News Archives: October, 2023
The Investment Company Institute's released its latest monthly "Trends in Mutual Fund Investing" and "Month-End Portfolio Holdings of Taxable Money Funds" for September 2023 on Monday. ICI's monthly Trends shows money fund totals rising $74.1 billion in September to a record $5.681 trillion (after increases in August, July, June, May and April). Prior to this, the March jump (a $371.0 billion increase) was the third largest monthly increase ever and the largest in history if you exclude 2 coronavirus lockdown panic months in March and April 2020. Bond fund assets decreased, dropping $24.9 billion to $4.638 trillion.
MMFs have increased by $1.110 trillion, or 24.3%, over the past 12 months. Money funds' September asset increase follows gains of $123.9 billion in August $31.4 billion in July, $30.6 billion in June, $172.7 billion in May, $8.4 billion in April, $371.0 billion in March, $60.0 billion in February, $31.5 billion in January, $105.3 billion in December, $63.4 billion in November, $36.8 billion in October and $4.2 billion in Sept. Money fund assets surpassed bond fund assets in September 2022 for the first time since 2010 and they continued to hold a sizeable lead last month. (The bond fund totals don't include bond ETFs, which total $1.371 trillion as of 9/30, according to ICI.)
ICI's monthly release states, "The combined assets of the nation's mutual funds decreased by $704.82 billion, or 2.9 percent, to $23.79 trillion in September, 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.... Bond funds had an outflow of $15.82 billion in September, compared with an outflow of $1.12 billion in August.... Money market funds had an inflow of $60.80 billion in September, compared with an inflow of $109.96 billion in August. In September funds offered primarily to institutions had an inflow of $24.25 billion and funds offered primarily to individuals had an inflow of $36.56 billion."
The Institute's latest statistics show that Taxable MMFs and Tax Exempt MMFs were both higher last month. Taxable MMFs increased by $73.1 billion in September to $5.564 trillion. Tax-Exempt MMFs increased $0.9 billion to $116.7 billion. Taxable MMF assets increased year-over-year by $1.093 trillion (24.4%), and Tax-Exempt funds rose by $17.1 billion over the past year (17.2%). Bond fund assets decreased by $109.7 billion (after decreasing $24.9 billion in August) to $4.528 trillion; they've decreased by $5.8 billion (-0.0%) over the past year.
Money funds represent 23.9% of all mutual fund assets (up 1.0% from the previous month), while bond funds account for 19.0%, according to ICI. The total number of money market funds was 276, down 2 from the prior month and down from 292 a year ago. Taxable money funds numbered 230 funds, and tax-exempt money funds numbered 46 funds.
ICI's "Month-End Portfolio Holdings" confirm a drop in Repo and a jump in Treasuries last month. Repurchase Agreements remained the largest composition segment in September but decreased $68.1 billion, or -2.4%, to $2.772 trillion, or 49.8% of holdings. Repo holdings have increased $365.5 billion, or 15.2%, over the past year. (See our Oct. 12 News, "Oct. Portfolio Holdings: Treasuries Continue Surge; Repo and TDs Slide.")
Treasury holdings in Taxable money funds increased last month; they remain the second largest composition segment. Treasury holdings increased $157.9 billion, or 10.5%, to $1.663 trillion, or 29.9% of holdings. Treasury securities have increased by $392.4 billion, or 30.9%, over the past 12 months. U.S. Government Agency securities were the third largest segment; they decreased $10.9 billion, or -1.7%, to $626.8 billion, or 11.3% of holdings. Agency holdings have increased by $180.2 billion, or 40.3%, over the past 12 months.
Certificates of Deposit (CDs) remained in fourth place; they decreased by $28.5 billion, or -9.7%, to $265.1 billion (4.8% of assets). CDs held by money funds rose by $88.0 billion, or 49.7%, over 12 months. Commercial Paper remained in fifth place, down $4.1 billion, or -1.9%, to $211.1 billion (3.8% of assets). CP increased $63.9 billion, or 43.4%, over one year. Other holdings decreased to $17.9 billion (0.3% of assets), while Notes (including Corporate and Bank) increased to $11.9 billion (0.2% of assets).
The Number of Accounts Outstanding in ICI's series for taxable money funds increased to 62.123 million, while the Number of Funds was unchanged at 230. Over the past 12 months, the number of accounts rose by 3.129 million and the number of funds decreased by 7. The Average Maturity of Portfolios was 26 days, up 2 from August. Over the past 12 months, WAMs of Taxable money have increased by 8.
Federated Hermes, the 7th largest manager of money funds, reported Q3'23 earnings and hosted its Q3'23 earnings call late last week. The release quotes President & CEO J. Christopher Donahue, "Record assets under management at the end of the third quarter were again driven by money market asset increases, particularly investor demand for our prime money market offerings in the current interest rate environment, where general market volatility made the improved yields of our cash offerings an appealing haven for investors. Net sales of fixed-income products were led by multi-sector fixed-income separate accounts and net sales of our flagship core-plus offering, Federated Hermes Total Return Bond Fund." (See the Seeking Alpha earnings call transcription here.)
On the earnings call, Donahue explains, "We had solid asset growth in Q3, ending with record assets under management of $715 billion, driven by record money market assets of $525 billion. Fixed income produced solid growth as well.... We reached record highs for the money market assets of $385 billion, and total money market assets of $525 billion. Money market strategies continue to benefit from favorable market conditions for cash as an asset class, higher yields, elevated liquidity levels in the financial system and, of course, favorable yields compared to bank deposits. A short-term interest rates peak, we expect market conditions for money market strategies will be favorable compared to both direct market rates and bank deposit rates."
He continues, "Looking at flows in money market funds in the third quarter, we saw good activity from products geared towards the retail customers of financial intermediaries. Institutional product flows continue to be challenged by direct security yields. Our estimate of money market mutual fund market share including sub-advised funds was about 7.3% at the end of the third quarter, up from about 7.2% at the end of the second quarter. Looking at recent asset totals as of a few days ago, managed assets were approximately $716 billion, including $527 billion in money markets.... Money market mutual fund assets were at $385 billion."
CFO Tom Donahue comments, "Revenue from money market assets decreased by $9 million, offset by an $8.2 million decrease in related distribution expense. Changes in certain product structures drove these decreases, while higher average money market assets added to revenue. Q3 operating expenses decreased $33.6 million from the prior quarter due mainly to compensation related to carried interest and performance fees in Q2 and to lower money market fund distribution fees as discussed."
When asked about MMF flows when rates peak during the Q&A session, Chris Donahue responds, "Once those rates begin to peak, you begin to attract the institutional money, which is ... more attracted to direct securities at this point in time. So we would expect to see institutional flows increase. But right now, on the retail side, ... we're in a very good position with the rates, and when you combine that with the reticence of financial advisers to take positions ... they're waiting on the Fed and getting paid 5%-plus. It's hard to say exactly when they will decide to go longer. But that would be the basic outlook."
He also says, "Don't forget that, as we've mentioned before, when we look at the last cycles from '16 to '18 ... after the initial decline, the money market fund assets increased by 15% and then the industry did about the same about 11%. And we continue to grow with higher rates, of course. Then the other thing we like to mention is that, basically, our assets grew about over 20% through Q3 of '19 when they began to ease....[I]ndustry assets also grew at a smart clip then. So that's the basis on which we come to those kinds of observations."
Money Market CIO Debbie Cunningham tells us, "You mentioned ... the extension trade, and we do that even within money markets. So we started out this cycle with weighted average maturities/durations down in the single-digits to teens.... We're now out much longer, 30, 40, 45-type days [and] have done the extension trade in order to keep the yields higher within the product itself. I think another thing that's helpful is that during the zero-rate environment, so many cash managers got used to bucketing cash. So a certain amount, that's kind of operating [or] day-to-day, stays in the government sector."
She continues, "Next, kind of more strategic, goes out into prime and then ultimately, microshort or ultrashort, in the longest bucket. But when you're looking at a higher-for-longer scenario with a yield curve that from overnight, say 5.25% to 5.30%, out to 10-year bonds at just under 5%, you're looking at something that is a market that's finally reconciling with that Fed statement 'higher for longer.' So I think the flows, as Chris mentioned, will continue in retail, and we'll do nothing but grow in institutional."
Federate Hermes President Ray Hanley states, "I would just add, we're well positioned for people deciding to extend out on the curve with our fixed income product array. And in particular, people are interested, as evidenced by the flows in our Total Return Bond, Core Plus strategy with a six-year weighted average effective duration. It's really well positioned. We've been talking to clients all year. The cash yields are very attractive, so ... there is a certain amount of waiting for the right time. But when that trade happens, we have a lot of good strategies that can catch the money going out further."
Chris Donahue adds, "One more comment [to add] is that the Ultrashort funds are starting to turn. They haven't gotten positive yet right here in this first couple of days of this month or quarter, but it's getting a lot closer. And the Government Ultrashort Fund has just done a pretty good job on flow. So you're seeing people go out there. And remember, that's currently a $5 billion franchise that we have here [with] Ultrashort funds on all three streets."
Asked about mergers and acquisitions, Tom Donohue says, "On the money fund side, and on the -- what we call 'roll-up' -- side, where people decide it's time for them to turn it over to us, we are active in talking to people. On bigger deals, those things take time to do. And I don't have a list of things to announce."
When asked whether investors are "over-indexed" to cash, Chris Donahue answers, "I don't have statistics good enough to make a judgment as to whether the retail clients are over-indexed to cash or not. The incidental information we get based on our salesforce, which is robust, is that they are just very, very, very, very unsure about what to do. So that would mean they would have more money than the average bear would think in the money funds.... We don't participate as vigorously as others do in this so-called 'cash sorting' because the products we offer are the ones that give the marketplace yield across the board."
Cunningham responds, "The only thing I'd add is that if you look at our money market fund assets as a percent of our total liquidity assets, they are basically growing equally. It's about three-quarters money funds, one-quarter other types, whether it's in local government investment pools, separate accounts, collectives, privates, offshore. The rate of growth seems to be commensurate for both types of liquidity products. It doesn't seem like people are overweighting the money fund side of it."
Asked about the sensitivity to "platforms" and money market allocations, Donahue replies, "We look at the charts we keep on the terms of the assets that are in that field, but that isn't going to answer your question. If I take you to the chart that shows you how much is in broker-dealer and retail, that's not going to answer your question." Cunningham adds, "`I can say that for our largest distributors of ... retail money market funds, they're, number one, very diverse; and number two, all experiencing large amounts of growth in the 2022-2023 timeframe. So it's not heavily weighted to one institutions' preference or sales or allocation tactic. It's across distributions."
The Investment Company Institute's latest weekly "Money Market Fund Assets" report shows MMF assets rebounding after plunging last week on the Microsoft/Activision deal and California tax payments. ICI's asset series rebounded $24.9 billion the past week to $5.633 trillion, following their second largest drop ever ($98.8 billion) the prior week. Assets are up by $898 billion, or 19.0%, year-to-date in 2023, with Institutional MMFs up $385 billion, or 12.6% and Retail MMFs up $512 billion, or 30.5%. Over the past 52 weeks, money funds have risen a massive $1.048 trillion, or 22.9%, with Retail MMFs rising by $614 billion (39.0%) and Inst MMFs rising by $434 billion (14.4%).
The weekly release says, "Total money market fund assets increased by $24.88 billion to $5.63 trillion for the week ended Wednesday, October 25, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $23.12 billion and prime funds increased by $261 million. Tax-exempt money market funds increased by $1.50 billion." ICI's stats show Institutional MMFs rising $16.3 billion and Retail MMFs rising $8.6 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.597 trillion (81.6% of all money funds), while Total Prime MMFs were $915.2 billion (16.2%). Tax Exempt MMFs totaled $120.2 billion (2.1%).
ICI explains, "Assets of retail money market funds increased by $8.57 billion to $2.19 trillion. Among retail funds, government money market fund assets increased by $2.92 billion to $1.43 trillion, prime money market fund assets increased by $4.67 billion to $651.82 billion, and tax-exempt fund assets increased by $984 million to $107.51 billion." Retail assets account for over a third of total assets, or 38.9%, and Government Retail assets make up 65.3% of all Retail MMFs.
They add, "Assets of institutional money market funds increased by $16.30 billion to $3.44 trillion. Among institutional funds, government money market fund assets increased by $20.20 billion to $3.17 trillion, prime money market fund assets decreased by $4.41 billion to $263.35 billion, and tax-exempt fund assets increased by $513 million to $12.69 billion." Institutional assets accounted for 61.1% of all MMF assets, with Government Institutional assets making up 92.0% of all Institutional MMF totals.
According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets broke the $6.0 trillion level on Sept. 1 and hit a record $6.113 trillion on Thursday, Oct. 5, before falling back to $6.011 trillion Wednesday (10/25). Assets have fallen by $62.0 billion in October after rising by $93.9 billion in September, $98.3 billion in August and $34.7 billion in July. Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're over $400 billion lower than Crane's asset series.
In related news, J.P. Morgan published a "Short-Term Market Research Note" entitled, "MMF AUMs: Will you stay or will you go?" They write, "The relentless demand for MMFs has been one of the bigger highlights in the money market this year. YTD, taxable MMF AUMs have increased by over $800bn and currently stand at nearly $5.9tn. Typical seasonal inflows in 4Q could easily push those balances beyond $6tn by the end of this year. The regional banking crisis in March, alongside an inverted yield curve that has cash yielding above 5%, and negative returns in riskier asset classes, have all contributed to the impressive rise in MMF balances this year."
The piece asks, "In 2024, what will happen to this cash? The answer not only has implications across the fixed income markets, but also more specifically in terms of demand for front-end assets, including RRP, and as a result, QT. Given the current outlook for interest rates, one common theme we have heard from market participants is the expected shift into longer duration fixed income, funded from drawdowns in cash. In essence, do we anticipate another Great Rotation, similar to the one in 2009-2012, when over $1tn rotated out of MMFs and into bond funds, reducing MMF balances by about a third?"
JPM replies, "We think a shift from cash to fixed income is unlikely. A look at MMF flows going back to 1995, spanning over three easing cycles, shows that MMFs continue to see inflows even as the Fed begins to cut rates. Notably, this dynamic is applicable to both institutional and retail flows. Intuitively, this makes sense, as MMF yields tend to lag yields of direct cash alternatives such as T-bills when the Fed begins to cut rates, thus attracting flows from other liquidity alternatives. We also took a look at MMF flows versus changes in the curve shape. [F]lows into MMFs tend to continue even as the curve begins to disinvert/steepen; it's not until the curve more or less stabilizes that outflows begin to take place."
They comment, "Additionally, when we think about MMF flows, we take into consideration whether the cash residing in MMFs is used for cash management/liquidity purposes or whether it is used as an investment asset class as part of one's overall investment portfolio. For the most part, market participants use MMFs for the former reason, seeing MMFs as low-cost, efficient, transparent cash management vehicles that offer market-based rates of return. This is particularly true of institutional MMF shareholders such as corporations and state and local governments, who typically value return of capital versus return on capital. Yield is secondary."
