the activities of the ABCP conduit itself."
Finally, they say, "The addition of an ESG filter may reduce the eligible investible universe, leading to higher potential concentration risk in ESG-MMFs compared with non-ESG MMFs, all else being equal. On the flipside, an increase in demand for ESG-compliant issuers may positively affect market liquidity for these issuers, to the detriment of non-ESG-compliant issuers. Fitch believes the effect would be modest at most in both cases. ESG exclusions may reduce the size of investible universe but not to such an extent that concentration risk would be materially higher for ESG MMFs than non-ESG MMFs. Market liquidity is multi-faceted so any ESG effect would be muted."
Second quarter earnings releases are revealing the impact of lower yields on brokerage sweep programs and confirming the continued shift from money market mutual funds into lower-yielding FDIC insured programs. Charles Schwab's earnings, released Monday, quote CFO Peter Crawford, "Our sustained business momentum helped us achieve our strongest second quarter ever, even as we weathered shifts in client asset allocations and activity levels, as well as the interest rate environment. Overall, revenues were up 8% from a year ago at $2.7 billion, which was just under last quarter's record mark. Net interest revenue rose 14% year-over-year to $1.6 billion, largely driven by higher interest-earning assets relating to the transfer of sweep money market fund balances to bank and broker-dealer sweep."
He continues, "In addition, our net interest margin rose 10 bps from a year ago to 2.40%, reflecting the Fed's 2018 rate hikes. Asset management and administration fees decreased 3% year-over-year to $786 million as a result of lower money market fund revenue due to the sweep transfers as well as ongoing declines in Mutual Fund OneSource balances.... Trading revenue declined 3% to $174 million due to a decrease in average revenue per trade, which more than offset higher activity."
Crawford adds, "Additionally, we transferred just under $200 million from sweep money market fund balances to bank and broker-dealer sweep, marking the completion of a 12-year process during which we moved approximately $130 billion. With sweep transfers done, tax season disbursements and some client sorting between invested and transactional cash allocations contributed to consolidated balance sheet assets declining by approximately $6 billion during the quarter to $276 billion."
Schwab's release shows net interest revenue of $1.609 billion during Q2, asset management and admin fees of $786 million, and $210 billion in bank deposits. Crane Data's monthly Money Fund Intelligence XLS shows Schwab's money market fund assets totaling $166.2 billion as of June 30, 2019, making it the 7th largest manager of money funds. Schwab's money fund assets have increased by $4.7 billion, $8.3 billion and $33.8 billion over the past month, 3-months and 12-months, respectively, shocking gains given the huge assets being shifted out of MMFs and into bank deposits during these periods.
Barron's writes in a recent article, "Interest-Rate Cuts Could Hit TD Ameritrade and Charles Schwab Stock," that, "[F]or brokers, who make money in large part from interest on customer deposits, that means an already rocky year could be about to get worse. Deutsche Bank's Brian Bedell thinks TD Ameritrade is the best positioned broker to deal with rate cuts, and suggests buying the stock while betting against Charles Schwab in a pair trade."
The article continues, "Morgan Stanley's Michael Cyprys took the opposite view, favoring Schwab because of its ability to attract deposits and downgrading TD Ameritrade in a Thursday note. The back story. Both stocks have struggled so far this year, although Schwab's relative performance has been the worse of the two. Its shares have slumped 3.6% so far in 2019, compared with a 2.5% gain for TD Ameritrade and an almost 20% gain for the broader S&P 500 index."
The Barron's piece adds, "Bedell wrote in a note to clients Thursday that among e-brokers, we see Charles Schwab as most negatively exposed to lower short-term rates and long-term yields, along with the prospect [that] client cash balances stay low, and we think management may place a more cautious outlook on [net interest margin] and deposit balances at its business update call on July 19.... In contrast, he thinks TD Ameritrade has already effectively signaled that the money it makes off customer deposits in the second quarter will be 'flattish'.... Rate cuts will make lower-yielding bank sweep products less attractive, he wrote, which could drive cash back to brokers, even as they are able to make relatively less money off those deposits."
In related "sweep" news, Financial Planning magazine also recently wrote about a shift by LPL in their default sweep vehicles. Their article, "With money market rates on the rise, LPL cuts them from cash sweeps," says, "If LPL Financial clients want higher yield money market funds for their cash, they'll need to opt out of the firm's bank deposit sweep programs.... The No. 1 independent broker-dealer no longer offers money markets for sweep accounts -- where clients' cash yields between 15 and 75 basis points for them and an average of 220 bps for LPL. The firm cut money markets from cash sweep accounts, effective May 18. Clients looking for a money market for a better yield on their cash should speak to their advisors about keeping it in their own investment accounts, according to a disclosure by LPL."
It continues, "Clients will 'start making dramatic moves to harvest yield on cash' if money markets keep climbing above the 2% range to 300 or 400 bps, says Tim Welsh of Nexus Strategy. Otherwise, the convenience of sweeps often causes people to forget about the accounts, he says. 'The trend is down for costs and fees and revenues in investment management products,’ Welsh says. 'Cash is the easiest one to attack. They're just making a very logical revenue move.'"
According to the piece, "On April 1, LPL stopped offering funds with yield rates of up to 230 bps for new accounts eligible for the cash sweeps. Existing clients' assets remain in the money markets, but the firm removed the offerings for deposits in May and began using money market assets first to pay cash debits."
Watch for more on brokerage sweeps in coming days, let us know if you'd like to see our latest Brokerage Sweep Intelligence product and see these Crane Data's News articles: Sweep, Deposit, MF Rates All Inch Lower; JPM MF Symposium Highlights (7/2/19), Brokerage Sweep Rates Flat; MS, E*Trade Earnings; TD Lowers Rates (4/23/19), BNY Keeps Dreyfus Name on Money Funds; Brokerage Sweep Rates Flat (3/5/19), Edward Jones Latest to Shift to FDIC Sweeps; ICI: MMFs Break $3T in '18 (1/31/19), Schwab, Brokerages Discuss Sweeps, Money Funds on Earnings Calls (1/25/19), SF Chronicle on Brokerage Sweeps; Bloomberg on Europe Rejecting RDM (11/28/18), TD Ameritrade, Morgan Stanley on Sweeps; Money Fund Assets Rebound (10/26/18) and Money Fund Yields, Sweep Rates Move Higher; WSJ on Savings, Deposits (10/18/18).
The Investment Company Institute released its monthly "Money Market Fund Holdings" summary yesterday, which reviews data as of June 30, 2019. This monthly update reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds. (For our initial review of June 30 Holdings, see our July 11 News, "July Money Fund Portfolio Holdings: Repo Jumps, T-Bills Down, Again.") We quote from their release and from a recent JPM update on June 30 portfolio holdings, and we also review Crane Data's most recent Weekly MF Portfolio Holdings.
The MMF Holdings release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in June, prime money market funds held 25.8 percent of their portfolios in daily liquid assets and 42.1 percent in weekly liquid assets, while government money market funds held 59.5 percent of their portfolios in daily liquid assets and 77.8 percent in weekly liquid assets." Prime DLA decreased from 27.2% in May, and Prime WLA decreased from 42.5% the previous month. Govt MMFs' DLA increased from 58.6% in May and Govt WLA increased from 77.4% from the previous month.
ICI explains, "At the end of June, prime funds had a weighted average maturity (WAM) of 35 days and a weighted average life (WAL) of 69 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 29 days and a WAL of 95 days." Prime WAMs stayed the same as the previous month, and WALs decreased by one day. Govt WAMs were the same as their May levels, and Govt WALs increased by two days last month.
Regarding Holdings By Region of Issuer, ICI's release tells us, "Prime money market funds' holdings attributable to the Americas rose from $294.82 billion in May to $300.86 billion in June. Government money market funds' holdings attributable to the Americas rose from $1,888.58 billion in May to $1,955.37 billion in June."
The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $300.9 billion, or 44.8%; Asia and Pacific at $133.6 billion, or 19.9%; Europe at $232.4 billion, or 34.6%; and, Other (including Supranational) at $5.18 billion, or 0.9%. The Government Money Market Funds by Region of Issuer table shows Americas at $1.955 trillion, or 81.7%; Asia and Pacific at $115.7 billion, or 4.8%; Europe at $315.2 billion, or 13.2%, and Other (Including Supranational) at $6.3 billion, or 0.3%."
J.P. Morgan Securities also recently commented on the latest portfolios in a "June taxable MMF holdings update," writing, "Dealer repo with MMFs fell $5bn month over month to $1,157bn. The typical quarter-end decline from European (especially French) banks was offset by another surge in FICC sponsored repo, which rose $47bn to $211bn; Canadian banks also increased their balances (+$18bn).... FICC remained the largest individual repo counterparty with MMFs, and again broke the record for the largest (non-Fed) repo counterparty ever. As sponsored repo has gained significant traction among the dealer and MMF community, it has helped to smooth out the availability of repo at quarter-ends.... Fed RRP rose $42bn to $43bn."
They continue, "Away from repo, government funds increased their allocations to Treasury coupons (+$17bn) and FRNs (+$16bn), while T-bill holdings fell $20bn amid negative net supply of -$103bn. Allocations to Agencies fell $23bn, with declines in discos and Agency FRNs partially offset by a modest increase in fixed-rate Agency coupons. Government MMFs remain large buyers of SOFR floaters, increasing their holdings by $7bn to $76.5bn.... Of the [approx] $160bn of SOFR floaters that have been issued to date, about 82% has come from GSEs, so it's not surprising that government funds have played a large role, taking down about half of all SOFR issuances so far."
JPM adds, "Prime funds saw increased exposure to bank credit and Fed RRP in June, while Treasury holdings and dealer repo fell.... The increases in bank credit exposures were mostly in the form of CP/CD, especially from Canadian banks; at the individual issuer level changes were largely idiosyncratic.... The weighted average life of bank CP/CD held by prime MMFs decreased by 6 days to 99 days..... The weighted average maturity of bank CP/CD also fell, from 44 days to 42 days.... Canadian banks had the longest WAL, at 132 days, followed by the Australian banks at 128 days."
Finally, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics and summary Tuesday. Our weekly holdings track a shifting subset of our monthly Portfolio Holdings collection, and the latest cut (with data as of July 12) includes Holdings information from 75 money funds, representing $1.619 trillion (up from $1.567 trillion two weeks ago) of the $3.305 (49.0%) in total money fund assets tracked by Crane Data.
Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $657.8 billion (up from $620.0 billion two weeks ago), or 40.6%, Treasury debt totaling $482.5 billion (up from $460.5 billion) or 29.8%, and Government Agency securities totaling $266.3 billion (down from $275.0 billion), or 16.4%. Commercial Paper (CP) totaled $73.8 billion (down from $75.0 billion), or 4.6%, and Certificates of Deposit (CDs) totaled $75.0 billion (up from $74.4 billion), or 4.6%. A total of $30.4 billion or 1.9%, was listed in the Other category (primarily Time Deposits), and VRDNs accounted for $33.1 billion, or 2.0%.
The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $482.5 billion (29.8% of total holdings), Federal Home Loan Bank with $184.3B (11.4%), Fixed Income Clearing Co with $117.9B (7.3%), BNP Paribas with $73.7 billion (4.6%), RBC with $58.7B (3.6%), Federal Farm Credit Bank with $50.1B (3.1%), Wells Fargo with $33.0B (2.0%), JP Morgan with $31.3B (1.9%), Mitsubishi UFJ Financial Group with $30.5B (1.9%) and Credit Agricole with $29.0B (1.8%).
The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt ($142.2B), Fidelity Inv MM: Govt Port ($116.3B), Goldman Sachs FS Govt ($107.2B), BlackRock Lq FedFund ($101.3B), Wells Fargo Govt MMkt ($80.4B), BlackRock Lq T-Fund ($71.8B), Fidelity Inv MM: MMkt Port ($62.5B), JP Morgan 100% US Trs MMkt ($62.3B), Goldman Sachs FS Trs Instruments ($58.1B) and Morgan Stanley Inst Liq Govt ($57.8B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)
Crane Data's latest MFI International shows total assets in "offshore" money market mutual funds, U.S.-style funds domiciled in Ireland or Luxemburg and denominated in USD and Euro remain down year-to-date, though they've recently trimmed their losses. Through 7/12/19, overall MFII assets are down $11.5 billion to $834.5 billion. (They rose $15.2 billion in 2018.) Offshore USD money funds are down $3.4 billion YTD (they rose $28.8B last year). Euro funds are still feeling the pain of negative rates and recent European MMF reforms; they're down E7.9 billion YTD (following 2 flat years). GBP funds are up, however, by L5.6 billion. U.S. Dollar (USD) money funds (173) account for over half ($450.6 billion, or 54.0%) of our "European" money fund total, while Euro (EUR) money funds (76) total E91.1 billion (11.0%) and Pound Sterling (GBP) funds (103) total L215.0 billion (26.0%). We summarize our latest "offshore" money fund statistics and our Money Fund Intelligence International Portfolio Holdings (which went out to subscribers Monday), below, and we also give an update on our European Money Fund Symposium conference, which will take place Sept. 23-24 in Dublin.
Offshore USD MMFs yield 2.25% (7-Day) on average (as of 7/12/19), up from 2.29% on 12/31/18, 1.19% at the end of 2017 and 0.56% at the end of 2016. EUR MMFs yield -0.50 on average, compared to -0.49% at year-end 2018, -0.55% on 12/29/17 and -0.49% on 12/30/16. Meanwhile, GBP MMFs yielded 0.66%, up from 0.64% on 12/31/18, from 0.24% at the end of 2017 and 0.19% at the end of 2016. (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 6/30/19), show that European-domiciled US Dollar MMFs, on average, consist of 29% in Commercial Paper (CP), 24% in Repurchase Agreements (Repo), 21% in Certificates of Deposit (CDs), 12% in Other securities (primarily Time Deposits), 13% in Treasury securities and 1% in Government Agency securities. USD funds have on average 38.6% of their portfolios maturing Overnight, 8.9% maturing in 2-7 Days, 17.8% maturing in 8-30 Days, 11.7% maturing in 31-60 Days, 8.7% maturing in 61-90 Days, 11.2% maturing in 91-180 Days and 2.9% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (24.9%), France (14.0%), Canada (12.3%), Japan (11.8%), the United Kingdom (9.1%), Germany (7.0%), the Netherlands (3.8%), Sweden (3.4%), Australia (2.5%), Singapore (2.3%), China (2.3%), Switzerland (2.0%), Norway (1.3%) and Belgium (0.9%).
The 10 Largest Issuers to "offshore" USD money funds include: the US Treasury with $61.1 billion (12.5% of total assets), BNP Paribas with $20.2B (4.1%), Barclays PLC with $18.1B (3.7%), Bank of Nova Scotia with $17.5B (3.6%), Wells Fargo with $16.9B (3.5%), Mitsubishi UFJ Financial Group Inc with $15.4B (3.2%), RBC with $12.2B (2.5%), Sumitomo Mitsui Banking Co with $11.9B (2.4%), Toronto-Dominion Bank with $11.9B (2.4%) and Mizuho Corporate Bank Ltd with $11.3B (2.3%).
Euro MMFs tracked by Crane Data contain, on average 48% in CP, 24% in CDs, 19% in Other (primarily Time Deposits), 5% in Repo, 1% in Agency securities and 3% in Treasuries. EUR funds have on average 23.2% of their portfolios maturing Overnight, 7.7% maturing in 2-7 Days, 18.7% maturing in 8-30 Days, 16.3% maturing in 31-60 Days, 15.5% maturing in 61-90 Days, 15.3% maturing in 91-180 Days and 3.1% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (29.8%), Japan (14.1%), Germany (11.8%), the US (10.4%), Sweden (7.6%), the Netherlands (4.4%), the U.K. (4.4%), China (3.3%), Switzerland (2.8%), Canada (2.4%), Finland (2.1%), Belgium (1.4%) and Abu Dhabi (1.4%).
The 10 Largest Issuers to "offshore" EUR money funds include: BNP Paribas with E4.8B (5.4%), Credit Agricole with E4.2B (4.7%), Mitsubishi UFJ Financial Group with E3.6B (4.0%), Republic of France with E3.5B (3.9%), BPCE with E3.4B (3.8%), Societe Generale with E2.7B (3.1%), Procter & Gamble Co with E2.7B (3.1%), Credit Mutuel with E2.7B (3.1%), Mizuho Corporate Bank with E2.7B (3.1%) and Nordea Bank with E2.6B (3.0%).
The GBP funds tracked by MFI International contain, on average (as of 6/30/19): 36% in CDs, 25% in Other (Time Deposits), 23% in CP, 13% in Repo, 3% in Treasury and 0% in Agency. Sterling funds have on average 25.6% of their portfolios maturing Overnight, 9.1% maturing in 2-7 Days, 14.8% maturing in 8-30 Days, 14.3% maturing in 31-60 Days, 12.6% maturing in 61-90 Days, 16.7% maturing in 91-180 Days and 7.0% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: Japan (17.7%), France (17.6%), the United Kingdom (16.5%), Canada (10.0%), Germany (6.4%), Sweden (5.4%), the Netherlands (4.6%), United States (4.2%), Australia (3.9%), Singapore (3.2%), China (2.5%) and Abu Dhabi (2.2%).
The 10 Largest Issuers to "offshore" GBP money funds include: the UK Treasury with L13.2B (7.9%), Mizuho Corporate Bank Ltd with L7.7B (4.6%), BPCE SA with L6.8B (4.1%), Mitsubishi UFJ Financial Group Inc with L6.7B (4.0%), BNP Paribas with L6.4B (3.8%), Credit Agricole with L6.4B (3.8%), Sumitomo Mitsui Banking Co with L6.2B (3.7%), Sumitomo Mitsui Trust Bank with L5.9B (3.6%), Nordea Bank with L5.7B (3.4%) and DZ Bank AG with L4.7B (2.8%).
We also continue making preparations for the 7th Annual Crane's European Money Fund Symposium, which will take place Sept. 23-24 at The Hilton Dublin in Dublin, Ireland. The latest agenda is available and registrations are being taken for the largest money market fund gathering in Europe. More details are below, and feel free to contact us for more information. We hope to see you in Dublin this fall!
Last year's European Crane Symposium in London attracted 140 attendees, sponsors and speakers -- our largest European event ever. Given the recent implementation of new money fund regulations and structures in Europe, the continued "repatriation" of assets back to the U.S., Brexit and the ongoing issue of negative interest rates, we expect our show in Dublin to attract a high level of interest this year. "European Money Fund Symposium offers European, global and "offshore" money market portfolio managers, investors, issuers, dealers and service providers a concentrated and affordable educational experience, and an excellent and informal networking venue," says Crane Data President, Peter Crane. "Our mission is to deliver the best possible conference content at an affordable price to money market fund professionals," he adds.
EMFS will be held at the The Hilton Dublin. Hotel rooms must be booked before Monday, August 21 to receive the discounted rate of E295. Registration for our 2019 Crane's European Money Fund Symposium is $1,000 USD. Visit www.euromfs.com to register, or contact us to request the PDF brochure or for Sponsorship pricing and info.
The EMFS agenda features sessions conducted by many of the leading authorities on money funds in Europe and worldwide. The Day One Agenda for Crane's European Money Fund Symposium includes: "Welcome to European Money Fund Symposium" with Peter Crane of Crane Data; followed by "Money Market Funds in Ireland" with Pat Lardner and Patrick Rooney of Irish Funds; "Euro Money Funds & Continental Issues," with David Callahan of Lombard Odier, Nathalie Dogniez of PwC Luxembourg (invited) and Joe McConnell, from J.P. Morgan Asset Management.
The afternoon will consist of: "Senior Portfolio Manager Perspectives," moderated by Kieran Davis of BGC Partners and featuring Neil Hutchison of J.P. Morgan A.M., Dan Farrell of Northern Trust AM and Jim O'Connor of Dreyfus/BNY Mellon CIS; "IMMFA Update: The State of MMFs in Europe" with Kim Hochfeld of Morgan Stanley I.M. (and IMMFA Chair); "Environmental & Social Money Fund Screening" with James Vincent of Goldman Sachs A.M., Andrew Paranthoiene of S&P Global Ratings and Abis Soetan of Fitch Ratings; "U.K. & Sterling MMF Issues" with Dennis Gepp of Federated Investors (UK) LLP and Paul Mueller of Invesco; and a "Dealer Update & Issuance Outlook" with Marianne Medora of Groupe BPCE/Natixis, Jean-Luc Sinniger of Citi Global Markets and Dan Singer of J.P. Morgan Securities.