The article also tells us, "The fact that MMF AUMs reached nearly $5tn in 2021, when rates were at zero, equities rallied, and the rates curve was solidly in positive territory, is supportive of this view. The recent regional banking crisis provides another example, after which institutional MMF balances grew by [about] $375bn over the months of March, April, and May. Given that these inflows were driven by uninsured depositors turning to other cash alternatives in order to diversify their liquidity needs, we believe this money is here to stay and unlikely to pivot into riskier asset classes. Nor do we think the cash will pivot into bank deposits, even as banks raise their deposit betas. Banks still do not want non-operational institutional deposits on their balance sheets."
It adds, "Institutional MMF AUMs currently make up about 65%, or $3.8tn, of total taxable MMF AUMs. Retail MMFs make up the remainder, and while they are more sensitive to cash reallocations, the outlook for interest rates does not suggest a large shift into fixed income next year. Indeed, even when the Fed begins to cut rates, the yield spread between cash and bonds is expected to remain negative for the better part of next year, suggesting little incentive to immediately extend out the curve. Furthermore, allocations to MMFs as a percentage of the overall mutual fund industry does not seem outsized as we saw in 2009-2012, when MMF allocations made up 30-40% of mutual fund assets, versus 15% today, which suggests the likelihood of mean reversion is low."
Finally, JPM writes, "Overall, with the expectation that the Fed is going to stay higher for longer and with MMFs yielding above 5% for same day liquidity, MMFs remain compelling both as a liquidity product and as an investment asset class. We do not anticipate the relative value of MMFs versus deposits, short-term bond funds, equities, etc. to change dramatically in the near future. While there might be some rotation out the curve, we suspect the magnitude will not be as meaningful as the inflows we saw this year. All told, elevated MMF AUMs appear here to stay."
Now that the previous regime of emergency gates and liquidity fees has been removed from money market mutual funds (effective Oct. 2), advisors have begun changing disclosures and filing updates to prepare for the new round of pending regulations. As we mentioned in our Oct. 23 Link of the Day, "Dreyfus Recaps 2a-7 Changes for AFP," discretionary liquidity fees will become live on April 2, 2024 and mandatory liquidity fees for Prime Institutional MMFs will become active on Oct. 2, 2024. Below, we excerpt from a batch of the latest SEC filings, which shed more light on the rules and how fund managers are handling disclosures. (See the latest filings containing the term "discretionary liquidity fee" here.) (Note: Thanks to those who visited our booth and who we visited with at AFP '23 in San Diego earlier this week -- it was great to see everyone!)
A Prospectus Supplement (497) for DWS Money Market Prime Series and DWS Tax-Exempt Portfolio explains, "In July 2023, changes to the federal regulations that govern money market funds were adopted. The changes will be effective at various times in 2023 and 2024. Among the changes are: (i) an increase in the minimum investment percentages in securities offering daily and weekly liquidity, (ii) making any liquidity fees fully discretionary and not tied to minimum liquidity requirements, and (iii) the removal of the ability to temporarily suspend (gate) redemptions."
It continues, "The changes related to the removal of any ties between liquidity fees and minimum liquidity requirements and the removal of the ability to temporarily suspend (gate) redemptions are effective October 2, 2023. Therefore, any references to liquidity fees tied to minimum liquidity requirements and/or to the temporary gating of redemptions are hereby removed (except where such references are contained in disclosure similar to that above announcing the regulatory changes). The fund may continue to impose a discretionary liquidity fee (not to exceed 2% of the value of the shares redeemed) if the Board of Trustees of the fund determines that a liquidity fee is in the best interests of the fund."
Allspring Money Market Funds states in their new Prospectus Supplement, "On July 12, 2023, the Securities and Exchange Commission ('SEC') adopted amendments to certain rules that govern money market funds under the Investment Company Act of 1940. Among other changes, the amendments revise Rule 2a-7, the primary rule governing the operation of money market funds, to: 1. remove the ability for a fund board to temporarily suspend redemptions if the fund's liquidity falls below a threshold; 2. remove the tie between liquidity thresholds and the potential imposition of liquidity fees; 3. adopt a new mandatory liquidity fee framework for institutional prime and institutional tax-exempt money market funds when net redemptions exceed 5% of net assets; and 4. adopt a discretionary liquidity fee for all non-government money market funds, to be applied when the board (or its delegate) determines that the fee is in the best interests of the fund."
They write, "The effective date of (1) and (2) above is October 2, 2023. Accordingly, as of such date, the sub-section entitled 'Liquidity Fees and Redemption Gates' contained within the section of the Funds' Prospectuses entitled 'Buying and Selling Fund Shares' is hereby removed. In addition, as of this date, the sentence 'The Fund may impose a fee upon the sale of your shares or may temporarily suspend your ability to sell shares if the Fund's liquidity falls below required minimums because of market conditions or other factors' contained within the first paragraph under the heading 'Principal Investment Risks' in each Fund's 'Fund Summary <b:>' section is hereby deleted. The Allspring Institutional Money Market Funds must comply with (3) above by October 2, 2024 and the Funds must comply with (4) above by April 2, 2024. The Funds may voluntarily choose to begin to rely on the mandatory and discretionary liquidity fee provisions at any time between October 2, 2023 and the applicable compliance date (October 2, 2024 and April 2, 2024, respectively), and Fund shareholders will be notified in advance if the Funds choose to do so."
An SEC filing for Goldman Sachs Financial Square Funds comments, "Effective on April 2, 2024, institutional and retail money market funds will be permitted to impose a discretionary liquidity fee on redemptions (up to 2%), if the applicable fund's board of trustees (or its delegate) determines that it is in the best interests of the fund to do so. Government money market funds will continue to be exempt from requirements relating to these discretionary liquidity fees. Institutional and retail money market funds may choose to rely on this modified discretionary liquidity fee framework prior to April 2, 2024. Effective on October 2, 2024, institutional money market funds will be required to impose a mandatory liquidity fee on redemptions, if the applicable fund experiences total daily net redemptions that exceed 5% of net assets, unless the fee is de minimis (i.e., less than 1 basis point of the value of the shares redeemed)."
It adds, "The amount of the mandatory liquidity fee to be charged must be based on a good faith estimate, supported by data, of the costs the fund would incur if it sold a pro rata amount of each security in its portfolio to satisfy the amount of the net redemptions. If these costs cannot be estimated in good faith and supported by data, the amount of the mandatory liquidity fee will be 1% of the value of the shares redeemed. Government and retail money market funds will be exempt from requirements relating to these mandatory liquidity fees. Effective on April 2, 2024, all money market funds will be required to increase their minimum levels of daily and weekly liquid assets from 10% and 30%, respectively, to 25% and 50%, respectively."
T. Rowe Price Funds say in a new Supplement, "The fund may charge a liquidity fee of up to 2% of the value of shares redeemed if the fund's Board of Directors determines that doing so is in the best interests of the fund (or the Board of Director's delegate, in accordance with Board-approved guidelines).... The fund's Board may impose a discretionary liquidity fee of up to 2% of the value of the shares redeemed if the fund's Board determines that doing so is in the fund's best interests (or the Board's delegate, in accordance with Board-approved guidelines)."
They explain, "The Board's determination will be based on current market conditions and the specific circumstances of the fund. Liquidity fees will be paid to the fund and are designed to allow funds to mitigate heavy redemptions by allocating liquidity costs to those shareholders who impose such costs on the fund through their redemptions. Once imposed, a liquidity fee must be applied to all shares redeemed (whether the shares are held directly with T. Rowe Price, through a retirement plan, or indirectly through an intermediary (such as a broker, bank, or investment adviser) or other third party) and must remain in effect until the fund's Board (or its delegate) determines that imposing a liquidity fee is no longer in the best interests of the fund."
BlackRock Funds writes in a filing for BlackRock Wealth Liquid Environmentally Aware Fund, "Discretionary Liquidity Fee Risk -- The Board has discretion to impose a liquidity fee of up to 2% upon sale of your shares if such fee is determined to be in the best interests of the Fund. Accordingly, your redemptions may be subject to a liquidity fee when you sell your shares at certain times."
Finally, a filing for Vanguard describes, "Important Changes to Vanguard Municipal Money Market Fund, Vanguard California Municipal Money Market Fund, and Vanguard New York Municipal Money Market Fund.... The U.S. Securities and Exchange Commission (SEC) adopted changes to the rule governing money market funds in July 2023. Effective October 2, 2023, the Funds may no longer impose a redemption gate (except under extraordinary circumstances as part of a liquidation), and the imposition of liquidity fees are no longer tied to a fund’s weekly liquid assets."
It continues, "The section related to the particular retail municipal money market fund offered by the prospectus is replaced in its entirety with the following: Vanguard has designated [Vanguard Municipal Money Market Fund], [Vanguard California Municipal Money Market Fund], [Vanguard New York Municipal Money Market Fund] as a retail money market fund.... Retail money market funds are permitted to continue to maintain a stable NAV through the use of amortized cost accounting. A retail money market fund may be subject to a liquidity fee if the fund's board believes such fee is in the best interests of the fund. Liquidity fees are designed to transfer the costs of liquidating securities from shareholders who remain in the Fund to those who leave the Fund during periods when liquidity is limited."
They say, "The Board also may determine that it would not be in the interests of the Fund to continue operating if the Fund's weekly liquid assets fall below 10% of its total assets. In the event that the Board approves liquidation of the Fund under these circumstances, the Fund may permanently suspend redemptions and liquidate. Notices regarding liquidity fees will be filed with the SEC on Form N-CR. In addition, announcements will also be made in supplements to the Fund's prospectus and on the Fund's website at vanguard.com. The Fund is subject to money market fund reform regulatory risk, which is the chance that future money market fund reforms will affect the Fund's investment strategy, fees and expenses, portfolio, share liquidity, and return potential."
Website RIABiz published the article, "SEC forces Vanguard -- and host of other fund firms -- to impose hefty back-end fees on muni money market fund investors who sell into financial panics, in an effort to bullet-proof 'critical investment." It states, "Money market funds (MMF) of the non-government variety -- mostly municipal -- were, until recently, like roach motels; investors could check in, but federal rules kept them from checking out in the event of a financial crisis under a so-called 'gateway' rule. But institutional investors still yanked about 30% of total MMF assets in a two-week period during the 2020 pandemic, and a post-crisis analysis found the rule may have contributed to the run.... This time, in its modification of rule 2a-7 of the 1940 Investment Company Act, the SEC has given up on gateways -- a post-financial crisis initiative intended to reduce the risk of runs on money market funds. Instead, it has chosen to give fund companies the power to levy a 2% withdrawal fee on non-government MMFs, including tax-exempt municipal funds and certain prime funds.
A press release entitled, "BNY Mellon Launches White Labeling Service for LiquidityDirect Platform" explains, "BNY Mellon announced ... the launch of LiquidityDirect's new White Labeling service offering, providing financial institutions a liquidity management solution for their end clients. Financial institutions seeking to include short-term investments in their suite of offerings can now leverage LiquidityDirect's technology and services to provide a seamless user experience through a single sign-on for their clients. LiquidityDirect supports almost $15 trillion in annual transaction flow for more than 6,000 of the world's largest institutional investors, offering a variety of innovative solutions to meet dynamic investment and risk criteria."
It tells us, "Morgan Stanley Investment Management will be the first financial institution to leverage BNY Mellon's new White Labeling service offering. The collaboration between BNY Mellon's robust platform combined with MSIM's extensive global client base is the first of its type and will set a new industry standard for delivering efficient cash management solutions to clients."
George Maganas, Head of Global Liquidity Services, BNY Mellon comments, "In launching our White Labeling offering, we are broadening access to the LiquidityDirect platform for financial institutions, enabling them to create an end-to-end, holistic user experience for their clients.... `This expansion is game-changing in the short-term liquidity space, and we are delighted to collaborate with MSIM in rolling-out this new service."
The release continues, "MSIM Global Liquidity Solutions, which has more than $353BN in assets under management, provides strategic cash management solutions, expertise, and resources to clients <b:>`_. As part of these capabilities, the team partners with treasury groups to help automate their cash management function, in addition to providing an efficient way to invest in money market funds through MSIM's money market investment portal. Beginning in 2016, Morgan Stanley has partnered with leading technology providers and custodians to help address clients' portal needs."
Fred McMullen, Co-Head of Global Liquidity, Morgan Stanley Investment Management, adds, "The strategic collaboration between BNY Mellon and Morgan Stanley Investment Management is designed to deliver a highly differentiated combination of technology, seamless connectivity, and dedicated client service to treasury groups globally.... This will allow us to increase the depth of our platform technology solutions and widen the reach of our offering to our client base."
In other news, the Financial Times writes, "Don't worry about money market funds." They comment, "Cash is cool again, and US money market funds are bigger than ever, hoovering up money from a banking system that has been slow to raise deposit rates. After flatlining in size around the $3tn mark since the financial crisis, US MMFs now control over $6tn-- and growing fast, according to the latest snapshot from the US Treasury's Office for Financial Research.
The piece continues, "Their allocations are also undergoing a big shift. After taking advantage of the Fed's reverse repurchase facility to position for higher rates, money market funds are now ditching the RRP in favour of funding US government-backed home lending.... The answer was to pump 40 per cent of their money into the Fed's RRP, with a one-day maturity that could take full advantage of Fed monetary tightening in real time. This agility allowed the MMFs to deliver an average return close to the Fed funds rate, using a US government-backed facility that was essentially risk-free."
It says, "Meanwhile, US bank deposit rates only captured a fraction of monetary tightening, an example of so-called deposit beta. Even today, with short-term rates currently above 5 percent, the average US savings account rate is just 0.45 per cent according to the Federal Deposit Insurance Corporation. Even one-year deposits offer only 1.36 per cent on average, a third of the yield available in MMF portfolios. This simple comparison helps explain the $1tn surge in MMF assets ... mirroring the $1tn decline in US bank deposits over the past 18 months. Cash is a legit non-awful asset class again. Just look at this swing in yields."
The update claims, "Today, the challenge for the MMFs is different. The Fed funds rate is 5.3 percent, and while there might be one more hike coming most analysts reckon we are at or near the peak in interest rates. Meanwhile, Treasury bills maturing in one year's time have a yield of 5.5 percent. That's triggered a big shift out of the RRP facility and back into bills. In the September 2023 data for the seven MMFs, the RRP allocation has fallen to 21 percent of total assets, or $297bn. The size of the RRP facility itself has shrunk from $2.3tn to $1.2tn, as the Fed unwinds its QE holdings."
It adds, "Meanwhile, holdings of treasury debt -- mostly T-bills -- increased by $142bn, pushing the percentage allocation up to 28 percent. But percentage-wise, the biggest increase has actually been into two other categories. About $146 billion went into Treasury repo, where the MMFs are making short-term collateralised loans to non-US banks such as HSBC or Société Générale. Then there's what we call US agency debt, which saw $134bn of inflows for the seven MMFs in this sample, accounting for 15 percent of investments as of September 2023."
Finally, they write, "As for commercial paper, this accounts for only 2.2 percent of investments in the seven-biggest-funds data set, concentrated in a single fund, JPMorgan's Prime MMF. Of this commercial paper, ABCP is only a tiny proportion. It's also worth noting here that most of the growth in MMFs has occurred in government debt-focused funds that specifically exclude commercial paper as an asset class. Some people have worried about the risks potentially posed by the latest surge in money market funds, but when you look closely at the data many of these fears look a little overstated.... Given that MMFs are currently offering a deposit beta of effectively one, the question is why it hasn't happened at an even greater scale. As the Dallas Fed concedes, there's still $17tn in low-earning US bank deposits -- of which $8tn are uninsured -- dwarfing the $6tn of MMF assets. That implies pretty clearly that the danger isn't quite as big as one might fear. There's no shortage of people looking for risks -- and MMFs have a record of proving an unexpected one -- but in this case the risks seem happy to remain out of sight."
A press release entitled, "Allspring Global Investments and Roberts & Ryan Partner to Launch Money Market Fund Share Class" tells us, "Allspring Global Investments (Allspring), a global asset management firm with $551 billion in assets under advisement, today announced the launch of the Roberts & Ryan share class on all three of Allspring's Government and Treasury Money Market Funds. These share classes are offered exclusively to Roberts & Ryan clients."
It explains, "Roberts & Ryan, America's first service-disabled veteran-owned broker-dealer, specializes in underwriting and executing debt and equity capital markets transactions for corporate treasuries, as well as secondary fixed income and equity trading. Through its social mission, the firm donates a portion of its top-line revenue to world-class nonprofits and foundations that focus on supporting veterans in general wellness, mental health, and career transition through partner nonprofits."
Andrew Owen, president of Allspring Funds comments, "We're excited to provide cash management solutions to Roberts & Ryan's clients. We are proud to work with an organization committed to supporting the veteran community."
Ed D'Alessandro, Roberts & Ryan CEO, adds "Roberts & Ryan is honored to partner with Allspring and its leading Money Market Funds' team. This addition to our suite of services provides our institutional customers with a way to manage their liquidity and generate competitive returns while also having a positive impact on the veteran community, which has provided all of us the freedoms we enjoy every day."
A separate release, "ICD Launches AI Portfolio Analytics Solution for Corporate Treasury Investment Reporting explains, "Corporate treasury professionals who struggle to get a comprehensive view of their entire investment portfolio will now be able to automate the otherwise time-consuming process with a new, AI-driven cloud investment reporting solution, ICD Portfolio Analytics. Launched at the annual conference of the Association for Financial Professionals, ICD Portfolio Analytics comes at a time of heightened awareness of counterparty credit risk following the banking turmoil triggered by the failure of Silicon Valley Bank (SVB) earlier this year."
Indivior Treasurer Bill Lundeen says, "ICD Portfolio Analytics incorporates our underlying fund holdings with other investment positions, making it possible to see our true exposures across all of our investments. This is invaluable given the heightened focus on exposures due to the 2023 bank failures."
The release continues, "In February, 86% of clients responding to ICD's annual survey said they were concerned about counterparty credit risk. Following SVB, 69% of corporate members surveyed by treasury peer group firm NeuGroup said they were considering enhancing or changing their approach to managing counterparty credit risk."
Zachary Brown, ICD's Executive Vice President of Investment Reporting states, "We're solving real problems for organizations that are spending precious resources on low-value work. Currently, organizations are struggling to consolidate and normalize holdings information using spreadsheets and home-grown tools. Their manual process often results in incomplete and delayed views of their investment portfolios, which in turn hampers decision-making and masks compliance violations and exposures."
The release also comments, "ICD Portfolio Analytics creates a single data set of all positions across an organization's entire investment portfolio. Investments may include bank balances and deposits, internally managed investments, separately managed accounts and underlying money market fund and bond fund holdings."
It adds, "The solution's proprietary process automatically ingests data from reporting sources such as custodians, asset managers, ERPs, treasury management systems, banks and other data sources, which come into the organization in different file formats. Using machine learning, the solution aggregates and harmonizes the data and stores it in a normalized database for analysis and reporting."
Finally, ICD writes, "In addition to providing institutional investors with counterparty, country, sector, ratings and maturity exposure information at their fingertips, the data set's comprehensive nature enables investors to ensure their portfolio is within their company's compliance rules and investment guidelines. ICD Portfolio Analytics builds on ICD's 20-year history of co-innovating with clients to solve the investment related challenges faced by treasury organizations."
The Securities and Exchange Commission's latest monthly "Money Market Fund Statistics" summary shows that total money fund assets increased by $79.7 billion in September to a record high of $6.153 trillion. The SEC shows Prime MMFs jumping $14.3 billion in September to $1.273 trillion, Govt & Treasury funds increased $64.6 billion to $4.757 trillion and Tax Exempt funds increased $0.8 billion to $123.4 billion. Taxable yields inched higher in September after rising in August. The SEC's Division of Investment Management summarizes monthly Form N-MFP data and includes asset totals and averages for yields, liquidity levels, WAMs, WALs, holdings, and other money market fund trends. We review their latest numbers below. (Month-to-date in October through 10/19, total money fund assets have decreased by $82.2 billion to $5.991 trillion, according to our separate, and slightly smaller, MFI Daily series.)
September's overall asset increase follows an increase of $114.2 billion in August, $28.8 billion in July, $19.6 billion in June, $156.6 billion in May, $49.9 billion in April, $364.4 billion in March, $52.1 billion in February, $53.2 billion in January, $54.8 billion in December, $48.5 billion in November and $35.6 billion in October. Over the 12 months through 9/30/23, total MMF assets have increased by $1.058 trillion, or 20.8%, according to the SEC's series.
The SEC's stats show that of the $6.153 trillion in assets, $1.273 trillion was in Prime funds, up $14.3 billion in September. Prime assets were up $18.5 billion in August, $28.9 billion in July, $11.0 billion in June, $13.7 billion in May and $36.0 billion in April. They were down $22.2 billion in March, but up $35.4 billion in February, $86.2 billion in January, $10.5 billion in December, $28.0 billion in November and $36.6 billion in October. Prime funds represented 20.7% of total assets at the end of September. They've increased by $297.0 billion, or 30.4%, over the past 12 months. (Note that the SEC's series includes a number of internal money funds not tracked by ICI, though Crane Data includes most of these assets in its collections.)
Government & Treasury funds totaled $4.757 trillion, or 77.3% of assets. They increased $64.6 billion in September, $92.2 billion in August, $3.1 billion in July, $4.9 billion in June, $137.4 billion in May, $19.3 billion in April, $387.9 billion in March and $16.1 billion in February. They decreased $33.2 billion in January but increased $41.3 billion in December and $23.1 billion in November. Govt MMFs decreased $12.8 billion in October. Govt & Treasury MMFs are up $743.9 billion over 12 months, or 18.5%. Tax Exempt Funds increased $0.8 billion to $123.4 billion, or 2.0% of all assets. The number of money funds was 292 in September, down 1 from the previous month and down 12 funds from a year earlier.
Yields for Taxable MMFs inched higher while Tax Exempt MMFs fell in September. The Weighted Average Gross 7-Day Yield for Prime Institutional Funds on Sept. 30 was 5.48%, up 2 bps from the prior month. The Weighted Average Gross 7-Day Yield for Prime Retail MMFs was 5.55%, up 2 bps from the previous month. Gross yields were 5.40% for Government Funds, up 1 basis point from last month. Gross yields for Treasury Funds were up 1 bp at 5.40%. Gross Yields for Tax Exempt Institutional MMFs were down 5 basis points to 4.27% in September. Gross Yields for Tax Exempt Retail funds were down 14 bps to 4.00%.
The Weighted Average 7-Day Net Yield for Prime Institutional MMFs was 5.41%, up 1 basis point from the previous month and up 249 bps from 9/30/22. The Average Net Yield for Prime Retail Funds was 5.28%, up 2 bps from the previous month, and up 237 bps since 9/30/22. Net yields were 5.16% for Government Funds, up 1 bp from last month. Net yields for Treasury Funds were up 2 bps from the previous month at 5.19%. Net Yields for Tax Exempt Institutional MMFs were down 6 bps from August to 4.15%. Net Yields for Tax Exempt Retail funds were down 13 bps at 3.76% in September. (Note: These averages are asset-weighted.)
WALs and WAMs were mixed in September. The average Weighted Average Life, or WAL, was 43.5 days (down 0.3 days) for Prime Institutional funds, and 46.4 days for Prime Retail funds (down 0.6 days). Government fund WALs averaged 71.4 days (up 3.3 days) while Treasury fund WALs averaged 59.7 days (up 1.6 days). Tax Exempt Institutional fund WALs were 9.3 days (up 0.9 days), and Tax Exempt Retail MMF WALs averaged 25.5 days (up 2.9 days).
The Weighted Average Maturity, or WAM, was 25.0 days (up 2.9 days from the previous month) for Prime Institutional funds, 27.4 days (up 2.1 days from the previous month) for Prime Retail funds, 27.3 days (up 2.5 days from previous month) for Government funds, and 25.0 days (up 1.6 days from previous month) for Treasury funds. Tax Exempt Inst WAMs were up 0.7 days to 9.1 days, while Tax Exempt Retail WAMs were up 3.0 days from previous month at 24.8 days.
Total Daily Liquid Assets for Prime Institutional funds were 50.5% in September (down 2.6% from the previous month), and DLA for Prime Retail funds was 42.5% (down 0.8% from previous month) as a percent of total assets. The average DLA was 69.8% for Govt MMFs and 97.2% for Treasury MMFs. Total Weekly Liquid Assets was 66.7% (up 0.1% from the previous month) for Prime Institutional MMFs, and 60.1% (down 0.8% from the previous month) for Prime Retail funds. Average WLA was 82.2% for Govt MMFs and 99.0% for Treasury MMFs.
In the SEC's "Prime Holdings of Bank-Related Securities by Country table for September 2023," the largest entries included: the U.S. with $146.3B, Canada with $136.5 billion, Japan with $119.3 billion, France with $85.5 billion, the Netherlands with $42.8B, the U.K. with $38.4B, Germany with $36.7B, Aust/NZ with $26.2B and Switzerland with $9.3B. The gainers among the "Prime MMF Holdings by Country" included: the U.S. (up $9.0B), Canada (up $5.5B), Aust/NZ (up $2.7B) and Japan (up $2.1B). Decreases were shown by: France (down $8.5B), the U.K. (down $3.0B), Netherlands (down $0.2B), Switzerland (down $0.2B) and Germany (down $0.2B).
The SEC's "Prime Holdings of Bank-Related Securities by Region" table shows The Americas had $282.8 billion (up $14.5B), while Eurozone had $177.5B (down $17.9B). Asia Pacific subset had $169.3B (up $4.8B), while Europe (non-Eurozone) had $96.2B (down $14.1B from last month).
The "Prime MMF Aggregate Product Exposures" chart shows that of the $1.259 trillion in Prime MMF Portfolios as of Sept. 30, $564.5B (44.8%) was in Government & Treasury securities (direct and repo) (up from $545.2B), $303.7B (24.1%) was in CDs and Time Deposits (down from $326.6B), $187.8B (14.9%) was in Financial Company CP (up from $183.9B), $143.0B (11.4%) was held in Non-Financial CP and Other securities (up from $138.2B), and $59.9B (4.8%) was in ABCP (up from $58.6B).
The SEC's "Government and Treasury Funds Bank Repo Counterparties by Country" table shows the U.S. with $320.3 billion, Canada with $177.3 billion, France with $143.5 billion, the U.K. with $76.6 billion, Germany with $20.0 billion, Japan with $124.7 billion and Other with $41.3 billion. All MMF Repo with the Federal Reserve was down $81.3 billion in September to $1.484 trillion.
Finally, a "Percent of Securities with Greater than 179 Days to Maturity" table shows Prime Inst MMFs 6.1%, Prime Retail MMFs with 6.6%, Tax Exempt Inst MMFs with 0.6%, Tax Exempt Retail MMFs with 5.1%, Govt MMFs with 13.8% and Treasury MMFs with 8.7%.
ICI's latest weekly "Money Market Fund Assets" report shows MMF assets plummeting after breaking the $5.7 trillion level two weeks ago. ICI's weekly asset series plunged $98.8 billion, the second largest drop ever (the biggest was the week ended 9/18/08) to $5.608 trillion. We believe the drop is temporary and was caused by the Microsoft takeover of Activision and tax payments. Assets are still up by $873 billion, or 18.4%, year-to-date in 2023, with Institutional MMFs up $369 billion, or 12.1% and Retail MMFs up $504 billion, or 30.0%. Over the past 52 weeks, money funds have risen a massive $1.023 trillion, or 22.3%, with Retail MMFs rising by $611 billion (38.9%) and Inst MMFs rising by $412 billion (13.7%). (Note: We hope to see you at the AFP 2023 in San Diego, Oct. 22-24! Visit us at Booth #749.)
The release says, "Total money market fund assets decreased by $98.84 billion to $5.61 trillion for the week ended Wednesday, October 18, the Investment Company Institute reported <b:>_.... Among taxable money market funds, `government funds decreased by $106.50 billion and prime funds increased by $8.51 billion. Tax-exempt money market funds decreased by $841 million." ICI's stats show Institutional MMFs crashing $108.8 billion and Retail MMFs rising $10.0 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.574 trillion (81.6% of all money funds), while Total Prime MMFs were $914.9 billion (16.3%). Tax Exempt MMFs totaled $118.7 billion (2.1%).
ICI explains, "Assets of retail money market funds increased by $9.98 billion to $2.18 trillion. Among retail funds, government money market fund assets increased by $5.92 billion to $1.43 trillion, prime money market fund assets increased by $5.69 billion to $647.15 billion, and tax-exempt fund assets decreased by $1.62 billion to $106.53 billion." Retail assets account for over a third of total assets, or 38.9%, and Government Retail assets make up 65.5% of all Retail MMFs.
They add, "Assets of institutional money market funds decreased by $108.82 billion to $3.43 trillion. Among institutional funds, government money market fund assets decreased by $112.42 billion to $3.15 trillion, prime money market fund assets increased by $2.82 billion to $267.75 billion, and tax-exempt fund assets increased by $782 million to $12.17 billion." Institutional assets accounted for 61.1% of all MMF assets, with Government Institutional assets making up 91.8% of all Institutional MMF totals.
According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets hit a record $6.113 trillion on Oct. 5, before easing back then plunging on Friday the 13th. Assets have fallen by $87.3 billion in October through 10/18 after rising by $93.9 billion in Sept., $98.3 billion in August and $34.7 billion in July. Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're over $400 billion lower than Crane's asset series.
In related news, ICI also published a press release entitled, "Average UCITS Ongoing Charges Continue Downward Trend." It explains, "UCITS investors continue to benefit from lower ongoing charges, according to an updated report from the Investment Company Institute (ICI) -- Ongoing Charges for UCITS in the European Union, 2022. This year's report will help inform European policy makers as they consider UCITS costs as an element of the Retail Investment Strategy's (RIS) value-for-money framework. Average UCITS ongoing charges have trended downwards for nearly a decade, driven in large part by two important factors: First, greater access to funds that are commission-free, meaning that investors pay for advice directly through an asset-based fee. Second, the increasing popularity of index tracking UCITS and ETFs, underlining a broader trend of assets shifting to lower-cost funds."