The Day Two Agenda includes: "European MM Reforms: Finishing Touches" with John Aherne of William Fry and John Hunt of Sullivan & Worcester LLP; a "French & Continental Money Fund Update" with Vanessa Robert of Moody's Investors Service and Alastair Sewell of Fitch Ratings; and, "Strategists Speak: Negative Rates, Markets" with Ruairi Hourihane of Bank of America Merrill Lynch. The second day's afternoon will include: a "U.S. Money Fund & European USD Update" with Peter Crane of Crane Data, Deborah Cunningham of Federated Investors and Rob Sabatino of UBS Asset Management; "Chinese Money Funds & Asian Markets" with Andrew Paranthoiene of S&P Global Ratings, and Alastair Sewell of Fitch Ratings; and, "Offshore Money Fund Information" with Peter Crane.
The July issue of our Bond Fund Intelligence, which was sent out to subscribers Monday morning, features the lead story, "Bond ETFs Break $700 Billion (Not $1 Trillion Like WSJ Says)," which discusses the rapid but exaggerated growth of Bond ETFs, and "Pope, Martucci & Carroll on Ultra-Shorts at Symposium," which highlights what the three had to say at their "SMA Ultra-Short Update; Bond Fund Reg talk at Crane's recent Money Fund Symposium conference. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show lower bond fund yields and higher returns (again) in June. 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 lead article says, "Bond ETFs have clearly been growing rapidly and bringing in record flows, but recent press coverage is exaggerating the overall growth. The Wall Street Journal wrote recently 'Bond Exchange-Traded Funds Pass $1 Trillion in Assets,' but overall Bond ETF total just over $700 billion, according to the ICI. The WSJ claims, 'The amount of money in fixed-income exchange-traded funds passed $1 trillion last month, an ascendance that has reshaped the market in which countries and companies raise money to pay their bills.' (The article cites 'Bloomberg via BlackRock' as its source; perhaps they include non-U.S. bond ETFs.)"
It continues, "The Journal explains, 'Just 20 years ago, bond ETFs didn't even exist.... But from that sleepiness came opportunity. Firms such as BlackRock Inc., Invesco Ltd. and State Street Corp. put millions behind building a new class of investment: the bond ETF. The idea was to straddle two disparate markets by wrapping slow-to-trade bonds in lightning-fast funds. Like a mutual fund, ETFs bundle together hundreds of bonds into a single ticker. Unlike mutual funds, ETFs trade all day.'"
BFI writes, "It continues, 'The biggest proponents of bond ETFs say their growth has added much-needed speed to the sluggish business of bond trading. This allows investors to move money swiftly when market sentiment turns. Skeptics argue that bond ETFs are a dangerous combination. They say the product could accelerate a selloff if fleeing investors flood the debt market with ... sell orders. As this debate continues, bond ETFs just get bigger and bigger.'"
Our "Pope, Martucci & Carroll" piece explains, "This month, Bond Fund Intelligence excerpts from a session entitled, 'SMA & Ultra‐Short Update; Bond Fund Regs' from our recent Money Fund Symposium conference. The segment featured Kerry Pope of Fidelity Investments, Dave Martucci of J.P. Morgan Asset Management, and Brenden Carroll from Dechert LLP. The three discussed ultra-short bond fund products, investments, and regulations, as well as separately managed account issues. Highlights of the Q&A follow.'"
When asked about Fidelity Conservative Income's launch and strategies, Pope answered, "I think from a timing standpoint, we hit it well. We were aware of the regulatory reforms that were coming along in the money market space, and we wanted to provide a product that was more consistent with a strategic liquidity strategy. Armed with the feedback that our clients weren't excited about the new [MMF] constraints, we launched this product just outside of the prime money market space."
He adds, "It was able to produce a great return, that was, at that time, probably about 50 to 60 bps over Prime Money Market Funds. [W]e sold it as a strategic cash alternative [that] avoided gates and fees. So, a lot of our retail clients took to it, and since then we've had some follow through with institutional clients. But for the most part, I'd say [it’s] 80+% retail-based clients."
Our Bond Fund News includes the brief "Yields Plunge, Returns Surge in June." It explains, "Bond fund yields fell again for all categories except Ultra-Short last month. The BFI Total Index returned 0.99% for 1-month and 5.60% over 12 months. The BFI 100 returned 1.12% in June and 6.30% over 1 year. Our BFI Conservative Ultra-Short Index returned 0.34% over 1 month and 2.56% over 1-year; the BFI Ultra-Short Index averaged 0.44% in June and 2.72% over 12 mos. BFI Short-Term returned 0.68% and 4.27%, and BFI Intm-Term Index returned 1.15% and 6.85% for 1-mo and 1-year. BFI's Long-Term Index returned 1.58% in June and 8.47% for 1-yr; our High Yield Index returned 1.62% in June and 5.84% over 1-yr."
Another News brief, "WSJ Writes 'What Investors Need to Know About Bond ETFs,'" states, "Money has poured into bond ETFs this year, amid uncertainty about the direction of stocks. A net $75.2 billion flowed into bond funds listed on U.S. exchanges in the first half of the year ... according to ... ETF.com. The case for most bond ETFs is simple. 'Concerns about the global political and economic situation have helped drive assets into bond ETFs,' says Deborah Fuhr, managing partner and founder of ... ETFGI.'"
A third News update, "Bloomberg Says, 'Bond Funds Drift Into Risky Debt, Adding to Angst Over Liquidity,'" asks, "What's really inside bond funds these days? The answer, for many of them, is more risk than there used to be.'"
Finally, a sidebar entitled, "Inflows Intensify in June," explains, "Bond fund inflows accelerated in the latest month, the strongest since January 2018. ICI's most recent weekly 'Combined Estimated Long-Term Fund Flows and ETF Net Issuance,' with data as of July 2, says, 'Bond funds had estimated inflows of $10.44 billion for the week, compared to estimated inflows of $10.53 billion during the previous week. Taxable bond funds saw estimated inflows of $8.81 billion, and municipal bond funds had estimated inflows of $1.63 billion.' Over the past 5 weeks, bond funds and ETFs have seen an inflows of $45.4 billion."
It adds, "Their latest 'Trends in Mutual Fund Investing - May 2019' shows bond fund assets rising by $57.8 billion, or 1.3%, to a total of $4.377 trillion in May. Over the past 12 months through 5/31/19, bond fund assets have increased by $275.8 billion, or 6.7%. The number of bond funds rose by 2 in May to 2,160 and was up 38 from a year ago."
Money fund assets rose for the 12th week in a row and broke back above the $3.25 trillion level for the first time since January 2010. The Investment Company Institute's latest "Money Market Fund Assets" series shows that MMF assets have increased by $209.6 billion, or 6.9%, since April 17, and they've increased by $205 billion, or 6.7%, year-to-date. Over the past 52 weeks, ICI's money fund asset series has increased by $402 billion, or 14.1%, with Retail MMFs rising by $206 billion (19.8%) and Inst MMFs rising by $196 billion (10.8%). We review the latest asset totals and also quote from a new article on Robinhood's ill-fated entry into the checking and savings marketplace, below.
They write, "Total money market fund assets increased by $14.14 billion to $3.25 trillion for the eight-day period ended Wednesday, July 10, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $8.34 billion and prime funds increased by $5.62 billion. Tax-exempt money market funds increased by $182 million." ICI's weekly series shows Institutional MMFs rising $9.7 billion and Retail MMFs rising $4.4 billion. Total Government MMF assets, including Treasury funds, stood at $2.431 trillion (74.7% of all money funds), while Total Prime MMFs rose to $682.0 billion (21.0%). Tax Exempt MMFs totaled $139.2 billion, or 4.3%.
ICI states, "Assets of retail money market funds increased by $4.42 billion to $1.24 trillion. Among retail funds, government money market fund assets increased by $1.38 billion to $706.53 billion, prime money market fund assets increased by $2.70 billion to $409.67 billion, and tax-exempt fund assets increased by $334 million to $127.56 billion." Retail assets account for over a third of total assets, or 38.2%, and Government Retail assets make up 56.8% of all Retail MMFs.
The release adds, "Assets of institutional money market funds increased by $9.73 billion to $2.01 trillion. Among institutional funds, government money market fund assets increased by $6.96 billion to $1.72 trillion, prime money market fund assets increased by $2.92 billion to $272.37 billion, and tax-exempt fund assets decreased by $153 million to $11.62 billion." Institutional assets accounted for 61.8% of all MMF assets, with Government Institutional assets making up 85.9% of all Institutional MMF totals.
Crane Data's separate and broader Money Fund Intelligence Daily series shows money fund assets rising by $45.8 billion to $3.396 trillion in the week through July 10, 2019. Our latest Money Fund Intelligence and MFI XLS, which went out to subscribers on Monday morning and which track a broader set of funds than our MFI Daily, show assets rising $42.4 billion to $3.544 trillion in June. We expect asset inflows to remain strong in coming months, particularly in the fourth quarter.
In other news, Business Insider writes about, "The inside story of how Robinhood, a $6 billion investing app for millennials, blew a huge launch so badly that Congress got involved." The article, which was mentioned on CNBC yesterday, explains, "Business Insider spoke with 10 former Robinhood employees and contractors, who agreed to speak anonymously for fear of retaliation. They described a workplace in which [CEOs] Bhatt and Tenev brushed aside regulatory concerns in pursuit of flashy new products to attract users, culminating in the embarrassing debacle in December 2018 of its new checking and savings service, which the company was forced to abandon after its false assurance that the accounts were insured sparked a congressional outcry."
It continues, "Like Theranos, 23andMe, and Uber before it, Robinhood sought to disrupt a highly regulated industry with the 'move fast and break things' startup playbook, only to learn that the rules are there for a reason, and that breaking them has consequences. Business Insider has learned that the company was warned that the checking and savings accounts might not meet regulatory scrutiny but pressed ahead anyway." (See our June Money Fund Intelligence article, "Fin-Tech Invasion Targets Low Bank Deposit Rates, our May 13 News, "Investment News on Fin-Techs Invading Cash Mgmt," and our Dec. 17 Link of the Day, "SIPC Concerns About Robinhood.")