While very thin on money fund information, it has one table titled, "UCITS Ongoing Charges Vary Across Investment Objectives." It shows Money Market charges averaging 0.14% (median), while the 10th percentile was at 0.05% and the 90th percentile was at 0.45%. The asset-weighted average was 0.13% and the simple average was 0.21%. For more on money fund expense ratios, see these Crane Data News stories: "Oct. Form N-MFP Data: MMFs Hit Record $6.1T, Revs $16.0B; T-Bills Up (10/11/23) and "ICI Expense Study Shows Money Fund Ratios 0.13%, Waivers Down in '22 (4/3/23).
In other news, Federal Reserve Chair Jerome Powell's spoke at the "Economic Club of New York Thursday and indicated that more interest rate hikes could be coming. He says, "Turning to monetary policy, the FOMC has tightened policy substantially over the past 18 months, increasing the federal funds rate by 525 basis points at a historically fast pace and decreasing our securities holdings by roughly $1 trillion. The stance of policy is restrictive, meaning that tight policy is putting downward pressure on economic activity and inflation. Given the fast pace of the tightening, there may still be meaningful tightening in the pipeline."
He explains, "My colleagues and I are committed to achieving a stance of policy that is sufficiently restrictive to bring inflation sustainably down to 2 percent over time, and to keeping policy restrictive until we are confident that inflation is on a path to that objective. We are attentive to recent data showing the resilience of economic growth and demand for labor. Additional evidence of persistently above-trend growth, or that tightness in the labor market is no longer easing, could put further progress on inflation at risk and could warrant further tightening of monetary policy."
Powell states, "Along with many other factors, actual and expected changes in the stance of monetary policy affect broader financial conditions, which in turn affect economic activity, employment and inflation. Financial conditions have tightened significantly in recent months, and longer-term bond yields have been an important driving factor in this tightening. We remain attentive to these developments because persistent changes in financial conditions can have implications for the path of monetary policy."
Finally, he adds, "My colleagues and I remain resolute in our commitment to returning inflation to 2 percent over time. A range of uncertainties, both old and new, complicate our task of balancing the risk of tightening monetary policy too much against the risk of tightening too little. Doing too little could allow above-target inflation to become entrenched and ultimately require monetary policy to wring more persistent inflation from the economy at a high cost to employment. Doing too much could also do unnecessary harm to the economy. Given the uncertainties and risks, and how far we have come, the Committee is proceeding carefully. We will make decisions about the extent of additional policy firming and how long policy will remain restrictive based on the totality of the incoming data, the evolving outlook, and the balance of risks."
Crane Data is preparing for its next live event, our "basic training" Money Fund University, which will take place December 18-19, 2023 at The Westin Jersey City Newport in Jersey City, New Jersey. Crane's Money Fund University is designed for those new to the money market fund industry or those in need of a concentrated refresher on the basics, but this year's event will feature a slightly higher level "Master's in Money Markets" agenda. The event also focuses on hot topics like money market fund regulations, money fund alternatives, offshore markets, and other recent industry trends. Our educational conference features a faculty of the money fund industry's top lawyers, strategists, and portfolio managers, and the Jersey City show will include a Holiday cocktail party and a free training session for Crane Data clients. We review the MFU agenda and some other upcoming conferences, including next week's AFP in San Diego, below. (We hope to see many of you at the AFP 2023 corporate treasury show in San Diego, Oct. 22-24! Visit us at Booth #749.)
Money Fund University offers a 2-day crash course on money market mutual funds, educating attendees on the history of money funds, the Fed, interest rates, ratings, rankings, and money market instruments such as commercial paper, Treasury bills, CDs and repo. We also cover portfolio construction and credit analysis. Registrations are $750 are still being taken, and the latest agenda is available here. (E-mail us to request the latest brochure, and make your hotel reservations soon!)
The morning of Day One (12/18/23) of the 2023 MFU agenda includes: History & Current State of Money Market Mutual Funds with Peter Crane of Crane Data; The Federal Reserve & Money Markets with Katie Craig of BofA; Ratings, Monitoring & Performance with Steven Johnson of Fitch Ratings and Marissa Zuccaro of S&P Global; and, Instruments of the Money Markets Intro with Pankaj Vohra of J.P. Morgan Securities.
Day One's afternoon agenda includes: Repurchase Agreements with James Bartle of J.P. Morgan Secs; Treasuries & Govt Agencies with Sue Hill of Federated Hermes and Matt Lachance of TD Securities; Commercial Paper & ABCP with Rob Crowe of Citi Global Markets; CDs, TDs & Bank Debt with Vanessa McMichael of Wells Fargo Securities; and, Credit Analysis & Portfolio Management with Keith Lawler of Dreyfus. (Note: Crane Data will host its Holiday Party alongside MFU. Clients and friends are welcome to join us at the Westin Jersey City Newport on Monday, Dec. 18 from 5-7:30pm!)
Day Two's (12/19) agenda includes: Money Fund Regulations: 2a-7 Basics & History with Brenden Carroll of Dechert LLP and Jamie Gershkow of Stradley Ronon; Money Fund Regulations: Latest 2a-7 Changes with Jon-Luc Dupuy of K&L Gates LLP and Brenden Carroll of Dechert LLP; European MMFs & Ultra-Short Funds with John Hunt of Sullivan & Worcester LLP and Peter Crane of Crane Data; and Money Fund Data & Wisdom Demo/Training with Peter Crane. The conference ends with its annual MFU "Graduation" ceremony (where diplomas are given to attendees).
New portfolio managers, analysts, investors, issuers, service providers, and anyone interested in expanding their knowledge of "cash" investing should benefit from our comprehensive program. Even experienced professionals may enjoy a refresher course and the opportunity to interact with peers in an informal setting. Attendee registration for Crane's Money Fund University is just $750, exhibit space is $2,000, and sponsorship opportunities are $3K (Bronze), $4K (Silver), and $5K (Gold). A block of rooms has been reserved at The Westin Jersey City Newport. (Please reserve before 11/17.)
We'd like to thank our current MFU sponsors -- BlackRock, Fitch Ratings, Silicon Valley Bank, TD Securities, Capitolis, Dechert LLP, Northern Trust and J.P. Morgan Asset Management -- for their support, and we look forward to seeing you in Jersey City in December! E-mail Pete Crane (pete@cranedata.com) for the latest brochure or visit www.moneyfunduniversity.com to register or for more details.
Crane Data is also preparing the preliminary agenda for our next Bond Fund Symposium, which will be held March 25-26, 2024, at the Loews Philadelphia Hotel in Philadelphia, Pa. Our Bond Fund Symposium offers a concentrated program for fixed-income managers and dealers with a focus on the ultra-short segment. Registration for Bond Fund Symposium is $1000; exhibit space is $2,000 (includes 2 tickets); and sponsorship opportunities are $3K, $4K, $5K, and $6K. Our mission is to deliver the best possible conference content at a reasonable price to bond fund professionals and investors.
We'll soon be making plans for our next "big show," Money Fund Symposium, which will be held June 12-14, 2024, at The Westin in Pittsburgh. (Let us know if you'd like details on speaking or sponsoring.) Also, mark your calendars for next year's European Money Fund Symposium, which will be held Sept. 19-20, 2024, in London, England. Watch for details on these shows in coming weeks and months.
Also, money market mutual fund distributors and cash managers will be travelling to San Diego, Calif. for AFP 2023, the Association for Financial Professionals' big annual gathering of corporate treasurers, which takes place October 22-24. AFP is the largest gathering of corporate investors in the country, attracting roughly 5,000 treasury management professionals, as well as a host of large banks and institutional money fund managers.
At AFP, sessions involving money funds and/or cash investing include: "An Inside Look Into Liquidity Investing Through Economic Uncertainty And Volatile Markets" with Patrick O'Callaghan of Goldman Sachs, Nicole Smith of Visa and Michael Nourafshan of Block; "The Hidden Power Of Cash: Meeting Yield Targets While Elevating DEI Efforts" with Cnote's Catherine Berman, Orange County Credit Union's Amber Cisneros and Edwards Lifesciences' Justin Skaria; "How Corporate Treasurers Can Invest With A Social Purpose" with Dolby Laboratories's Richard Lucero, Comcast's Richard Sculli, Opportunity Finance Network's Beth Lipson and Morgan Stanley's Scott Wachs; "Qualtrics' Approach To The Delicate Dance Between Liquidity, Risk And Investment Return" with Amanda Schmidt and Ben Amundsen of Qualtrics; and, "Commercial Paper: Fool's Gold Or Strategic Funding?" with Kalyn Matthews of Duke Energy Corporation, David Pellerin of Circle K and Garret Sloan of Wells Fargo Securities.
Finally, thank you once more to those who supported last month's European Money Fund Symposium, which took place Sept. 25-26 in Paris, France! Let us know if you'd like to see the binder from this show (available to clients only) or if you'd like more details on any of our events. We hope to see you in San Diego Monday, in Jersey City in December, in Philadelphia in March, in Pittsburgh in June or in London in September 2024!
Several asset managers, brokerages and banks reported third-quarter over the past week, and the discussions of money fund and bank deposit trends so far show that "cash sorting," or the shift into money funds from bank deposits, is alive and well. On BlackRock's latest earnings release and earnings call, CFO Martin Small tells us, "Rate hikes over the last 18 months mean that for the first time in nearly 20 years, clients can earn a real return in cash. In the short term, this has benefited many portfolios.... [C]ash management net inflows were $15 billion in the quarter. Money market funds have returned to earning yields not seen in nearly two decades. We're leveraging our scale and integrated cash offerings to engage with clients who are using cash not only to manage liquidity, but also to earn attractive returns."
Larry Fink, Chairman and CEO, states, "Rate hikes over the past year and a half, the fastest in the U.S. since the early 1980s, have made cash not just a safe place, but now a very profitable place for investors to wait for the time being. In short, investors are being paid to wait, something we haven't seen to this degree in years. Investors can earn 5% to 7% from conservative cash and bond portfolios. This dynamic reduces the near-term incentive to implement portfolio changes, resulting in temporarily slower client activity inflows."
He continues, "The degree to which investors have hunkered down in cash is shown by nearly $7 trillion [sic] in money market funds AUM across the industry. Investors will eventually put that money to work. We've seen this dynamic before, as recently as 2016 and 2018, when policy uncertainty and the ability to earn yields and cash resulted in temporarily slowing in activity. Through these times, BlackRock stayed connected with our clients, connected across our businesses, and what immediately followed those periods in the past were new records for BlackRock client flows and organic base fee growth at or above 5% target. `We expect that investors will begin redeploying assets once there's a conviction in a terminal rate and the shape of the yield curve."
During the Q&A, President Rob Kapito comments, "Investors are really getting paid to wait, and money market funds have nearly $7 trillion in assets under management. So that's $7 trillion. And as we approach the peak in interest rates, we expect that there are going to be some very, very large allocations to fixed income. And I'm sure someone will call it the great reallocation. And the reason is, today, there are better opportunities to invest in bonds than have been in the years. Over 80% of the bond market is yielding over 40%, enabling investors to derive a large part of their liability needs from owning bonds and access returns with less risk."
He adds, "In particular, right now, clients are focusing their opportunity in the short end of the curve, and of course, in private credit. So when? Well, we have historically seen a rebound in fixed income following rate stability.... Well, once there's more certainty on a terminal rate and the shape of the yield curve, then we expect more deployment into fixed income. And I'll recap it. A slowdown in short-term issuance and more balanced term structure of interest rates are the indicators we're looking for in anticipation of accelerating demand for immediate and longer-duration fixed income."
In their latest earnings release, Charles Schwab CFO Peter Crawford states, "Our continued success with clients and diversified model helped produce third quarter net revenues of $4.6 billion. This result represents a 16% decline from last year's record period, primarily driven by the temporary utilization of higher cost funding, lower interest-earning assets, and softer trading volumes. Net interest revenue was down 24% year-over-year to $2.2 billion, reflecting the impact of client allocation decisions within a higher interest rate environment. However, cash realignment activity decelerated further during the quarter -- even with the brief uptick in August and an increase in long-term interest rates."
He continues, "September was particularly strong as net outflows from transactional cash were lower than any prior monthly period this cycle and bank sweep deposits increased month-over-month for the first time since March 2022. Additionally, the combination of ongoing interest in Schwab's proprietary fund products, growth in no-transaction fee platform balances, and strong flows into our advised solutions pushed asset management and administration fees to a quarterly record of $1.2 billion, up 17% versus the prior year."
A "Supplement" to Schwab's Q3'23 earnings release, entitled, "The Charles Schwab Corporation Supplemental Monthly Client Metrics for September 2023 shows Bank Deposits totaling $99.5 billion as of Sept. 2023, vs. $139.6 billion a year ago, a decline of $40.1 billion (-28.7%). Total Money Market Funds were listed at $437.3 billion as of Sept. 2023 vs. $214.7 billion a year earlier, a jump of $222.6 billion (103.7%).
For more news on Schwab, see: "Charles Schwab: the fog is lifting on deposit outflows but not on earnings," "Schwab Says Deposit Outflows Slowed; Stock Rises," "Charles Schwab CFO says easing outflows bring greater clarity to earnings power," "Schwab Sees Potential Inflection Point to Cash Outflows and "The Charles Schwab Corporation 2023 Fall Business Update."
In other news, ICI also released its latest monthly "Money Market Fund Holdings" summary, which reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds. This release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in September, prime money market funds held 40.8 percent of their portfolios in daily liquid assets and 58.2 percent in weekly liquid assets, while government money market funds held 81.3 percent of their portfolios in daily liquid assets and 89.2 percent in weekly liquid assets." Prime DLA was up from 39.9% in August, and Prime WLA was down from 58.3%. Govt MMFs' DLA was down from 81.8% and Govt WLA increased from 88.4% the previous month.
ICI explains, "At the end of September, prime funds had a weighted average maturity (WAM) of 29 days and a weighted average life (WAL) of 51 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 27 days and a WAL of 68 days." Prime WAMs were 4 days longer and WALs were unchanged from the previous month. Govt WAMs were 3 days longer and WALs were 3 days longer from August.
Regarding Holdings by Region of Issuer, the release tells us, "Prime money market funds’ holdings attributable to the Americas rose from $450.36 billion in August to $489.13 billion in September. Government money market funds’ holdings attributable to the Americas rose from $4,205.05 billion in August to $4,312.52 billion in September."
The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $489.1 billion, or 55.5%; Asia and Pacific at $139.2 billion, or 15.8%; Europe at $238.2 billion, or 27.0%; and, Other (including Supranational) at $15.1 billion, or 1.8%. The Government Money Market Funds by Region of Issuer table shows Americas at $4.313 trillion, or 91.7%; Asia and Pacific at $116.6 billion, or 2.5%; Europe at $261.4 billion, 5.6%, and Other (Including Supranational) at $14.4 billion, or 0.3%.
Crane Data's latest Money Fund Intelligence International shows that assets in European or "offshore" money market mutual funds surged higher over the past 30 days to a record $1.117 trillion, as yields also continued higher. Assets for USD and EUR MMFs rose over the past month while GBP MMFs fell. European MMF assets just recently broke above their previous record high of $1.101 trillion set in mid-December 2021 and they now have passed last month’s record of $1.103 trillion. These U.S.-style money funds, domiciled in Ireland or Luxembourg and denominated in US Dollars, Pound Sterling and Euros, increased by $14.6 billion over the 30 days through 10/13. The totals are up $86.4 billion (8.4%) year-to-date. (Note that currency moves in the U.S. dollar cause Euro and Sterling totals to shift when they're translated back into totals in U.S. dollars. See our latest MFI International for more on the "offshore" money fund marketplace. These funds are only available to qualified, non-U.S. investors.)
Offshore US Dollar money funds increased $11.8 billion over the last 30 days and are up $62.8 billion YTD to $612.3 billion. Euro funds increased E3.9 billion over the past month. YTD, they're up E21.0 billion to E201.4 billion. GBP money funds decreased L1.1 billion over 30 days, and they're still down L34.0 billion YTD at L229.5B. U.S. Dollar (USD) money funds (206) account for over half (54.8%) of the "European" money fund total, while Euro (EUR) money funds (115) make up 19.3% and Pound Sterling (GBP) funds (139) total 25.8%. We summarize our latest "offshore" money fund statistics and our Money Fund Intelligence International Portfolio Holdings (which went out to subscribers Monday), below.
Offshore USD MMFs yield 5.30% (7-Day) on average (as of 10/13/23), up from 5.28% a month earlier. Yields averaged 4.20% on 12/30/22, 0.03% on 12/31/21, 0.05% on 12/31/20, 1.59% on 12/31/19 and 2.29% on 12/31/18. EUR MMFs finally left negative yield territory in the second half of 2022 and should keep moving higher again in coming days following the ECB's latest rate hike. They're yielding 3.83% on average, up from 3.62% a month ago and up from 1.48% on 12/30/22, -0.80% on 12/31/21, -0.71% at year-end 2020, -0.59% at year-end 2019 and -0.49% at year-end 2018. Meanwhile, GBP MMFs broke the 5.0% barrier 3 months ago and now yield 5.22%, up 5 bps from a month ago, and up from 3.17% on 12/30/22. Sterling yields were 0.01% on 12/31/21, 0.00% on 12/31/20, 0.64% on 12/31/19 and 0.64% on 12/31/18.
Crane's October MFI International Portfolio Holdings, with data as of 9/30/23, show that European-domiciled US Dollar MMFs, on average, consist of 23% in Commercial Paper (CP), 16% in Certificates of Deposit (CDs), 28% in Repo, 19% in Treasury securities, 13% in Other securities (primarily Time Deposits) and 1% in Government Agency securities. USD funds have on average 52.1% of their portfolios maturing Overnight, 7.0% maturing in 2-7 Days, 9.1% maturing in 8-30 Days, 10.2% maturing in 31-60 Days, 6.0% maturing in 61-90 Days, 11.0% maturing in 91-180 Days and 4.5% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (41.4%), France (11.9%), Canada (9.5%), Japan (9.0%), Sweden (4.8%), the Netherlands (4.5%), the U.K. (4.0%), Germany (2.7%), Australia (2.6%) and Abu Dhabi (1.5%).
The 10 Largest Issuers to "offshore" USD money funds include: the US Treasury with $127.2 billion (19.3% of total assets), Fixed Income Clearing Corp with $44.1B (6.7%), Federal Reserve Bank of New York with $21.8B (3.3%), BNP Paribas with $21.2B (3.2%), Sumitomo Mitsui Banking Corp with $18.5B (2.8%), RBC with $17.4B (2.6%), Bank of America with $15.6B (2.4%), Credit Agricole with $15.4B (2.3%), Barclays with $14.8B (2.2%) and Citi with $14.1B (2.1%).
Euro MMFs tracked by Crane Data contain, on average 43% in CP, 22% in CDs, 21% in Other (primarily Time Deposits), 11% in Repo, 2% in Treasuries and 1% in Agency securities. EUR funds have on average 40.7% of their portfolios maturing Overnight, 8.9% maturing in 2-7 Days, 10.8% maturing in 8-30 Days, 12.7% maturing in 31-60 Days, 6.5% maturing in 61-90 Days, 13.3% maturing in 91-180 Days and 7.0% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (32.1%), Japan (12.5%), the U.S. (9.1%), Canada (6.9%), the U.K. (6.9%), Germany (5.7%), Sweden (4.9%), Austria (4.6%), Belgium (4.1%) and the Netherlands (3.9%).
The 10 Largest Issuers to "offshore" EUR money funds include: Republic of France with E11.6B (6.7%), Credit Agricole with E9.1B (5.2%), Credit Mutuel with E7.7B (4.4%), BNP Paribas with E7.5B (4.3%), Mitsubishi UFJ Financial Group Inc with E6.7B (3.9%), BPCE SA with E6.1B (3.5%), Erste Group Bank AG with E5.9B (3.4%), KBC Group NV with E5.8B (3.3%), Societe Generale with E5.7B (3.3%) and Barclays PLC with E5.3B (3.0%).
The GBP funds tracked by MFI International contain, on average (as of 9/30/23): 38% in CDs, 19% in CP, 25% in Other (Time Deposits), 16% in Repo, 2% in Treasury and 0% in Agency. Sterling funds have on average 38.2% of their portfolios maturing Overnight, 11.4% maturing in 2-7 Days, 10.9% maturing in 8-30 Days, 12.0% maturing in 31-60 Days, 4.1% maturing in 61-90 Days, 15.2% maturing in 91-180 Days and 8.1% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: France (17.5%), Japan (14.9%), Canada (14.3%), the U.K. (13.5%), the U.S. (8.3%), Australia (6.8%), the Netherlands (5.0%), Sweden (4.3%), Spain (3.0%) and Singapore (2.6%).
The 10 Largest Issuers to "offshore" GBP money funds include: Toronto-Dominion Bank with L9.3B (4.4%), BNP Paribas with L8.7B (4.1%), Mitsubishi UFJ Financial Group Inc with L8.6B (4.1%), Sumitomo Mitsui Trust Bank with L8.0B (3.8%), UK Treasury with L7.7B (3.6%), BPCE SA with L6.8B (3.2%), RBC with L6.5B (3.1%), Nordea Bank with L6.2B (2.9%), Commonwealth Bank of Australia with L6.2B (2.9%) and Banco Santander with L6.1B (2.9%).
In other news, the Bank of England published a "Financial Policy Summary recently, which tells us, "The Bank is continuing to work with other UK authorities to improve the resilience of money market funds (MMFs). The UK authorities will publish a consultation paper on MMF regulation later this year. Significantly more liquid assets than currently required is likely to be the most effective way to increase MMF resilience and so reduce risks to financial stability, since higher levels of liquidity increase the range of stresses MMFs are resilient to. Bank staff analysis suggests that weekly liquid asset levels in the region of 50-60% of assets would give a high level of assurance that sterling denominated MMFs would be resilient to severe but plausible stresses."
Discussing the "Resilience of money market funds," they write, "The FPC discussed money market funds (MMFs) in the context of a consultation paper on MMF regulation that the UK authorities would publish later this year, following the discussion paper issued in May 2022. The FPC welcomed the UK authorities' commitment to consult on strengthening the resilience of MMFs. Increasing the resilience of MMFs was necessary to reduce systemic risk in the UK and global financial system.... As set in out in the Record of the Committee's meeting in March 2023, MMFs should be able to withstand severe but plausible levels of investor outflows without amplifying stress and increasing risks to financial stability. MMFs should be resilient to outflows at least as large as those seen in the dash for cash and LDI stress events, when central bank actions also helped to limit outflows. Such central bank interventions increased risks to public funds and should not be relied upon."
The BoE explains, "The FPC judged that significantly more shorter-maturing assets than currently required was likely to be the most effective way to increase MMF resilience and so reduce risks to financial stability. Higher liquidity would increase the range of stresses to which MMFs were resilient.... Bank staff analysis suggested that weekly liquid asset levels in the region of 50-60% of assets would give a high level of assurance that sterling denominated MMFs would be resilient to severe but plausible stresses. These issues would be explored in the forthcoming consultation paper."
They continue, "The analysis built in assumptions around contagion given the failure of a single fund or funds could lead to wider concerns or confidence effects in the sector more widely. This could exacerbate outflows, and increase the stress on other funds. The modelling focused on weekly liquid asset requirements to assess the ability of MMFs to withstand stresses over extended periods, and to ensure that funds have a stream of maturing assets to generate liquidity without having to resort to asset sales.... Alongside weekly maturing assets, MMF resilience also appears to depend on other factors. The staff analysis showed that daily liquid assets of 15% or greater would be sufficient to meet the largest daily redemption seen by sterling MMFs in the dash for cash in March 2020, and greater levels of weekly liquid assets would ensure daily liquid assets levels were replenished in stress.... The FPC noted that the consultation paper would explore stakeholder views on the appropriate balance of these factors for ensuring resilience."
The Bank of England adds, "To address vulnerabilities in the global MMF sector, a robust and coherent package of international reforms needed to be implemented. The best way of doing that was by working collaboratively across jurisdictions to ensure that reforms globally meet the Financial Stability Board's (FSB) objectives and strengthen the resilience of the global financial system.... The FPC noted that the FSB was currently undertaking a stocktake of progress by member jurisdictions in adopting reforms to enhance MMF resilience.... The combined impact of both international and UK policies would determine the nature and extent of systemic risk posed by MMFs.... As set out in the May 2022 discussion paper, UK authorities would need to be confident that MMFs that undertake liquidity transformation, primarily in sterling, face sufficiently robust regulatory requirements if they are to market to UK investors, and if risks to financial stability were to be addressed."
The October issue of our Bond Fund Intelligence, which was sent to subscribers Monday morning, features the stories, "Worldwide BF Assets Hit $12.2 Trillion, Led by US, Lux, Ireland," which reviews ICI's "Worldwide Open-End Fund Assets and Flows, Second Quarter 2023," and "Ultra-Short Bond Funds Cool Down at European MFS," which quotes from our recent conference on cash funds and beyond in Europe. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns plunged in September while yields jumped. We excerpt from the new issue below. (Contact us if you'd like to see our latest Bond Fund Intelligence and BFI XLS spreadsheet, or our Bond Fund Portfolio Holdings data.)
Our "Worldwide BF Assets" piece states, "Bond fund assets worldwide increased in the latest quarter to $12.2 trillion, led higher by some of the largest bond fund markets -- Brazil, China, the U.S. and Ireland. ICI's 'Worldwide Open-End Fund Assets and Flows' says, 'Worldwide regulated open-end fund assets increased 3.1% to $65.07 trillion at the end of the second quarter of 2023.... ICI compiles worldwide regulated open-end fund statistics on behalf of the International Investment Funds Association (IIFA).'"
It continues: "They explain, 'The growth rate of total regulated open-end fund assets reported in US dollars was decreased by US dollar appreciation over the second quarter of 2023.... Bond fund assets increased by 1.8% to $12.21 trillion in the second quarter. Balanced/mixed fund assets decreased by 0.1% to $7.22 trillion in the second quarter, while money market fund assets increased by 2.7% globally to $9.72 trillion.'"
Our "European MFS" article states, "Crane Data recently hosted its 9th annual European Money Fund Symposium in Edinburgh, Scotland, which featured two days of discussions on offshore money funds. It also included a segment on, 'Ultra-Short Bond Funds & Standard MMFs,' run by Abis Soetan of Fitch Ratings and including Neil Hutchison of J.P. Morgan Asset Management and Alastair Sewell of Aviva Investors."
It states: "Soetan says, 'When you step out of the regulated money market fund world, you then have the short-term bond funds. Here there's no limit to the requirements on credit quality. You can take on a lot more credit risk.... Duration requirements [are roughly] up to 3 years.... The risks can be quite varied, so investors need to [understand] the risks to invest in these strategies.'"
Our first News brief, "Returns Plunge, Yields Jump in Sept.," states, "Bond fund returns crashed and yields soared last month. Our BFI Total Index decreased 1.51% over 1-month but is up 3.62% over 12 months. The BFI 100 fell 1.71% in Sept. but rose 3.03% over 1-year. Our BFI Conservative Ultra-Short Index was up 0.37% over 1-month and is up 4.80% for 1-year; Ultra-Shorts rose 0.35% and are up 4.90% over 12 mos. Short-Term fell 0.24% and rose 3.69%, and Intm-Term decreased 2.28% and rose 1.41% over 1-year. BFI's Long-Term Index fell 3.05% and rose 1.36%. High Yield fell 0.80% in Sept. but is up 9.34% over 1-yr."
A second News brief, "Morningstar's '`How the Largest Bond Funds Did In Q3 2023' comments, 'A negative third quarter has put investors in many of the largest bond funds on track for a nearly unheard-of third consecutive year of losses.... In response, yields on intermediate and long-term bonds rose sharply, and bond funds focused on those maturities suffered.... Among the largest passive funds, only short-term and ultrashort-term bond funds made gains.'"
Our next News brief, "Reuters on Bond Fund Outflows," quotes the article, "US bond funds suffer outflows on rate worries; money market funds gain traction." It says, "U.S. bond funds saw significant outflows in the week ending Oct. 4, driven by concerns about prolonged elevated interest rates, while money funds garnered substantial inflows as investors recalibrated their risk exposure amid a bond market sell-off.'"
A BFI sidebar, "MStar: Short-Term Hurting," says, "Morningstar publishes, '6 Charts On Where Bond Fund Investors Are Putting Their Money.' They say, 'Investors are choosing safer funds and eschewing short-term ones. Investors have favored bond funds over stock funds for many years, but as interest rates stay elevated, they are shifting where they put their money. Prior to the big rise in interest rates in 2022, investors gravitated toward short-term and high-yield bond funds. Now, with interest rates higher across the board, investors are choosing safer government and long-term bond funds and taking advantage of high interest rates on money market funds.'"
Finally, another sidebar, "IBD Features TRP's Obaza," comments, "Investors' Business Daily writes on 'How A Top T. Rowe Price Bond Manager Scores A Safe 6.15% Yield.' They tell us, 'With yields surging and calls for at least one more Federal Reserve rate hike swirling as inflation remains stubbornly high, bonds are the talk of Wall Street. All the focus on bond yields gone wild has investors wondering how high rates will go and whether it's a good time to buy bonds, many which now pay interest of 5% or more. So, with all eyes on fixed-income, Investor's Business Daily caught up with Alex Obaza, manager of T. Rowe Price Ultra Short-Term Bond (TRBUX), to get an insider's view of the turmoil in the bond market.'"