The piece tells us, "By December 2018, Bhatt found the 'wow' moment he'd been looking for. Robinhood announced that it would launch a checking and savings product that paid 3% interest -- a huge uptick from the average US savings and checking account interest rates of 0.10% and 0.08% respectively. Even digital banks, which have made a name for themselves in recent years as an alternative to nominal rates offered by big banks, fell shy of Robinhood's proposal, at the time topping out at 2.02% and 2.25% for checking and savings accounts, respectively. 'Three percent was a magic number,' one former employee told us. [Bhatt] thought it would make people say 'Wow.' But in the weeks following the champagne toasts, reality set in."
It explains, "During one meeting, the former executive said, product managers raised concerns with Bhatt about naming the product checking and savings. The trouble, they argued, was that the money was not in a checking account or in a savings account: It was in a brokerage account. And unlike traditional bank accounts, brokerage accounts aren't insured by the Federal Deposit Insurance Corp. Pitching the product as a bank account could mislead customers."
Business Insider writes, "Robinhood's brokerage accounts were already insured by the Securities Investor Protection Corp., but that covers only cash 'from the sale of or for the purchase of securities.' Using the account as a place to park cash for checking and savings was a far cry from using it to buy stock. Within a day of launch, articles began to surface calling into question how the new accounts would be insured."
They add, "Stephen Harbeck, the president and CEO of SIPC at the time, told several media outlets that Robinhood had not contacted SIPC beforehand about the product and said unequivocally that Robinhood's claims that the accounts were SIPC-insured were false: The money in the accounts wasn’t covered. Hundreds of thousands of users, many of them young, unsophisticated investors, had rushed to sign up for a new account based in part on the understanding that, if Robinhood went belly up, their money would be protected. It wouldn't be."
The article continues, "Within a day of its announcement, checking and savings was all but dead. The blog post on Robinhood's site announcing the news was deleted. Instead, Bhatt and Tenev published a new post announcing the team was going back to the drawing board.... 'We plan to work closely with regulators as we prepare to launch our cash management program, and we're revamping our marketing materials, including the name,' the post read."
Finally, the piece tells us, "Six months later, Robinhood's pursuit of customers' deposits remains very much up in the air. 'Checking and savings' was rebranded 'cash management.' The product has yet to launch, and users can no longer sign up for the waitlist. Details on how long it will function, or be insured, have yet to be released. In the meantime, checking and savings accounts have become table stakes among startups in personal wealth management. Wealthfront, Acorns, and SoFi are among a number of fintechs that have announced some type of cash-management offering with higher interest rates than traditional banks. The motivation is simple: As fintechs fight to survive in crowded space, handling more of their clients money is key to their growth."
Crane Data released its July Money Fund Portfolio Holdings Wednesday, and our most recent collection of taxable money market securities, with data as of June 30, 2019, shows another big jump in Repo, which broke the $1.2 trillion level, and another big drop in Treasuries. Money market securities held by Taxable U.S. money funds (tracked by Crane Data) increased by $18.7 billion to $3.402 trillion last month, after increasing $77.2 billion in May, increasing by $88.9 billion in April and decreasing by $8.2 billion in March. (Note that the April figures were inflated by the addition of massive $108 billion American Funds Central Cash Fund to our collections.) Repo continued to be the largest portfolio segment -- it broke $1.2 trillion this month -- 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) rose by $37.2 billion (3.2%) to $1.200 trillion, or 35.3% of holdings, after increasing $57.2 billion in May, increasing by $87.4 billion in April and decreasing $61.6 billion in February. Treasury securities fell by $19.6 billion (-2.3%) to $820.0 billion, or 24.1% of holdings, after decreasing $7.6 billion in May, decreasing by $111.0 billion in April and increasing by $54.4 billion in March. Government Agency Debt plunged by $26.0 billion (-3.6%) to $698.2 billion, or 20.5% of holdings, after increasing $8.6 billion in May, increasing $48.6 billion in April and increasing $5.6 billion in March. Repo, Treasuries and Agencies totaled $2.719 trillion, representing a massive 79.9% of all taxable holdings.
Money funds' holdings of CP rose again in June, and CDs and Other (mainly Time Deposits) holdings also jumped. Commercial Paper (CP) increased $5.5 billion (1.7%) to $328.7 billion, or 9.7% of holdings, after rising $14.0 billion in May, rising $46.8 billion in April and rising $5.2 billion in March. Certificates of Deposit (CDs) rose by $15.3 billion (6.4%) to $253.6 billion, or 7.5% of taxable assets, after rising $4.8 billion in May, rising $10.9 billion in April and falling $5.8 billion in March. Other holdings, primarily Time Deposits, increased $5.8 billion (6.7%) to $92.5 billion, or 2.7% of holdings, after rising $0.4 billion in May, rising $5.9 billion in April and falling $5.8 billion in March. VRDNs moved up to $8.4 billion, or 0.2% of assets. (Note: This total is VRDNs for taxable funds only. We will publish Tax Exempt MMF holdings separately late Thursday.)
Prime money fund assets tracked by Crane Data increased $12 billion to $996 billion, or 29.3% of taxable money funds' $3.402 trillion total. Among Prime money funds, CDs represent a quarter of holdings at 25.5% (up from 24.2% a month ago), while Commercial Paper accounted for 33.0% (up from 32.8%). The CP totals are comprised of: Financial Company CP, which makes up 19.5% of total holdings, Asset-Backed CP, which accounts for 6.6%, and Non-Financial Company CP, which makes up 6.9%. Prime funds also hold 5.9% in US Govt Agency Debt, 7.2% in US Treasury Debt, 9.3% in US Treasury Repo, 0.9% in Other Instruments, 6.3% in Non-Negotiable Time Deposits, 4.3% in Other Repo, 5.1% in US Government Agency Repo, and 0.6% in VRDNs.
Government money fund portfolios totaled $1.630 trillion (47.9% of all MMF assets), down $20 billion from $1.632 trillion in May, while Treasury money fund assets totaled another $775 billion (22.8%), up from $767 billion the prior month. Government money fund portfolios were made up of 39.2% US Govt Agency Debt, 21.9% US Government Agency Repo, 14.0% US Treasury debt, and 24.6% in US Treasury Repo. Treasury money funds were comprised of 67.0% US Treasury debt, 33.0% in US Treasury Repo, and 0.0% in Government agency repo, Other Instrument, and Investment Company shares. Government and Treasury funds combined now total $2.405 trillion, or 70.7% of all taxable money fund assets.
European-affiliated holdings (including repo) fell by $60.9 billion in June to $625.8 billion; their share of holdings fell to 18.4% from last month's 20.3%. Eurozone-affiliated holdings fell to $386.5 billion from last month's $447.2 billion; they account for 11.4% of overall taxable money fund holdings. Asia & Pacific related holdings decreased by $1.4 billion to $305.7 billion (9.0% of the total). Americas related holdings rose $8.1 billion to $2.468 trillion and now represent 72.6% of holdings.
The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (up $49.3 billion, or 7.0%, to $750.1 billion, or 22.1% of assets); US Government Agency Repurchase Agreements (down $14.8 billion, or -3.5%, to $407.7 billion, or 12.0% of total holdings), and Other Repurchase Agreements (up $2.8 billion from last month to $42.6 billion, or 1.3% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (up $10.4 billion to $194.6 billion, or 5.7% of assets), Asset Backed Commercial Paper (down $0.6 billion to $65.8 billion, or 1.9%), and Non-Financial Company Commercial Paper (down $4.3 billion to $68.3 billion, or 2.0%).
The 20 largest Issuers to taxable money market funds as of June 30, 2019, include: the US Treasury ($820.0 billion, or 24.1%), Federal Home Loan Bank ($532.0B, 15.6%), Fixed Income Clearing Co ($211.2B, 6.2%), BNP Paribas ($134.9B, 4.0%), RBC ($132.1B, 3.9%), JP Morgan ($90.4B, 2.7%), Federal Farm Credit Bank ($85.2B, 2.5%), Wells Fargo ($70.0B, 2.1%), Mitsubishi UFJ Financial Group Inc ($67.8B, 2.0%), Barclays ($60.3B, 1.8%), Federal Home Loan Mortgage Co ($56.8B, 1.7%), HSBC ($54.5B, 1.6%), Sumitomo Mitsui Banking Co ($45.9B, 1.3%), Toronto-Dominion Bank ($44.2B, 1.3%) Bank of Montreal ($43.5B, 1.3%), Federal Reserve Bank of New York ($43.1B, 1.3%), Bank of Nova Scotia ($41.8B, 1.2%), Bank of America ($40.5B, 1.2%), Societe Generale ($39.5B, 1.2%) and Citi ($38.9B, 1.1%).
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 ($211.2B, 17.6%), BNP Paribas ($120.6B, 10.0%), RBC ($103.1B, 8.6%), JP Morgan ($74.2B, 6.2%), Wells Fargo ($57.9B, 4.8%), Barclays PLC ($50.5B, 4.2%), HSBC ($44.5B, 3.7%), Federal Reserve Bank of New York ($43.1B, 3.6%), Mitsubishi UFJ Financial Group Inc ($42.8B, 3.6%) and Nomura ($37.5B, 3.1%). Fed Repo positions among MMFs on 6/30/19 rebounded from the prior month, with the following funds showing positions: Fidelity Cash Central Fund ($16.2B), Vanguard Market Liquidity Fund ($7.4B), Fidelity Sec Lending Cash Central ($6.7B), Goldman Sachs FS Treas Sol ($5.2B), Vanguard Prime MMkt Fund ($3.2B), Dreyfus Inst Treas & Agen Liq MMF ($2.0B), Dreyfus Tr&Ag Cash Mgmt ($1.0B), Franklin IFT US Govt MM ($0.7B), Wilmington US Govt MMF ($0.6B) and DFA Short Term Investment Fund ($0.2B).
The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: Toronto-Dominion Bank ($31.1B, 5.5%), RBC ($28.9B, 5.1%), Mitsubishi UFJ Financial Group ($25.0B, 4.4%), Bank of Nova Scotia ($22.8B, 4.0%), Credit Suisse ($20.6B, 3.6%), Sumitomo Mitsui Banking Co ($20.1B, 3.6%), Canadian Imperial Bank of Commerce ($18.6B, 3.3%), Mizuho Corporate Bank Ltd ($18.6B, 3.3%), Credit Agricole ($18.3B, 3.2%) and Bank of Montreal ($17.6B, 3.1%).