A Prospectus Supplement for "UBS Select ESG Prime Institutional Fund indicates that UBS is the latest to exit the "ESG" money market fund space, following departures by Morgan Stanley and SSGA. It says, "The purpose of this supplement is to update certain information for UBS Select ESG Prime Institutional Fund, a series of UBS Series Funds. First, at the recommendation of UBS Asset Management (Americas) Inc., the fund's investment adviser, the Board of Trustees of the Trust approved (i) a change to the fund's name to 'UBS Select Prime Series II Institutional Fund', (ii) a change to the fund's investment objective such that the fund's investment objective will be to earn maximum current income consistent with liquidity and the preservation of capital, (iii) the elimination of the fund's '80% policy', (iv) related changes to the fund's principal investment strategies and (v) related changes to the fund's principal risks. In addition, the Board of Trustees of Master Trust approved corresponding changes to the name, investment objective, '80% policy', principal investment strategies and principal risks of ESG Prime Master Fund, the underlying master fund through which the fund invests its securities. The Investment Policy Changes and the Master Fund Changes are expected to become effective on or about December 18, 2023."
The filing continues, "Second, at the recommendation of UBS AM, the Board approved an Agreement and Plan of Reorganization providing for the acquisition of the assets and liabilities of the fund by UBS Select Prime Institutional Fund, also a series of the Trust. The Agreement and Plan of Reorganization sets forth the terms by which the fund will transfer its assets and liabilities in exchange for shares of the Acquiring Fund, followed by the distribution of shares of the Acquiring Fund to the shareholders of the fund and the complete liquidation of the fund."
UBS writes, "After the Reorganization is consummated, shareholders of the fund will become shareholders of the Acquiring Fund. The Reorganization is intended to be tax free, meaning that shareholders of the fund will become shareholders of the Acquiring Fund without realizing any gain or loss for federal income tax purposes."
They add, "Finally, at the recommendation of UBS AM, the Board has determined to close the fund to new investments, including purchases from new investors, additional purchases from existing investors and purchases for exchange from other funds by investors. Automatic reinvestment of dividends by existing shareholders will continue during this closure, and such shareholders will continue to be able to exchange or redeem their shares in accordance with the policies in the fund's prospectus. The closing of the fund to new investments is effective as of December 18, 2023."
The supplement also states, "UBS Select Prime Series II Institutional Fund is classified by UBS AM as an 'ESG integrated' fund. UBS Select Prime Series II Institutional Fund's investment process integrates material sustainability and/or environmental, social and governance ('ESG') considerations into the research process for all portfolio investments and portfolio holdings, except repurchase agreements with certain counterparties. ESG integration is driven by taking into account material sustainability and/or ESG risks which could impact investment returns, rather than being driven by specific ethical principles or norms."
It says, "The analysis of material sustainability and/or ESG considerations can include many different aspects, including, for example, the carbon footprint, employee health and well-being, supply chain management, fair customer treatment and governance processes of a company. UBS Select Prime Series II Institutional Fund's portfolio managers may still invest in securities without respect to sustainability and/or ESG considerations or in securities which present sustainability and/or ESG risks, including where the portfolio managers believe the potential compensation outweighs the risks identified."
For more on ESG see these Crane Data News stories: "Morgan Stanley Latest to Abandon ESG MMFs" (8/16/23), "ESMA, FSB Push European Money Fund Reforms; New HSBC ESG Euro MF" (3/27/23), "Morgan Stanley Names OFN Beneficiary of Impact Shares; ESG to Retail" (10/27/22), "SSGA to Liquidate State Street ESG Liquid Reserves" (9/19/22), "ESG Cash Investments Still Minor Says AFP Liquidity Survey, 6% Over 10%" (6/29/22) and "SEC Names Rule Proposal Could Impact or Ban ESG, Social Money Funds" (6/3/22).
In other fund change news, another SEC filing for JNL Investors Series Trust announces the "Dissolution of JNL Securities Lending Collateral Fund. It tells us, "At its meeting on August 31, 2023, the Board approved the dissolution of the JNL Securities Lending Collateral Fund, a series of JNL Investors Series Trust, effective September 30, 2023. The Board approved the dissolution of the Fund pursuant to the Trust's Amended and Restated Declaration of Trust which provides that the Board may approve the dissolution of a fund when such fund has no shares outstanding."
For more on fund liquidations, see these Crane Data News articles: "JPMorgan Liquidates E*Trade Shares" (9/7/23), "Morgan Stanley Latest to Abandon ESG MMFs" (8/16/23), "Goldman Liquidating Resource Shares" (7/19/23), "SSGA to Liquidate State Street ESG Liquid Reserves" (9/19/22), "DWS Liquidating Govt Cash Mgmt Fund" (7/7/22) and "Cavanal Hill Liquidates $71M U.S. Treasury Service Class, Added to Fed RRP List" (5/22/23).
Crane Data's October Money Fund Portfolio Holdings, with data as of Sept. 30, 2023, show that Treasury holdings surged in September while Repo and Time Deposits fell. Money market securities held by Taxable U.S. money funds (tracked by Crane Data) increased by $56.1 billion to a record $5.975 trillion, after increasing $106.7 billion in August, $78.3 billion in July and $46.1 billion in June. Repo fell again, dropping $84 billion, but it remains the largest portfolio segment. Treasuries jumped by over $160 billion, ranking in the No. 2 spot. The U.S. Treasury surpassed the Federal Reserve Bank of New York as the largest Issuer to MMFs the month prior, in September that trend continued as the U.S. Treasury jumped to $1.751 trillion vs. the Fed RRP's $1.478 trillion (down $82.1 billion). Agencies were the third largest segment, CP remained fourth, ahead of CDs, Other/Time Deposits and VRDNs. Below, we review our latest Money Fund Portfolio Holdings statistics.
Among taxable money funds, Repurchase Agreements (repo) decreased $84.0 billion (-2.8%) to $2.921 trillion, or 48.9% of holdings, in September, after decreasing $96.8 billion in August, $99.4 billion in July and $146.4 billion in June. Repo increased $111.8 billion in May and $33.1 billion in April. Treasury securities rose $164.9 billion (10.4%) to $1.751 trillion, or 29.3% of holdings, after increasing $163.3 billion in August, $185.5 billion in July and $355.7 billion in June. They decreased $116.9 billion in May and $32.3 billion in April. Government Agency Debt was down $8.3 billion, or -1.2%, to $675.5 billion, or 11.3% of holdings. Agencies increased $16.4 billion in August, but decreased $66.5 billion in July and $119.3 billion in June. They increased $58.8 billion in May and $18.5 billion in April. Repo, Treasuries and Agency holdings now total $5.347 trillion, representing a massive 89.5% of all taxable holdings.
Money fund holdings of CP and CDs both increased in September, but Time Deposits dropped. Commercial Paper (CP) increased $3.0 billion (1.1%) to $283.2 billion, or 4.7% of holdings. CP holdings increased $4.8 billion in August, $22.0 billion in July, decreased $2.3 billion in June and increased $6.5 billion in May. Certificates of Deposit (CDs) increased $0.5 billion (0.2%) to $203.0 billion, or 3.4% of taxable assets. CDs increased $14.4 billion in August, $7.2 billion in July, $7.9 billion in June and $2.1 billion in May. Other holdings, primarily Time Deposits, decreased $20.4 billion (-13.5%) to $130.8 billion, or 2.2% of holdings, after increasing $4.3 billion in August and $29.3 billion in July. TDs decreased $49.8 billion in June and increased $30.4 billion in May. VRDNs rose to $10.6 billion, or 0.2% of assets. (Note: This total is VRDNs for taxable funds only. We will post our Tax Exempt MMF holdings separately Thursday around noon.)
Prime money fund assets tracked by Crane Data rose to $1.244 trillion, or 20.8% of taxable money funds' $5.975 trillion total. Among Prime money funds, CDs represent 16.3% (unchanged from a month ago), while Commercial Paper accounted for 22.7% (unchanged from 22.7% in August). The CP totals are comprised of: Financial Company CP, which makes up 15.0% of total holdings, Asset-Backed CP, which accounts for 4.7%, and Non-Financial Company CP, which makes up 3.0%. Prime funds also hold 4.4% in US Govt Agency Debt, 8.1% in US Treasury Debt, 24.6% in US Treasury Repo, 0.6% in Other Instruments, 8.0% in Non-Negotiable Time Deposits, 5.5% in Other Repo, 7.4% in US Government Agency Repo and 0.6% in VRDNs.
Government money fund portfolios totaled $3.126 trillion (52.3% of all MMF assets), up from $3.124 trillion in August, while Treasury money fund assets totaled another $1.605 trillion (26.9%), up from $1.557 trillion the prior month. Government money fund portfolios were made up of 19.8% US Govt Agency Debt, 17.6% US Government Agency Repo, 22.6% US Treasury Debt, 39.7% in US Treasury Repo, 0.0% in Other Instruments. Treasury money funds were comprised of 58.7% US Treasury Debt and 41.3% in US Treasury Repo. Government and Treasury funds combined now total $4.731 trillion, or 79.1% of all taxable money fund assets.
European-affiliated holdings (including repo) decreased by $89.4 billion in September to $590.9 billion; their share of holdings fell to 9.9% from last month's 11.5%. Eurozone-affiliated holdings decreased to $417.0 billion from last month's $456.6 billion; they account for 7.0% of overall taxable money fund holdings. Asia & Pacific related holdings rose to $261.6 billion (4.4% of the total) from last month's $253.5 billion. Americas related holdings rose to $5.113 trillion from last month's $4.975 trillion, and now represent 85.6% of holdings.
The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (down $106.6 billion, or -4.6%, to $2.212 trillion, or 37.0% of assets); US Government Agency Repurchase Agreements (up $19.7 billion, or 3.2%, to $641.3 billion, or 10.7% of total holdings), and Other Repurchase Agreements (up $2.9 billion, or 4.5%, from last month to $68.0 billion, or 1.1% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (up $3.5 billion to $186.8 billion, or 3.1% of assets), Asset Backed Commercial Paper (up $1.0 billion to $58.7 billion, or 1.0%), and Non-Financial Company Commercial Paper (down $1.5 billion to $37.7 billion, or 0.6%).
The 20 largest Issuers to taxable money market funds as of September 30, 2023, include: the US Treasury ($1.751T, 29.3%), the Federal Reserve Bank of New York ($1.478 trillion, or 24.7%), Federal Home Loan Bank ($548.4B, 9.2%), Fixed Income Clearing Corp ($367.1B, 6.1%), RBC ($149.4B, 2.5%), Federal Farm Credit Bank ($108.2B, 1.8%), JP Morgan ($101.8B, 1.7%), BNP Paribas ($99.9B, 1.7%), Bank of America ($97.9B, 1.6%), Goldman Sachs ($93.0B, 1.6%), Citi ($91.3B, 1.5%), Barclays PLC ($62.4B, 1.0%), Wells Fargo ($58.0B, 1.0%), Mitsubishi UFJ Financial Group Inc ($55.7B, 0.9%), Sumitomo Mitsui Banking Corp ($53.1B, 0.9%), Societe Generale ($50.2B, 0.8%), Toronto-Dominion Bank ($41.7B, 0.7%), Mizuho Corporate Bank Ltd ($41.1B, 0.7%), Credit Agricole ($38.6B, 0.6%) and Canadian Imperial Bank of Commerce ($37.9B, 0.6%).
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: Federal Reserve Bank of New York ($1.478T, 50.6%), Fixed Income Clearing Corp ($367.1B, 12.6%), RBC ($128.6B, 4.4%), Goldman Sachs ($92.4B, 3.2%), JP Morgan ($91.2B, 3.1%), BNP Paribas ($85.4B, 2.9%), Citi ($77.3B, 2.6%), Bank of America ($72.3B, 2.5%), Wells Fargo ($47.9B, 1.6%) and Barclays PLC ($46.1B, 1.6%). The largest users of the $1.478 trillion in Fed RRP include: Goldman Sachs FS Govt ($101.3B), JPMorgan US Govt MM ($89.7B), Vanguard Federal Money Mkt Fund ($88.2B), Fidelity Govt Money Market ($51.6B), BlackRock Lq T-Fund ($60.5B), Schwab Treasury Oblig MF ($48.7B), BlackRock Lq FedFund ($47.5B), Morgan Stanley Inst Liq Govt ($47.5B), Northern Instit Treasury MMkt ($46.6B) and Fidelity Inv MM: Govt Port ($45.0B).
The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: Mizuho Corporate Bank Ltd ($26.7B, 4.8%), Bank of America ($25.6B, 4.6%), Toronto-Dominion Bank ($21.3B, 3.8%), RBC ($20.8B, 3.8%), Bank of Montreal ($20.6B, 3.7%), Mitsubishi UFJ Financial Group Inc ($19.3B, 3.5%), Sumitomo Mitsui Trust Bank ($17.2B, 3.1%), Skandinaviska Enskilda Banken AB ($16.4B, 3.0%), Barclays PLC ($16.3B, 2.9%) and Bank of Nova Scotia ($16.1B, 2.9%).
The 10 largest CD issuers include: Bank of America ($16.5B, 8.1%), Mitsubishi UFJ Trust and Banking Corporation ($15.0B, 7.4%), Sumitomo Mitsui Banking Corp ($12.3B, 6.1%), Toronto-Dominion Bank ($12.1B, 6.0%), Mitsubishi UFJ Financial Group Inc ($11.4B, 5.6%), Canadian Imperial Bank of Commerce ($10.7B, 5.3%), Wells Fargo ($10.1B, 5.0%), Mizuho Corporate Bank Ltd ($9.9B, 4.9%), Sumitomo Mitsui Trust Bank ($9.7B, 4.8%), and Citi ($7.1B, 3.5%).
The 10 largest CP issuers (we include affiliated ABCP programs) include: Bank of Montreal ($16.0B, 6.3%), RBC ($12.2B, 4.8%), JP Morgan ($10.6B, 4.2%), Bank of Nova Scotia ($10.3B, 4.1%), Societe Generale ($9.7B, 3.8%), BPCE SA ($9.5B, 3.7%), UBS AG ($8.8B, 3.5%), Barclays PLC ($8.7B, 3.5%), BayernLB ($8.0B, 3.2%) and Toronto-Dominion Bank ($7.9B, 3.1%),
The largest increases among Issuers include: US Treasury (up $164.9B to $1.751T), Goldman Sachs (up $19.3B to $93.0B), RBC (up $14.0B to $149.4B), Bank of America (up $11.0B to $97.9B), JP Morgan (up $10.0B to $101.8B), Fixed Income Clearing Corp (up $8.8B to $367.1B), Sumitomo Mitsui Banking Corp (up $5.5B to $53.1B), HSBC (up $4.4B to $17.5B), Toronto-Dominion Bank (up $4.4B to $41.7B) and Federal Farm Credit Bank (up $4.3B to $108.2B).
The largest decreases among Issuers of money market securities (including Repo) in September were shown by: Federal Reserve Bank of New York (down $82.1B to $1.478T), Barclays PLC (down $40.0B to $62.4B), Credit Agricole (down $19.8B to $38.6B), Citi (down $13.7B to $91.3B), Federal Home Loan Bank (down $12.6B to $548.4B), BNP Paribas (down $10.6B to $99.9B), Svenska Handelsbanken (down $7.5B to $10.5B), Deutsche Bank AG (down $5.9B to $20.2B), Societe Generale (down $4.5B to $50.2B) and ING Bank (down $4.4B to $36.0B).
The United States remained the largest segment of country-affiliations; it represents 80.4% of holdings, or $4.801 trillion. Canada (5.2%, $312.1B) was in second place, while Japan (4.1%, $245.9B) was No. 3. France (4.0%, $241.6B) occupied fourth place. The United Kingdom (1.9%, $112.2B) remained in fifth place. Netherlands (1.1%, $67.8B) was in sixth place, followed by Germany (0.9%, $55.8B), Sweden (0.7%, $44.0B), Australia (0.5%, $31.7B), and Spain (0.3%, $18.3B). (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 Sept. 30, 2023, Taxable money funds held 58.1% (down from 61.7%) of their assets in securities maturing Overnight, and another 9.9% maturing in 2-7 days (up from 9.2%). Thus, 68.0% in total matures in 1-7 days. Another 8.8% matures in 8-30 days, while 10.5% matures in 31-60 days. Note that over three-quarters, or 87.2% of securities, mature in 60 days or less, the dividing line for use of amortized cost accounting under SEC regulations. The next bucket, 61-90 days, holds 4.5% of taxable securities, while 5.2% matures in 91-180 days, and just 3.1% matures beyond 181 days. (Visit our Content center to download, or contact us to request our latest Portfolio Holdings reports.)
Crane Data's latest monthly Money Fund Portfolio Holdings statistics will be sent out Wednesday, and we'll be writing our regular monthly update on the new September 30 data for Thursday's News. But we also uploaded a separate and broader Portfolio Holdings data set based on the SEC's Form N-MFP filings on Tuesday. (We continue to merge the two series, and the N-MFP version is now available via our Portfolio Holdings file listings to Money Fund Wisdom subscribers.) Our new N-MFP summary, with data as of Sept. 30, includes holdings information from 958 money funds (down 14 from last month), representing record assets of $6.145 trillion (up from $6.098 trillion). Prime MMFs now total $1.258 trillion, or 20.5% of the total. We review the new N-MFP data, and we also look at our revised MMF expense data, which shows charged expenses flat but money fund revenues hitting another record in September.
Our latest Form N-MFP Summary for All Funds (taxable and tax-exempt) shows Repurchase Agreement (Repo) holdings in money market funds totaling $2.939 trillion (down from $3.032 trillion), or 47.8% of all assets. Treasury holdings totaled $1.766 trillion (up from $1.597 billion), or 28.7% of all holdings, and Government Agency securities totaled $685.6 billion (down from $699.5 billion), or 11.2%. Holdings of Treasuries, Government agencies and Repo (almost all of which is backed by Treasuries and agencies) combined total $5.390 trillion, or a massive 87.7% of all holdings.
Commercial paper (CP) totals $292.6 billion (up from $288.7 billion), or 4.8% of all holdings, and the Other category (primarily Time Deposits) totals $137.0 billion (down from $156.8 billion), or 2.2%. Certificates of Deposit (CDs) total $203.4 billion (up from $202.9 billion), 3.3%, and VRDNs account for $121.4 billion (up from $121.1 billion last month), or 2.0% of money fund securities.
Broken out into the SEC's more detailed categories, the CP totals were comprised of: $187.6 billion, or 3.1%, in Financial Company Commercial Paper; $59.3 billion or 1.0%, in Asset Backed Commercial Paper; and, $45.7 billion, or 0.7%, in Non-Financial Company Commercial Paper. The Repo totals were made up of: U.S. Treasury Repo ($2.229 trillion, or 36.3%), U.S. Govt Agency Repo ($634.5B, or 10.3%) and Other Repo ($75.5B, or 1.2%).
The N-MFP Holdings summary for the Prime Money Market Funds shows: CP holdings of $286.3 billion (up from $282.2 billion), or 22.8%; Repo holdings of $471.3 billion (up from $460.9 billion), or 37.5%; Treasury holdings of $104.9 billion (up from $93.7 billion), or 8.3%; CD holdings of $203.4 billion (up from $202.9 billion), or 16.2%; Other (primarily Time Deposits) holdings of $127.6 billion (down from $150.3 billion), or 10.1%; Government Agency holdings of $56.7 billion (up from $55.0 billion), or 4.5% and VRDN holdings of $7.8 billion (up from $7.5 billion), or 0.6%.
The SEC's more detailed categories show CP in Prime MMFs made up of: $187.6 billion (up from $183.9 billion), or 14.9%, in Financial Company Commercial Paper; $59.3 billion (up from $58.2 billion), or 4.7%, in Asset Backed Commercial Paper; and $39.4 billion (down from $40.2 billion), or 3.1%, in Non-Financial Company Commercial Paper. The Repo totals include: U.S. Treasury Repo ($311.3 billion, or 24.7%), U.S. Govt Agency Repo ($91.5 billion, or 7.3%), and Other Repo ($68.5 billion, or 5.4%).
In related news, money fund charged expense ratios (Exp%) were flat in September. Our Crane 100 Money Fund Index and Crane Money Fund Average were 0.26% and 0.37%, respectively, as of Sept. 30, 2023. Crane Data revises its monthly expense data and gross yield information after the SEC updates its latest Form N-MFP data the morning of the 6th business day of the new month. (They posted this info Tuesday morning, so we revised our monthly MFI XLS spreadsheet and historical craneindexes.xlsx averages file to reflect the latest expenses, gross yields, portfolio composition and maturity breakout, yesterday.) Visit our "Content" page for the latest files.
Our Crane 100 Money Fund Index, a simple average of the 100 largest taxable money funds, shows an average charged expense ratio of 0.26%, down 1 bp from last month's level (and 18 bps higher than 12/31/21's 0.08%). The average is now back at the level (0.27%) it was on Dec. 31, 2019, so we estimate that funds are charging normal expenses (though they are waiving a minimal amount of fees for competitive purposes). The Crane Money Fund Average, a simple average of all taxable MMFs, showed a charged expense ratio of 0.37% as of Sept. 30, 2023, unchanged from the month prior and slightly below the 0.40% at year-end 2019.
Prime Inst MFs expense ratios (annualized) average 0.28% (unchanged from last month), Government Inst MFs expenses average 0.27% (unchanged from last month), Treasury Inst MFs expenses average 0.29% (unchanged from last month). Treasury Retail MFs expenses currently sit at 0.52%, (unchanged from last month), Government Retail MFs expenses yield 0.54% (down 1 bp from last month). Prime Retail MF expenses averaged 0.48% (unchanged from last month). Tax-exempt expenses were also unchanged at 0.40% on average.
Gross 7-day yields rose again during the month ended Sept. 30, 2023. The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 754), shows a 7-day gross yield of 5.35%, up 3 bps from the prior month. The Crane Money Fund Average was 1.72% at the end of 2019, 0.15% at the end of 2020 and 0.09% at the end of 2021. Our Crane 100's 7-day gross yield was up 1 bp, ending the month at 5.25%.
According to our revised MFI XLS and Crane Index numbers, we now estimate that annualized revenue for all money funds is a record $16.020 billion (as of 9/30/23). Our estimated annualized revenue totals increased from $15.964B last month and are up from $15.554B two months ago. Revenue levels are more than five times larger than May's 2021's record-low $2.927B level. Charged expenses and gross yields are driven by a number of variables, but revenues should continue their climb higher as money funds continue to rake in assets from uninsured bank deposits.
Crane Data's latest monthly Money Fund Market Share rankings show assets were again higher among the largest U.S. money fund complexes in September. Money market fund assets grew by $77.5 billion, or 1.3%, last month to a record $6.094 trillion. Total MMF assets have increased by $220.3 billion, or 3.8%, over the past 3 months, and they've increased by $1.064 trillion, or 21.2%, over the past 12 months. The largest increases among the 25 largest managers last month were seen by Schwab, SSGA, Fidelity, BlackRock and Invesco, which grew assets by $15.3 billion, $14.8B, $11.9B, $9.4B and $7.9B, respectively. Declines in September were seen by American Funds, RBC and DWS, which decreased by $4.1 billion, $2.7B and $1.6B, respectively. Our domestic U.S. "Family" rankings are available in our MFI XLS product, our global rankings are available in our MFI International product. The combined "Family & Global Rankings" are available to Money Fund Wisdom subscribers. We review the latest market share totals, and look at money fund yields, which inched higher in September.
Over the past year through Sept. 30, 2023, Fidelity (up $248.5B, or 26.9%), Schwab (up $225.2B, or 106.7%), JPMorgan (up $197.9B, or 48.0%), Vanguard (up $85.6B, or 19.0%) and Federated Hermes (up $74.6B, or 21.9%) were the `largest gainers. Schwab, Fidelity, SSGA, JPMorgan and Federated Hermes had the largest asset increases over the past 3 months, rising by $43.4B, $42.7B, $42.4B, $33.7B and $20.6B, respectively. The largest declines over 12 months were seen by: American Funds (down $43.2B), HSBC (down $12.2B), T Rowe Price (down $1.2B), DFA (down $878M), and Morgan Stanley (down $385M). The largest decliners over 3 months included: Invesco (down $12.0B) and Goldman Sachs (down $7.9B).
Our latest domestic U.S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $1.173 trillion, or 19.3% of all assets. Fidelity was up $11.9B in September, up $42.7 billion over 3 mos., and up $248.5B over 12 months. JPMorgan ranked second with $610.4 billion, or 10.0% market share (up $4.2B, up $33.7B and up $197.9B for the past 1-month, 3-mos. and 12-mos., respectively). Vanguard ranked in third place with $536.1 billion, or 8.8% of assets (up $4.6B, up $12.8B and up $85.6B). BlackRock ranked fourth with $504.9 billion, or 8.3% market share (up $9.4B, up $6.0B and up $32.9B), while Schwab was the fifth largest MMF manager with $436.3 billion, or 7.2% of assets (up $15.3B, up $43.4B and up $225.2B for the past 1-month, 3-mos. and 12-mos.).
Goldman Sachs was in sixth place with $422.2 billion, or 6.9% (up $829M, down $7.9B and up $29.5B), while Federated Hermes was in seventh place with $414.9 billion, or 6.8% of assets (up $3.5B, up $20.6B and up $74.6B). Dreyfus ($264.8B, or 4.3%) was in eighth place (up $4.8B, up $7.2B and up $30.5B), followed by Morgan Stanley ($261.4B, or 4.3%; up $4.8B, down $1.9B and down $385M). SSGA was in 10th place ($202.9B, or 3.3%; up $14.8B, up $42.4B and up $14.1B).
The 11th through 20th-largest U.S. money fund managers (in order) include: Allspring (formerly Wells Fargo) ($190.2B, or 3.1%), American Funds ($172.6B, or 2.8%), Northern ($160.6B, or 2.6%), Invesco ($158.1B, or 2.6%), First American ($132.6B, or 2.2%), UBS ($94.6B, or 1.6%), T. Rowe Price ($48.3B, or 0.8%), HSBC ($41.5B, or 0.7%), DWS ($38.4B, or 0.6%) and Western ($26.7B, or 0.4%). Crane Data currently tracks 60 U.S. MMF managers, unchanged from 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 are the same as the domestic list, except: BlackRock moves up to the No. 3 spot, Goldman Sachs moves up to No. 4 and Vanguard moves down to the No. 5 spot. Schwab moves down to the No. 6 spot and Morgan Stanley moves up to the No. 8 spot while Dreyfus moves down to the No. 9 spot. 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 ($1.184 trillion), JP Morgan ($824.2B), BlackRock ($729.5B), Goldman Sachs ($564.3B) and Vanguard ($536.1B). Schwab ($436.3B) was in sixth, Federated Hermes ($425.9B) was seventh, followed by Morgan Stanley ($339.8B), Dreyfus/BNY Mellon ($286.9B) and SSGA ($243.6B), 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 October issue of our Money Fund Intelligence and MFI XLS, with data as of 9/30/23, shows that yields increased again in September across the Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 754), rose to 5.06% (up 1 bp) for the 7-Day Yield (annualized, net) Average, the 30-Day Yield increased to 5.05% (up 2 bps). The MFA's Gross 7-Day Yield rose to 5.34% (up 2 bps), and the Gross 30-Day Yield also moved up to 5.32% (up 2 bps). (Gross yields will be revised Tuesday at noon, though, once we download the SEC's Form N-MFP data for 9/30/23. Crane Data is closed Monday due to the Columbus Day Holiday.)
Our Crane 100 Money Fund Index shows an average 7-Day (Net) Yield of 5.18% (up 2 bps) and an average 30-Day Yield at 5.17% (up 2 bps). The Crane 100 shows a Gross 7-Day Yield of 5.25% (up 1 bp), and a Gross 30-Day Yield of 5.24% (up 2 bps). Our Prime Institutional MF Index (7-day) yielded 5.26% (up 1 bp) as of Sept. 30. The Crane Govt Inst Index was at 5.13% (up 1 bp) and the Treasury Inst Index was at 5.12% (up 2 bps). Thus, the spread between Prime funds and Treasury funds is 14 basis points, and the spread between Prime funds and Govt funds is 13 basis points. The Crane Prime Retail Index yielded 5.08% (up 2 bps), while the Govt Retail Index was 4.85% (up 2 bps), the Treasury Retail Index was 4.88% (up 1 bp from the month prior). The Crane Tax Exempt MF Index yielded 3.69% (down 11 bps) as of September.
Gross 7-Day Yields for these indexes to end September were: Prime Inst 5.43% (up 1 bp), Govt Inst 5.36% (up 1 bp), Treasury Inst 5.34% (up 1 bp), Prime Retail 5.39% (up 2 bps), Govt Retail 5.30% (up 1 bp) and Treasury Retail 5.12% (up 1 bp). The Crane Tax Exempt Index fell to 2.86% (down 8 bps). The Crane 100 MF Index returned on average 0.42% over 1-month, 1.28% over 3-months, 3.54% YTD, 4.44% over the past 1-year, 1.67% over 3-years (annualized), 1.59% over 5-years, and 1.01% over 10-years.
The total number of funds, including taxable and tax-exempt, was up 4 in September to 883. There are currently 754 taxable funds, up 4 from the previous month, and 129 tax-exempt money funds (unchanged from last month). (Contact us if you'd like to see our latest MFI XLS, Crane Indexes or Market Share report.)
The October issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Friday morning, features the articles: "Money Funds Still Eating Bank Deposits' Lunch; Trillion Shift," which reviews the dramatic move in assets into MMFs; "Cash Spirits High at European MF Symposium in Edinburgh," which quotes sessions from our recent offshore conference; and, "Worldwide MMFs Jump in Q2'23, Just Shy of $10 Trillion," which reviews the shifts in MMF assets around the world. We also sent out our MFI XLS spreadsheet Friday a.m., and we've updated our Money Fund Wisdom database with 9/30/23 data. Our October Money Fund Portfolio Holdings are scheduled to ship on Wednesday, October 11, and our October Bond Fund Intelligence is scheduled to go out on Monday, October 16. (Note: Crane Data and U.S. money market funds will be closed for the Columbus Day Holiday Monday, Oct. 9.)