The 10 largest CD issuers include: Mitsubishi UFJ Financial Group ($18.1B, 7.2%), Sumitomo Mitsui Banking ($15.5B, 6.2%), Bank of Montreal ($15.4B, 6.1%), Svenska Handelsbanken ($11.9B, 4.7%), Wells Fargo ($11.6B, 4.6%), Mizuho Corporate Bank ($11.4B, 4.5%), Bank of Nova Scotia ($10.7B, 4.2%), Canadian Imperial Bank of Commerce ($9.9B, 3.9%), Toronto-Dominion Bank ($9.6B, 3.8%) and Sumitomo Mitsui Trust Bank ($9.4B, 3.7%).
The 10 largest CP issuers (we include affiliated ABCP programs) include: Toronto-Dominion Bank ($20.6B, 7.6%), RBC ($16.6B, 6.1%), JPMorgan ($15.8B, 5.8%), Credit Suisse ($12.2B, 4.5%), Bank of Nova Scotia ($10.3B, 3.8%), National Australia Bank Ltd ($8.4B, 3.1%), Toyota ($8.2B, 3.0%), Societe Generale ($8.2B, 3.0%), DBS Bank Ltd ($7.8B, 2.9%) and NRW.Bank ($7.5B, 2.8%).
The largest increases among Issuers include: Fixed Income Clearing Co (up $47.1 to $211.2B), RBC (up $17.8B to $132.1B), HSBC (up $7.9B to $54.5B), Mitsubishi UFJ Financial Group Inc (up $6.9B to $67.8B), Bank of Montreal (up $4.6B to $43.5B), Toronto-Dominion Bank (up $4.6B to $44.2B), Canadian Imperial Bank of Commerce (up $4.4B to $37.1B), Skandinaviska Enskilda Banken AB (up $4.0B to $12.5B), Nomura (up $3.2B to $37.5B) and DNB ASA (up $3.2B to $17.2B).
The largest decreases among Issuers of money market securities (including Repo) in June were shown by: Credit Agricole (down $27.4B to $36.2B), Federal Home Loan Bank (down $20.8B to $532.0B), US Treasury (down $19.6B to $820.0B), Mizuho Corporate Bank Ltd (down $19.5B to $28.0B), Natixis (down $14.8B to $31.2B), Societe Generale (down $13.3B to $39.5B), Credit Suisse (down $9.5B to $23.5B), ING Bank (down $6.0B to $25.1B), Barclays PLC (down $5.5B to $60.3B) and Federal Home Loan Mortgage Co (down $5.5B to $56.8B).
The United States remained the largest segment of country-affiliations; it represents 63.1% of holdings, or $2.148 trillion. Canada (9.4%, $320.3B) was number two, and France (7.7%, $261.4B) was third. Japan (7.0%, $239.0B) occupied fourth place. The United Kingdom (4.4%, $148.6B) remained in fifth place. Germany (1.9%, $64.1B) was in sixth place, followed by The Netherlands (1.6%, $53.1B), Australia (1.2%, $41.1B), Sweden (1.2%, $40.4B) and Switzerland (1.0%, $33.0B). (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 June 30, 2019, Taxable money funds held 35.9% (up from 35.2%) of their assets in securities maturing Overnight, and another 16.8% maturing in 2-7 days (up from 16.5% last month). Thus, 52.6% in total matures in 1-7 days. Another 20.7% matures in 8-30 days, while 11.6% matures in 31-60 days. Note that over three-quarters, or 84.9% of securities, mature in 60 days or less (up slightly from last month), the dividing line for use of amortized cost accounting under SEC regulations. The next bucket, 61-90 days, holds 6.6% of taxable securities, while 6.6% matures in 91-180 days, and just 1.8% matures beyond 181 days.
A press release entitled, "ICD Survey Indicates 88% of Corporates Plan on Increasing or Maintaining Money Market Fund Investments in 2019" tells us, "ICD, the leading independent trading and investment risk management platform ... released its '2019 ICD Client Survey Results.' Survey invitations were sent to all ICD clients globally, with 141 participants offering valuable insights into the global corporate outlook for 2019 on trading, investment trends and technology preferences."
It explains, "According to survey findings, 88% of investors plan on increasing or maintaining their current level of investment in Money Market Funds (MMFs), indicating minimal impact on MMF investment post US and EU money fund reform. Additionally, clients provided insights on other short-term investments, 23% indicated they are invested in or plan on investing in Short Duration Bond Funds, 56% in Time Deposits and 11% in ETFs. In the United States, 64% of respondents are investing in or plan on investing in Prime Funds in 2019, an increase of 4% over 2018 ICD Client Survey findings."
ICD tells us, "On the technology front, the trend toward "digital transformations" continues through 2019. While the majority of ICD client respondents have a Treasury Management System (TMS) in place, 23% of all respondents plan on implementing or changing their TMS in the next 12 months. An additional trend realized through the ICD Client Survey is in regards to ICD's Customer Service. In-line with last year's results, 99% of clients scored ICD's customer service as excellent or above average and the vast majority graded ICD Portal's functionality as excellent."
Tory Hazard, CEO of ICD says, "While European MMF Reform posed technological and operational challenges behind the scenes, it appears to have had little effect on ICD clients and their portfolio composition. We invested heavily this past year in people and technology to deliver the highest level of support for our clients, so I am thrilled to see the positive feedback from clients. Exceptional service is a core focus for ICD."
Finally, the release adds, "Additional Key Findings: 64% of global clients have a TMS in place. Zero European respondents indicated a decrease in USD & GBP MMFs investment due to European MMF Reform, and only 2% said they would decrease EUR MMF investment." (ICD's survey results show Kyriba with the largest share of Treasury Management Systems in ICD's survey, followed by Logotech, Reval and Sungard.
The survey results explain, "In 2018, 60% of ICD Americas survey participants indicated they were already invested in or planned on investing in US Prime MMFs. In 2019, the interest in US Prime MMFs continues with 64% illustrating a desire to incorporate those funds into their portfolios. This trend demonstrates the appetite for higher yield and comfort with variable NAV funds."
In other news, Crane Data's latest monthly Money Fund Portfolio Holdings statistics will be published Wednesday, July 10, and we'll be writing our normal monthly update on the June 30 data for Thursday's News. But we also generate a separate and broader Portfolio Holdings data set based on the SEC's Form N-MFP filings. (We continue to merge the two series, and the N-MFP version is now available via Holding file listings to Money Fund Wisdom subscribers.)
Our new N-MFP summary, with data as of June 30, 2019, includes holdings information from 1,187 money funds (nine more than last month), representing assets of $3.613 trillion (up from $3.585 trillion). We review the latest data, which shows that total money fund assets surged over $3.6 trillion in June.
Our latest Form N-MFP Summary for All Funds (taxable and tax-exempt) shows Repurchase Agreement (Repo) holdings in money market funds totaling $1,211 billion (up from $1,178 billion), or 33.5% of all assets. Treasury holdings total $829.2 billion (down from $850.4 billion), or 22.9%, and Government Agency securities totaled $729.3 billion (down from $743.3 billion), or 20.2%. Commercial paper (CP) totals $342.4 billion (up from $337.2 billion), or 9.5%, and Certificates of Deposit (CDs) total $258.0 billion (up from $242.9 billion), or 7.1%. The Other category (primarily Time Deposits) totals $139.5 billion (up from $129.4 billion), or 3.9%, and VDRNs account for $103.7 billion (up from $103.4 billion last month), or 2.9%.
Broken out into the SEC's more detailed categories, the CP totals were comprised of: $205.1 billion, or 5.7%, in Financial Company Commercial Paper; $61.6 billion or 1.7%, in Asset Backed Commercial Paper; and, $75.8 billion, or 2.1%, in Non-Financial Company Commercial Paper. The Repo totals were made up of: U.S. Treasury Repo ($751.8B, or 20.8%, U.S. Govt Agency Repo ($416.4B, or 11.5%) and Other Repo ($43.1B, or 1.2%).
The N-MFP Holdings summary for the 214 Prime Money Market Funds shows: CP holdings of $337.1 billion (up from $332.1 billion), or 33.1%; CD holdings of $258.0 billion (up from $242.9 billion), or 25.3%; Repo holdings of $189.8 billion (up from $171.9 billion), or 18.6%; Other (primarily Time Deposits) holdings of $93.3 billion (up from $85.2 billion), or 9.2%; Treasury holdings of $75.9 billion (down from $109.6 billion), or 7.5%; Government Agency holdings of $58.9 billion (down from $60.2 billion), or 5.8%; and VRDN holdings of $5.9 billion (down from $6.1 billion), or 0.6%.
The SEC's more detailed categories show CP in Prime MMFs made up of: $205.1 billion (up from 197.0 billion), or 20.1% in Financial Company Commercial Paper; $61.6 billion (up from 60.9 billion) or, 6.0% in Asset Backed Commercial Paper; and $70.4 billion (down from $74.2 billion), or 6.9% in Non-Financial Company Commercial Paper. The Repo totals include: U.S. Treasury Repo ($96.0 billion, or 9.4%), U.S. Govt Agency Repo ($50.7 billion, or 5.0%), and Other Repo ($43.1 billion, or 4.2%).
Crane Data's latest Money Fund Market Share rankings show assets were up again for most U.S. money fund complexes in June. Money fund assets increased by $40.0 billion, or 1.7%, last month to $3.540 trillion. Assets have climbed by $234.5 billion, or 7.1%, over the past 3 months, and they have increased by $531.8 billion, or 17.7%, over the past 12 months through June 30, 2019. The biggest increases among the 25 largest managers last month were seen by Fidelity, JPMorgan, Federated, BlackRock, Schwab and Vanguard, which increased assets by $10.9 billion, $9.8B, $5.8B, $5.7B, $4.7B and $4.1B respectively. We review the latest market share totals below, and we also look at money fund yields in June.
The only declines in assets among the largest complexes in June were seen by Morgan Stanley, whose MMF assets dropped by $4.7 billion, or -4.0%, Wells Fargo, which declined $2.2 billion, or -1.8%, HSBC (down $1.5B, or -8.8%) and First American (down $1.3B, or -2.0%). 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.
Over the past year through June 30, 2019, American Funds (up $111.4B, or 714.8%; these were inflated by the addition last month of the $108 billion American Funds Central Cash Fund), Fidelity (up $107.8B, or 18.4%), Vanguard (up $78.7B, or 26.0%), Federated (up $67.9B, or 35.3%), JP Morgan (up $52.6B, or 20.0%), Schwab (up $33.8B, or 25.6%) and Goldman Sachs (up $18.8B, or 9.8%) and were the largest gainers. These complexes were followed by Northern (up $14.8B, or 14.9%), UBS (up $13.6B, or 29.6%), Wells Fargo (up $12.1B, or 11.3%) and First American (up $9.4B, or 17.3%).
American Funds, Fidelity, JPMorgan, BlackRock and Federated had the largest money fund asset increases over the past 3 months, rising by $109.5B, $23.2B, $19.3B, $16.5B and $16.3B, respectively. The only decliners over 3 months were: Northern (down $5.0B, or -4.2%), T Rowe Price (down $3.2B, or -9.0%), Franklin (down $2.9B, or -11.9%) and DFA (down $1.7B, or -7.3%).
Our latest domestic U.S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $694.6 billion, or 19.6% of all assets. That was up $10.9 billion in June, up $23.2 billion over 3 mos., and up $107.8B over 12 months. Vanguard ranked second with $381.8 billion, or 10.8% market share (up $4.1B, up $9.4B, and up $78.7B for the past 1-month, 3-mos. and 12-mos., respectively). JPMorgan was third with $314.8 billion, or 8.9% market share (up $9.8B, up $19.3B and up $52.6B). BlackRock ranked fourth with $299.3 billion, or 8.5% of assets (up $5.7B, up $16.5B and up $5.2B for the past 1-month, 3-mos. and 12-mos.), while Federated remained in fifth with $260.3 billion, or 7.4% of assets (up $5.8B, up $16.3B and up $67.9B).
Goldman Sachs remained in sixth place with $211.7 billion, or 6.0% of assets (up $3.4 billion, up $11.5B and up $18.8B), while Schwab was in seventh place with $166.2 billion, or 4.7% (up $4.7B, up $8.3B and up $33.8B). Dreyfus ($160.9B, or 4.5%) was in eighth place (up $732M, up $3.9B and down $6.2B), followed by American Funds ($127.0B, or 3.6%, unchanged, up $109.5B and up $111.4B). Wells remained in 10th place ($119.0B, or 3.4%; down $2.2B, up $10.2B and up $12.1B).
The 11th through 20th-largest U.S. money fund managers (in order) include: Northern ($114.3B, or 3.2%), Morgan Stanley ($114.1B, or 3.2%), SSgA ($93.5B, or 2.6%), Invesco ($70.8B, or 2.0%), First American ($63.5B, or 1.8%), UBS ($59.6B, or 1.7%), T Rowe Price ($32.7B, or 0.9%), DWS ($22.9B, or 0.6%), Franklin ($21.4B, or 0.6%) and DFA ($21.1B, 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 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 ($703.4 billion), J.P. Morgan ($466.1B), BlackRock ($449.7B), Vanguard ($381.8B) and Goldman Sachs ($321.6B). Federated ($270.5B) was sixth, Dreyfus/BNY Mellon ($179.7B) was in seventh, followed by Schwab ($166.2B), Morgan Stanley ($146.4B) and Northern ($137.3B) 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 July issue of our Money Fund Intelligence and MFI XLS, with data as of 6/30/19, shows lower yield in June across all of our taxable Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 752), fell 4 basis points to 2.03% for the 7-Day Yield (annualized, net) Average, and the 30-Day Yield decreased by 3 to 2.04%. The MFA's Gross 7-Day Yield decreased to 2.44%, while the Gross 30-Day Yield inched lower 3 bps to 2.46%.
Our Crane 100 Money Fund Index shows an average 7-Day (Net) Yield of 2.18% (down 4 bps) and an average 30-Day Yield that decreased to 2.20%. The Crane 100 shows a Gross 7-Day Yield of 2.45% (down 3 bps), and a Gross 30-Day Yield of 2.46%. For the 1-year return through 6/30/19, our Crane MF Average returned 1.90% and our Crane 100 returned 2.09%. The total number of funds, including taxable and tax-exempt, increased by 4 to 937. There are currently 752 taxable, up by 4, and 185 tax-exempt money funds, unchanged.
Our Prime Institutional MF Index (7-day) yielded 2.25% (down by 3) as of June 30 while the Crane Govt Inst Index was 2.13% (down 2 bps) and the Treasury Inst Index was 2.04% (down 7 bps). Thus, the spread between Prime funds and Treasury funds is 21 basis points, while the spread between Prime funds and Govt funds is 12 basis points. The Crane Prime Retail Index yielded 2.07% (down 3 basis points), while the Govt Retail Index was 1.80% (down 4 bps) and the Treasury Retail Index was 1.79% (down 7 bps). The Crane Tax Exempt MF Index yield had a big jump in June to 1.42% (up 34 bps).
Gross 7-Day Yields for these indexes in June were: Prime Inst 2.57% (down 3 bps), Govt Inst 2.42% (down 3 bps), Treasury Inst 2.35% (down 7 bps), Prime Retail 2.56% (down 3 bps), Govt Retail 2.40% (down 3 bps) and Treasury Retail 2.37% (down 7 bps). The Crane Tax Exempt Index decreased 34 basis points to 1.88%. The Crane 100 MF Index returned on average 0.18% over 1-month, 0.56% over 3-months, 1.10% YTD, 2.09% over the past 1-year, 1.21% over 3-years (annualized), 0.75% over 5-years, and 0.40% over 10-years. (Contact us if you'd like to see our latest MFI XLS, Crane Indexes or Market Share report.)
The July issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Monday morning, features the articles: "Money Funds Gain vs Deposits Again: AFP Liquidity Survey," which reviews corporate investors shift from banks to MMFs; "Liquidity Flowing at 11th Money Fund Symposium," which reviews coverage of our recent big show; and, "Worldwide MMFs Break $6.1T: China, U.S. Lead Gains," which discusses the latest numbers on money funds outside the U.S. We've also updated our Money Fund Wisdom database with June 30 statistics, and sent out our MFI XLS spreadsheet Monday a.m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our July Money Fund Portfolio Holdings are scheduled to ship on Wednesday, July 10, and our July Bond Fund Intelligence is scheduled to go out Monday, July 15.
MFI's "MMFs vs Deposits," article says, "The Association for Financial Professionals released its '2019 AFP Liquidity Survey' recently, which shows that money market funds continue to regain market share from bank deposits among corporate investors. It tells us, 'The greatest share of allocations continues to be in bank products (46 percent) followed by Government money market funds (at 14 percent) and Treasury bills (six percent).'"
It continues, "AFP says, 'The share of funds allocated to Prime Funds has increased, almost equaling the share in T-bills. Bank relationships continue to be core to a company's operating cash investment mix. Banks are the primary source that treasury and finance professionals turn to for information. Most organizations' cash holdings are held in bank deposits; practitioners value their bank-related investments differently than they do other investment vehicles.'"
Our MF Symposium recap reads, "Two weeks ago Crane Data hosted its 11th annual Money Fund Symposium conference in Boston, and the record 584 attendees were feeling little pain after a decade of ultra-low interest rates and dramatic regulatory and product shifts. But though asset flows and revenue streams are extremely healthy now, the threat of falling rates again cast a shadow over the proceedings."
Host Peter Crane comments, "Last year, you saw a surge in retail money market fund assets and prime retail assets in particular.... Then this year institutions joined in. If you look at the latest [ICI] numbers … they're pushing $3.2 trillion. Over 52 weeks ... assets are up 13%.... I believe money funds will be up 20 percent in 2019."
He adds, "The most amazing thing is that they're up during the weakest seasonal period of the year.... Assets in the second half are always super strong. So I'm expecting a mother of inflows in this second half of the year. If you look at the SEC's statistics, their numbers are over $3.5 trillion.... But no matter which series you look at, the numbers are surging ... and the prime numbers are spectacular.... Prime assets are up 50% year-over-year. They're over $1 trillion now if you look at the SEC's or Crane Data's stats."
Our "Worldwide" update says, "The Investment Company Institute's latest 'Worldwide Regulated Open-Fund Assets and Flows, First Quarter 2019' shows that money fund assets globally rose by $83.7 billion, or 1.4%, in Q1'19, to break above the $6.1 trillion level ($6.160T). The increase was led by big gains in Chinese and U.S.-based money funds. Money fund assets in Ireland fell. MMF assets worldwide have increased by $62.1 billion, or 1.0%, the past 12 months, and money funds in the U.S. continue to represent exactly 50.0% of worldwide assets."
The latest MFI also includes the News Brief, "MMF Assets Blasting Off." It explains, "Money fund assets broke through the $3.2 trillion level as Institutional MMFs surged to $2.0 trillion in ICI's latest data series, their 11th week in a row of gains. Over the past 52 weeks, ICI shows assets increasing by $417 billion, or 14.8%, with Retail MMFs rising by $206 billion (20.0%) and Inst MMFs rising by $210 billion (11.8%)."
Our July MFI XLS, with June 30, 2019, data, shows total assets rose by $40.0 billion in June to $3.541 trillion, after rising $91.1 billion in May, $105.7 billion in April (this included the addition of the $108 billion American Funds Central Cash Fund) and falling $10.2 billion in March. Our broad Crane Money Fund Average 7-Day Yield fell to 2.03% during the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) was down 4 basis points to 2.18%.
On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA fell 4 basis points to 2.44% and the Crane 100 fell to 2.45%. Charged Expenses averaged 0.41% (unchanged) and 0.27% (unchanged), respectively for the Crane MFA and Crane 100. The average WAM (weighted average maturity) for the Crane MFA and Crane 100 was 28 and 30 days, respectively (down one day for both). (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
Money fund assets blasted through the $3.2 trillion level as Institutional MMFs surged to $2.0 trillion in the latest week. The Investment Company Institute’s new "Money Market Fund Assets" series shows that MMF assets rose for the 11th week in a row. They’ve increased by $195.5 billion, or 6.4%, since April 17. Money fund assets have increased by $145 billion, or 4.8%, year-to-date, according to ICI's weekly series, MMFs' highest level since February 2010. Over the past 52 weeks, ICI's money fund asset series has increased by $417 billion, or 14.8%, with Retail MMFs rising by $206 billion (20.0%) and Inst MMFs rising by $210 billion (11.8%).
They write, "Total money market fund assets increased by $46.17 billion to $3.24 trillion for the six-day period ended Tuesday, July 2, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $40.41 billion and prime funds increased by $3.03 billion. Tax-exempt money market funds increased by $2.73 billion." ICI's weekly series shows Institutional MMFs rising $36.2 billion and Retail MMFs rising $10.0 billion. Total Government MMF assets, including Treasury funds, stood at $2.423 trillion (74.8% of all money funds), while Total Prime MMFs rose to $676.4 billion (20.9%). Tax Exempt MMFs totaled $139.0 billion, or 4.3%.
ICI states, "Assets of retail money market funds increased by $9.97 billion to $1.24 trillion. Among retail funds, government money market fund assets increased by $5.89 billion to $705.15 billion, prime money market fund assets increased by $2.42 billion to $406.97 billion, and tax-exempt fund assets increased by $1.66 billion to $127.23 billion." Retail assets account for over a third of total assets, or 38.3%, and Government Retail assets make up 56.9% of all Retail MMFs.
The release adds, "Assets of institutional money market funds increased by $36.20 billion to $2.00 trillion. Among institutional funds, government money market fund assets increased by $34.52 billion to $1.72 trillion, prime money market fund assets increased by $611 million to $269.45 billion, and tax-exempt fund assets increased by $1.06 billion to $11.77 billion." Institutional assets accounted for 61.7% of all MMF assets, with Government Institutional assets making up 85.9% of all Institutional MMF totals.
Crane Data’s separate and broader Money Fund Intelligence Daily series shows money fund assets rising by $37.0 billion to $3.363 trillion in the week through July 2, 2019. Watch for the latest monthly totals in our Money Fund Intelligence and MFI XLS, which go out to subscribers on Monday morning. The preliminary totals for our even broader monthly series show assets rising $41.4 billion to $3.543 trillion in June. Crane Data’s Peter Crane predicted at our recent Money Fund Symposium that money fund totals will rise by over 20% in 2019, given the much stronger seasonal nature of MMF flows during the second half of the year.
In other news, Wells Fargo Securities' Garret Sloan asked last week, "Could A Decline in Rates Mean A Decline in MMF Assets?" He explained, "The Crane Money Fund Symposium is entering its third and final day in Boston. The conference began in the wake of dovish commentary at the FOMC meeting last week. One question linking money funds and the fed funds market is whether the dovish about-face could mark an inflection point in money fund asset growth?"
Sloan continued, "Pete Crane was quoted by Bloomberg as saying that the fund industry may have reached 'the peak'. For a time, many U.S. media outlets were running stories with some derivation on the phrase 'cash is king'. The rise in interest rates has unquestionably been one of the features that has spurred the growth of money market fund balances, which have swelled to a post-crisis record. At $3.18 billion, assets are at their highest point since 2010."
He added, "Government funds today have surpassed the pre-crisis prime fund asset peak. The week of September 10, 2008 (an ominous date to be sure), prime funds peaked at $2.136 billion. Prime funds now sit at $673 billion, which is quite a recovery considering that they fell to $380 billion following 2016's money market fund reform. Government funds have climbed to $2.375 trillion, with Treasury/Agency funds taking the lion's share of the government fund sector. They currently hold $1.68 trillion in assets, while Treasury/Repo funds currently hold $695 billion."
A press release entitled, "State Street Global Advisors Launches Its First ESG Money Market Fund," tells us, "State Street Global Advisors, the asset management business of State Street Corporation (STT), today announced the launch of the State Street ESG Liquid Reserves Fund (the 'Fund') which seeks to apply financially material environmental, social, and governance (ESG) scores to the management of the Fund. The Fund is the first money market fund to offer a portfolio composed entirely of investments that meet ESG criteria at the time of purchase." (See our April 25 Crane Data News, "State Street Files to Launch ESG Liquid Reserves Fund; LEAF Now Live.")
Pia McCusker, SSGA's Global Head of Cash Management, comments, "We're proud to apply State Street Global Advisors' longstanding ESG commitment to the launch of this fund, which provides the first fully ESG-focused money market fund option by incorporating sustainable investing within a cash strategy."
She continues, "As appetites for ESG investment opportunities continue to grow, institutional investors need options across all asset classes. There's currently an industry-wide lack of ESG data that is financially material, consistently reported, and comparable across firms; using the R-Factor scoring system allows us to address this critical issue by incorporating State Street Global Advisors' expertise. This is only the beginning for the application of R-Factor as we explore further ESG-related opportunities at the institutional level."
The release explains, "The Fund uses R-Factor, State Street Global Advisors' new ESG scoring system that draws on multiple data sources and leverages widely accepted and transparent materiality frameworks to generate a unique ESG score for issuers. In particular, R- Factor leverages the Sustainability Account Standards Board's (SASB) and country-specific corporate governance frameworks and provides transparency into how and what State Street Global Advisors considers to be financially material ESG factors."
It adds, "The Fund invests in prime money market instruments that meet State Street Global Advisors' ESG criteria. The portfolio construction process is a multi-step method involving fundamental risk budget allocation, optimization, and ESG assessment. The Fund, which is domiciled in the United States and registered under the Investment Company Act of 1940 (the 'Act'), will have a floating net asset value and will be managed and operated to comply with Rule 2a-7 of the Act."
For more on ESG and "Green" money funds, see the following Crane Data News articles: "Cap Advisors Group Demystifies ESG Investing" (6/19/19), "Moody's Rates BlackRock LEAF Aaa-mf" (4/10/19), "More on Green, ESG Money Funds: What's Not There, Barron's" (2/11/19), "SSGA's 2019 Global Cash Outlook Discusses ESG MMF Challenges, Tech, AI" (2/4/19), "FT Says China's Ant Shrinks; More on BlackRock LEAF; Weekly Holdings" (1/30/19), "BlackRock to Launch Environmental MF" (1/23/19) and "DWS ESG Liquidity Goes Live; Federated Explains Prime Private Fund" (9/17/18).
In other news, Fitch Ratings published a "U.S. Money Market Fund Dashboard" brief, entitled, "Prime Money Fund Assets Grow Despite Spread Compression," which comments, "U.S. money market funds (MMFs) continue to exhibit strong asset growth. In the 12-month period through May 2019, all MMF categories saw an increase year over year. Prime funds exhibited the highest growth rate at 42%, up $193 billion for the period. Government funds grew more slowly, up $127 billion, or a 6% increase for the period, according to iMoneyNet data. From the trough in prime MMF assets around the time of reforms in November 2016 through the end of May 2019, prime MMF assets increased approximately $285 billion, or 77%."
They explain, "Yields and Market Volatility Have Driven Growth: Higher absolute yields offered by MMFs and volatility in other markets drove growth in MMF assets. The four Fed interest rate hikes in 2018 doubled prime MMF yields, from 1.09% in January 2018 to 2.20% in January 2019, improving the economics of MMF investments relative to the low yield environment over the previous years. Secondly, in the latter half of 2018, market volatility caused investors to reposition assets toward the relative safety of cash assets, including MMFs. As the Fed recently signaled a potential reversal of its tightening policy, there is some uncertainty over the direction of asset flows in MMFs if rates decline."
Fitch writes, "Prime MMFs' net asset value (NAV) stability has contributed to their growth relative to government MMFs.... Prime NAVs have been largely stable, in particular through a rising rate environment. The stability of NAVs of institutional prime MMFs was a key concern for investors leading up to MMF reform in 2016."
They state, "The high levels of liquidity maintained by prime funds increase their ability to meet regulatory required liquidity and reduce the potential for the imposition of fees or gates during periods of elevated redemptions. The potential for fees or gates was a significant deterrent for investors around the time of reform, and was a key reason for the shift of assets from prime to government MMFs at that time. The ... average prime fund weekly liquidity has increased to around 50%, from approximately 40% before the reforms. Funds' ability to meet redemptions is a key consideration in Fitch's rating analysis of MMFs."
Finally, they say, "NAV stability and high liquidity have led to stronger growth in prime funds relative to government funds. The stronger growth in prime funds has sustained despite a compression in the net yield spread between prime and government funds."
It's been two months since the market collectively and suddenly decided rates were going lower and not higher. While the Federal Reserve has yet to officially cut interest rates, brokerage, bank and money market fund money market fund yields have all inched lower since April 30. Money market mutual fund yields, as measured by our Crane 100 Money Fund Index, have moved down from 2.25% to 2.18% over the past month and a half, and some of the highest-yielding bank deposit options cut rates last week. (See Monday's Link of the Day, "WSJ Says Marcus, Ally Cut Rates.") The latest move lower comes from Charles Schwab, who just lowered brokerage sweep rates. Schwab reduced rates for balances under $1 million from 0.30% to 0.26% in the latest week, according to our Brokerage Sweep Intelligence, and they trimmed rates for balances over $1 million to 0.65% from 0.67%.
All other rates tracked by our Brokerage Sweep Intelligence report were unchanged in the latest week. But as we mentioned in our May 23 News, "Brokerage Sweep Rates Inch Down, But Raymond James Raises," several brokerages, including UBS and E*Trade, reduced rates during May. Expect more trimming and tweaking in the coming weeks as pressure builds on brokerages to maintain net interest margins.
Our Crane Brokerage Sweep Index, an average of the 11 largest brokerage firms' "sweep" rates, is currently 0.24% for balances under $100K, 0.30% for balances under $250K, 0.39% for balances under $500K, 0.43% for balances under $1 million, 0.62% for balances under $5 million and 0.76% for balances over $5 million. Most tiers for the Crane Brokerage Sweep Indexes inched lower by one basis point over the past month, but they remain slightly higher than at the start of the year and substantially higher than a year ago. A year earlier, average sweep rates were 0.14% (under $100K), 0.18% (under $250K), 0.23% (under $500K), 0.25% (under $1M), 0.37% (under $5M), and 0.46% (under $5M).
Fidelity is offering by far the highest FDIC-insured sweep rates among the $100K balance tier, with a yield of 0.79% as of June 28. RW Baird occupies the No. 2 spot in the weekly survey, paying out 0.55% on its $100K tier. Raymond James ranks third with a rate of 0.40% at the $100K tier, followed by Schwab's 0.26% rate. Ameriprise, UBS and Wells Fargo are all yielding 0.25% on balances of $100K. E*Trade and Morgan Stanley offer just 0.15%, Merrill pays 0.14% and TD Ameritrade ranks last at just 0.10%.
For more on brokerage sweeps, see these Crane Data News articles: Brokerage Sweep Rates Flat; MS, E*Trade Earnings; TD Lowers Rates (4/23/19), BNY Keeps Dreyfus Name on Money Funds; Brokerage Sweep Rates Flat (3/5/19), Edward Jones Latest to Shift to FDIC Sweeps; ICI: MMFs Break $3T in '18 (1/31/19), Schwab, Brokerages Discuss Sweeps, Money Funds on Earnings Calls (1/25/19), SF Chronicle on Brokerage Sweeps; Bloomberg on Europe Rejecting RDM (11/28/18), TD Ameritrade, Morgan Stanley on Sweeps; Money Fund Assets Rebound (10/26/18) and Money Fund Yields, Sweep Rates Move Higher; WSJ on Savings, Deposits (10/18/18).
In other news, J.P. Morgan Securities writes on "Takeaways from Crane's Money Fund Symposium in its latest "Short-Term Market Outlook and Strategy." They comment, "The money markets convened [last] week for the annual Crane's Money Fund Symposium in record numbers. Over the years, this has become one of the largest industry events in the money markets. Discussion topics focused on a number of items, including monetary policy, deposits versus money funds, supply, repo, and credit. Below, we highlight some of our key takeaways."
JPM's piece continues, "In the face of a potentially lower interest rate environment, sentiment among cash investors was not particularly negative. From our conversations, we found that most investors viewed potential upcoming eases as more insurance eases than those that precede a recession. Of course, MMF investors don't really want lower rates given their sensitivity to their MMF yields. However, they have also learned to live with them over the past decade when rates were at the zero lower bound, and have found ways to deal with them."
It explains that, "MMFs are still relatively attractive. Even with lower yields, cash investors have continued to find MMFs attractive given their liquidity and safety. This is evident from the unexpected scale of flows that have entered MMFs this year, across both retail and institutional shareholders. Furthermore, in spite of the narrowing spread between prime and government yields, prime funds have also continued to see inflows. Relative to bank deposits, MMFs remain a competitive alternative. While these flows may slow in the near-term, they should also continue, which should keep money market assets well-bid."
JPMorgan also tells us, "One of the key themes throughout the conference was the growing role of repo for money market investors. The flood of Treasury supply and record-high dealer positions have supported a significant growth in dealer repo balances with MMFs, and, combined with the inverted yield curve, have made repo an increasingly attractive investment. FICC sponsored repo was the subject of considerable attention and enthusiasm -- many noted that because it is more balance-sheet efficient for dealers, FICC has created additional repo capacity, especially at quarter ends when balance sheet has historically been scarce."
They continue, "Speakers did identify a few issues with sponsored repo: in particular, because sponsored repo transactions all face FICC instead of the individual sponsoring banks, counterparty risk limits could put a cap on MMFs' participation. The CCLF, which requires sponsors to commit liquidity to FICC based on their peak daily activity, also imposes some additional costs compared to uncleared GC repo. Overall, though, there was a broad consensus that FICC repo will continue to grow in the coming months, with higher volumes, more investors, and more banks and dealers competing as sponsors."
The update discusses the "Widespread acceptance of SOFR," stating, "In general, there was broad acknowledgement of the need to transition away from Libor, and acceptance of SOFR as the replacement rate. Though there is still a long way to go, speakers were generally optimistic about the transition process and progress to date. Increasing issuance volumes and bringing more issuers onboard was seen as more important than getting some of the technical conventions (compounding vs. simple averages, day count conventions, etc.) perfect, at least at this early stage. Several noted that a Treasury FRN linked to SOFR would be a big help to adoption. The daily publication of forward-looking SOFR term rates and backward-looking averages was also viewed as an important step."
Finally, the piece adds, "Credit analysts and PMs alike showed no real signs of concerns with respect to the current credit environment. While some called attention to the amount of BBB issuers in the high grade corporate credit market, they also noted that most of their portfolios are invested with financial issuers, most of whom are extremely well capitalized and very liquid. And while they will continue to monitor the situation, credit risks have not been a major concern."
Note: Thanks again to those of you who attended our 11th annual Crane's Money Fund Symposium in Boston last week! We had a record 584 register.... Attendees and Crane Data subscribers can access the conference binder materials (including the recordings) via our "Money Fund Symposium 2019 Download Center." Watch for more coverage in the July issue of our Money Fund Intelligence newsletter, and mark your calendars for next year's show in Minneapolis (June 24-26, 2020).
The Investment Company Institute released its "Worldwide Regulated Open-Fund Assets and Flows, First Quarter 2019" last week. The most recent data collection on mutual funds in other countries (as well as the U.S.) shows that money fund assets globally rose by $83.7 billion, or 1.4%, in Q1'19, to break above the $6.1 trillion level ($6.160T). The increase was led by big gains in Chinese and U.S.-based money funds. Money fund assets in Ireland fell. MMF assets worldwide have increased by $62.1 billion, or 1.0%, the past 12 months, and money funds in the U.S. continue to represent exactly 50.0% of worldwide assets. We review the latest Worldwide Money Market Fund totals, below.
ICI's release says, "Worldwide regulated open-end fund assets increased 7.1 percent to $50.00 trillion at the end of the first quarter of 2019, excluding funds of funds. Worldwide net cash inflow to all funds was $323 billion in the first quarter, compared with $86 billion of net inflows in the fourth quarter of 2018. 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 first 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 a slight appreciation of the US dollar over the first quarter of 2019 against certain currencies, notably the euro. For example, on a US dollar-denominated basis, fund assets in Europe increased by 4.7 percent in the first quarter, compared with an increase of 6.7 percent on a euro-denominated basis."
ICI's quarterly continues, "On a US dollar-denominated basis, equity fund assets increased by 10.9 percent to $22.09 trillion at the end of the first quarter of 2019. Bond fund assets increased by 4.9 percent to $10.63 trillion in the first quarter. Balanced/mixed fund assets increased by 5.9 percent to $6.19 trillion in the first quarter, while money market fund assets increased by 1.2 percent globally to $6.16 trillion.”
The release also says, "At the end of the first quarter of 2019, 44 percent of worldwide regulated open-end fund assets were held in equity funds. The asset share of bond funds was 21 percent and the asset share of balanced/mixed funds was 12 percent. Money market fund assets represented 12 percent of the worldwide total.”
It adds, "Net sales of regulated open-end funds worldwide were $323 billion in the first quarter of 2019. Flows out of equity funds worldwide were $28 billion in the first quarter, after experiencing $100 billion of net inflows in the fourth quarter of 2018. Globally, bond funds posted an inflow of $267 billion in the first quarter of 2019, after recording an outflow of $68 billion in the fourth quarter. Inflows from balanced/mixed funds worldwide totaled $8 billion in the first quarter of 2019, compared with $45 billion of outflows in the fourth quarter of 2018. Money market funds worldwide experienced an inflow of $38 billion in the first quarter of 2019 after registering an inflow of $82 billion in the fourth quarter of 2018.”
According to Crane Data's analysis of ICI's "Worldwide" fund data, the U.S. maintained its position as the largest money fund market in Q1'19 with $3.079 trillion, or 50.0% of all global MMF assets. U.S. MMF assets increased by $42.3 billion (1.4%) in Q1'19 and increased by $286.3B (10.3%) in the 12 months through March 31, 2019. China remained in second place among countries overall, as assets rebounded in the latest quarter. China saw assets increase $61.2 billion (5.5%) in Q1 to $1.171 trillion (19.0% of worldwide assets). But over the 12 months through March 31, 2019, Chinese MMF assets have fallen by $67.8 billion, or -5.5%.
Ireland remained third among country rankings, ending Q1 with $545.7 billion (8.9% of worldwide assets). Dublin-based MMFs were down $13.0B for the quarter, or -2.3%, and down $45.0B, or -7.6%, over the last 12 months. Luxembourg remained in fourth place with $385.6 billion (6.3% of worldwide assets). Assets here increased $2.1 billion, or 0.5%, in Q1, and were up $8.3 billion, or 2.2%, over one year. France was in fifth place with $380.4B, or 6.2% of the total, up $6.7 billion in Q1 (1.8%) but down $64.9B (-14.6%) over 12 months.
Japan remained in sixth place with $97.6 billion (1.6%); assets there dropped $2.6 billion (-2.6%) in Q1 and $10.5 billion (-9.7%) over 12 months. Korea, the 7th ranked country, saw MMF assets rise $7.4 billion, or 9.1%, in Q1’19 to $88.0 billion (1.4% of the world's total MMF assets); they've fallen $12.4 billion (-12.3%) for the year. Brazil remained in 8th place, as assets increased $2.1 billion, or 2.8%, to $76.6 billion (1.3% of total assets) in Q1. They've decreased $2.7 billion (-3.3%) over the previous 12 months.
ICI's statistics show India remaining in 9th place with $63.8B, or 1.0% of total, up $162M (0.3%) in Q1 and up $12.1B (23.5%) for the year. Mexico was in 10th place, increasing $4.2 billion, or 7.2%, to $62.9 billion (1.0% of total assets) in Q1 and increasing $4.2 billion (7.2%) over the previous 12 months. (Note that ICI's data no longer includes money fund figures for Australia. Australia's MMF assets, which had been one of the largest markets in the world, were mysteriously shifted into the "Other" category several years ago.)
The United Kingdom ($26.0B, up $758M and down $3.7B over the quarter and year, respectively) ranked 11th ahead of Chinese Taipei ($24.5B, up $1.9B and down $4.2B), which moved up to 12th place. South Africa ($24.3B, up $1.5B and down $1.8B), Canada ($22.2B, up $521M and up $2.3B), and Chile ($19.4B, down $2.0B and down $6.2B) rank 13th through 15th, respectively. Switzerland, Belgium, Norway, Germany and Spain round out the 20 largest countries with money market mutual funds.
ICI's quarterly series shows money fund assets in the Americas total $3.269 trillion, up $47.9 billion in Q1, while Asia and Pacific money funds, which surpassed European money funds in Q3'18, increased $3.1 billion to $1.452 trillion. Europe saw its money funds increase by $31.2 billion in Q1'19 to $1.415 trillion, and Africa saw its money funds increase $1.5B to $24.3 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.