MFI's "Money Funds Still Eating" article says, "Money market mutual fund assets continued to surge higher in September, and bank deposits continued to decline. MMFs hit a record $6.095 trillion last month (and broke the $6.1 trillion level on 10/3), while deposits declined to $17.3 trillion (as of 9/20/23). Year to date, MMFs have increased by $922.5 billion, or 18.3%, and over the past year they've jumped by $1.049 trillion, or 21.3%. (Bank deposits have fallen by $701.3 billion since 8/22.)
It continues, "Barron's writes, 'Bank Deposits Plunged in the Past Year. Schwab Took the Biggest Hit.' They comment, 'Banks have had an unusually rough year. Just how bad is evident in a new report from S&P Global Market Intelligence. Total deposits across U.S. banks fell 4.8%, or $872 billion, to $17.27 trillion as of June 30, according to S&P Global. The drop was the first in a data set that dates back to 1994. Among the top 15 deposit holders, Charles Schwab reported the largest year-over-year decrease in deposits of 31.1% to $304.79 billion, according to S&P Global which attributed the decline mostly to outflows from brokerage accounts.'"
We write in our Cash Spirits High article, "Crane Data recently hosted its 9th annual European Money Fund Symposium in Edinburgh, Scotland, which featured two days of discussions on offshore money funds denominated in USD, EUR and GBP. Veronica Iommi, Secretary General of IMMFA, the Institutional Money Market Funds Association, presented on 'The State of MMFs in Europe,' and told the audience, 'Let's take a look at the current money market fund landscape.... Total money market fund assets under management in Europe at the end of June were €1.5 trillion euro equivalent, according to the ECB.... The industry is growing very strongly. In fact, it's almost doubled in the last 10 years.'"
It continues: "She explains, 'Approximately 40% ... of the market is predominantly VNAV funds, and these are mostly euro-denominated French, Standard funds. The other 60% consist of IMMFA funds (Short-Term, AAA-rated) and they're shown by currency. U.S. dollar accounts for the largest share, followed by sterling and then euro.... So the two segments of the European markets [are] VNAV, domiciled and largely sold in France, and IMMFA funds, overwhelmingly stable NAV, now domiciled in Ireland and Luxembourg, and sold across Europe and globally.'"
Our "Worldwide MMFs" piece states, "ICI's 'Worldwide Regulated Open-Fund Assets and Flows, Second Quarter 2023' shows that money fund assets globally jumped by $257.9 billion, or 2.7%, in Q2'23 to $9.719 trillion. The increases were led by a sharp jump in money funds in U.S., while India, France, Mexico and Luxembourg also rose. Meanwhile, money funds in China and Ireland were lower. MMF assets worldwide increased by $1.237 trillion, or 14.6%, in the 12 months through 6/30/23, and money funds in the U.S. now represent 56.1% of worldwide assets."
It explains, "ICI's release says, 'Worldwide regulated open-end fund assets increased 3.1% to $65.07 trillion at the end of the second quarter of 2023, excluding funds of funds. Worldwide net cash inflow to all funds was $461 billion in the second quarter, compared with $667 billion of net inflows in the first quarter of 2023. The Investment Company Institute compiles worldwide regulated open-end fund statistics on behalf of the International Investment Funds Association (IIFA).... The collection for the second quarter of 2023 contains statistics from 46 jurisdictions."
MFI also includes the News brief, "Dreyfus Launches SPARK Shares. A press release, 'Dreyfus Launches SPARK Shares of Dreyfus Government Cash Management,' tells us, 'The share class allows clients to drive change with their liquidity investments by directing a donation to an eligible non-profit organization of their choice.'"
Another News brief, "MarketWatch: Inst to Join MMF Inflows. Their piece, says, 'Like Taylor Swift, assets in money-market funds keep setting records this year. But a key group of investors [institutions] isn't even leading the charge, said Deborah Cunningham, CIO, global liquidity markets at Federated Hermes.'"
A third News brief, "Morgan Stanley Liquidates Tax-Exempts," says, "Two recent Prospectus Supplements announced the liquidations of Morgan Stanley California Tax-Free Daily Income Trust and Morgan Stanley Tax-Free Daily Income Trust."
A sidebar, "Bloomberg: MFs Rake in Cash," says, "Bloomberg published, 'The Higher-for-Longer Interest-Rate Bonanza,' which is subtitled, 'With yields passing 5%, money-market funds rake in cash while banks fail to keep pace.' They tell us, 'With the US Federal Reserve keeping interest rates pinned around zero for most of the past 15 years, depositors grew resigned to earning virtually nothing on their cash.... A turning point came in the spring. Thanks to the Fed's inflation-fighting interest-rate hikes, people started to see they could earn 4% or more on their money.'"
Our October MFI XLS, with September 30 data, shows total assets increased $77.8 billion to a record $6.095 trillion, after increasing $104.2 billion in August, $21.0 billion in July, $20.3 billion in June, $152.7 billion in May, $56.5 billion in April, $345.1 billion in March, $56.0 billion in February, $22.5 billion in January, $70.2 billion in December and $55.4 billion in November. MMFs rose $42.2 billion last October.
Our broad Crane Money Fund Average 7-Day Yield was up 2 bps to 5.06%, and our Crane 100 Money Fund Index (the 100 largest taxable funds) was up 2 bps to 5.18% in September. On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA and the Crane 100 both were both higher at 5.34% and 5.25%, respectively. Charged Expenses averaged 0.37% and 0.27% for the Crane MFA and the Crane 100. (We'll revise expenses on Tuesday once we upload the SEC's Form N-MFP data for 9/30/23.) The average WAM (weighted average maturity) for the Crane MFA was 27 days (up 3 days from previous month) and the Crane 100 WAM was also up 3 at 26 days. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
In Federated Hermes' latest monthly update, "Changing the game plan," Global Liquidity CIO Deborah Cunningham writes, "The September FOMC meeting was the latest case of the Federal Reserve moving its policy goal posts. (It's college football season, so allow me some analogies!) In their new Summary of Economic Projections (SEP), policymakers yet again increased the level they think the fed funds rate will reach in the near future. Their median projections rose by 50 basis points from June's forecast to 5.1% and 3.9% in 2024 and 2025, respectively. It's another in a string of dot-plot increases since they finally got serious about inflation roughly two years ago." (Note: Money market mutual fund assets broke $6.1 trillion for the first time ever Tuesday, rising $49.2 billion in the week ended 10/3 to a record $6.108 trillion, according to our Money Fund Intelligence Daily. Prime Retail MMFs surpassed Prime Inst MMFs for the first time since late 2016. Watch for more in Friday's MFI newsletter.)
She says, "It's understandable policymakers wanted to avoid shocking the markets with predictions that rates would have to surge to tackle inflation. But this 'three yards and a cloud of dust' approach has confused investors and traders, leading them to doubt the Fed one month and believe it the next. It has happened again following the September meeting. Despite the new dot plot indicating FOMC members expect to raise the target range by another 25 basis points this year, Treasuries futures have priced in a pause in November, with cuts to follow in the mid 2024."
Cunningham continues, "While rising rates tend to benefit liquidity products, the ever-shifting SEP has often blocked entire sections of the Treasury yield curve from useful trading. That's occurring now. If you believe, as we do, that rates will climb further, value is hard to find along the yield curve. In particular, it has been difficult to find worthwhile trades for securities maturing longer than three months. The yields are simply not high enough. Thankfully, the various prime curves have tracked the Fed better, one of the reasons for the continuing flows into retail prime funds."
She comments, "We are inclined to accept the Fed's message of high-for-longer. A month's worth of data could change our minds. But at present, we expect a quarter-point hike in November and don't envision easing to take place until 2025, or late 2024 at the earliest. The U.S. economy has been exhibiting signs of slowing but not of rolling over. Consumers and workers remain in positions of strength, and goods and services sectors are hanging in there. Inflation is falling, but the closer you get to the endzone, the harder it is to advance. The game is far from over."
Finally, Federated says under the heading, "Money markets funds free at last," "We have been celebrating for two months, but today is the first without the two SEC rules from 2014 that caused so much damage to the money fund industry. The new regulations passed in July removed the potential imposition for redemption gates, as well as the link between weekly liquid assets and potential fees on prime and municipal money market funds. We continue to anticipate retail clients and sweep accounts will return to these products for their attractive yield potential and other advantages."
In other news, BNP Paribas Asset Management's recently posted a "Viewpoint" podcast which discusses money market funds. Daniel Morris says, "Hello and welcome to the BNP Paribas Asset Management Talking Heads podcast. Every week, Talking Heads will bring you in-depth insights and analysis on the topics that really matter to investors. In this episode, we'll be discussing money markets. I'm Daniel Morris, Chief Market Strategist and I'm joined today by Thibault Malin, Investment Specialist. Welcome, Thibault, thanks for joining me."
Morris tells us, "For many markets, in terms of the uncertainties around central bank policy rates, recession (or not), rate cutting (or not) this year has been more challenging than normal. If we think about how money market funds have responded to this environment so far, they've reacted to the rate hikes delivered by the central banks, but the concern is now if and when rates start to decrease, how is that going to affect the performance of money market funds?"
Malin responds, "It is true that money market funds' performance is highly correlated with the rate environment as they are very short-term products. Their rate and credit durations, however, are managed actively, which means that whatever the economic and rate environment, portfolio managers have ways of adding value versus their benchmarks. This is a strength of money market funds. If we look at periods like 2014 to 2016, when the European Central Bank had to cut its rates below zero, money market funds were able to respond to this through active management of their rate and credit durations."
He adds, "We do not anticipate rate cuts in the coming months -- it may happen in 2024. If rates start to fall, we will adapt our investment strategies to seek to continue to outperform our benchmarks, even in a negative rate environment."
Morris then asks, "Alongside predicting what's going to happen with short-term interest rates, there is an entire regulatory framework that affects money market funds. How will that evolve in the months and year ahead?"
Malin comments, "The current regulation entered into force in 2019 and was scheduled for review in 2022. This summer -- one year late due to the geopolitical conflicts that the European Commission (EC) had to deal with -- the EC released its report on the functioning of the money market fund regulation. The idea was to review whether money market funds' liquidity was sufficient to meet all the requirements alongside their rate credit durations. With the challenging environment we have had over the past four years -- the real-life stress test of the Covid crisis, the liquidity crisis in March 2020, the changing policy rate paradigm across the euro, sterling and US dollar, and the credit stress in 2023 after the US regional banks crisis -- the regulators had many indicators to analyse."
He summarizes, "It appears that the regulators now deem money market funds resilient enough to continue to be sold and to perform under the current regulation. More indicators may be added after the end of the current EC presidency at the end of 2024; there could be another review that might add new liquidity requirements for money market funds. But as of now, it seems regulators and asset managers agree that money market funds are extremely resilient."
Morris also queries, "When the central banks do eventually start cutting policy rates, are we likely to see redemptions from money market funds as soon as that starts?" Malin replies, "It is true that money market funds have received subscriptions since we have had positive rates -- in particularly high rates -- but not that much, actually. We had a lot of subscriptions as soon as we entered the positive rate environment at the end of 2022, but this year, from January to August, we had about EUR 70 billion-worth of inflows into European money market funds across all currencies. That is not so high considering it is a market that totals more than EUR 1,600 billion."
He tells the podcast, "Many types of clients, such as insurance companies and asset managers, have subscribed to money market funds for different reasons. They have found money market funds attractive in a situation where we have an inverted yield curve, making it potentially better to invest for the short run as it currently outperforms long-term investments. These investors have started to redeem money market funds over the past few weeks to invest back in medium or long-term assets as we approach the end of this hiking cycle."
Malin continues, "However, it is important to mention that even if policy rates are cut in 2024 or 2025, it is unlikely that we will get back to the rate environment of early 2022, which should mean that money market funds remain attractive in terms of potential performance, even compared to other medium or long-term products, and to all type of clients. In the current environment, we are still seeing many clients with a renewed interest in money market funds, particularly the retail and private banking sectors, where it generally takes more time to adapt to the different economic cycles."
Early last week, Crane Data hosted its 9th annual European Money Fund Symposium in Edinburgh, Scotland, which featured two days of discussions on offshore money funds denominated in USD, EUR and GBP. Today, we quote from the Senior Portfolio Manager Perspectives panel, which was moderated by Dan Singer of J.P. Morgan Securities and which featured Douglas McPhail of Morgan Stanley Investment Management and Ketan Shah of Legal & General Investment Management. They reviewed the highlights and issues in European money funds over the past year and discussed their latest portfolio strategies. (Note: Thanks again to those who attended and supported European MFS! Mark your calendars for next year's show, which will be Sept. 19-20, 2024 in London, England.)
Singer says, "So a lot's happened over this past year.... During the Crane's conference last year, the UK was going through a mini budget and gilt crisis. Subsequently we've seen a significant amount of rate hikes in all three major currencies. On top of that, the failure of a U.S. bank in SVB, the failure of a European institution in Credit Suisse.... It's not been exactly the easiest year to navigate. So we're going to kick off there. Ketan, you manage a large sterling fund. Talk to us a little bit about the past year."
Shah replies, "For the past 18 to 20 months, the general feeling is that it's been a great period for money market funds, though not without its challenges, especially the client base given the rapid hiking cycle we've been through.... We've been able to pass through the rates to our clients quickly.... The lag between our benchmark, SONIA, and [our fund] is measured in weeks, so clients have been able to see that benefit quite quickly. It feels now we're coming to the end of that cycle. I think last week was a bit surprising in that the market effectively gave the Bank of England the 25 basis point hike, but they chose not to do it.... It feels like we're now at a level where we're going to stay here for long period."
McPhail comments, "In terms of the euro funds ... our client base is actually seeing the benefit of money market funds through that period. Having a single name counterparty risk in terms of having a cash at a bank obviously carries a high degree of risk. So we've seen a lot of flows coming into our portfolios from sectors of the market that we've not really seen before and from countries that we've not really seen before. They are starting to see the diversification benefits of being in a money market fund, and obviously a very competitive yield."
He continues, "We saw that in terms of overnight deposit rates, it's not really been passed on to corporate deposits, whereas money market funds have been able to pass on those rates very quickly through this hiking cycle, particularly for the euro market where you've gone through a period where the market has probably underpriced what the ECB was going to do.... So running portfolios very, very short has been definitely the way forward, targeting maintenance periods and allowing as much of the portfolio to roll into new, higher yielding assets as soon as you start a new maintenance period. This has been key because you simply aren't being compensated for taking any sort of long-term exposures with inadequate yield curve steepening ahead of these meetings."
McPhail tells us, "Going to go back to March 2020 when we saw a significant amount of market disruption, we had a lot of clients coming through that negative yielding period who were simply chasing zero or just chasing positive yields. So a lot of their cash positions were held in probably inappropriate products ... in longer-dated products, in short duration bond products. They were chasing zero effectively ... when that market kind of really blew up. You saw credit spreads widen quite significantly. A lot of those cash positions started showing significant mark-to-market losses."
He adds, "So we probably saw more cash flows coming into the portfolios off the back of that, as people realized that, ... having that shorter duration is not necessarily always a bad thing. And ... we've been able to carry our client base with us through the hiking cycle. As I said earlier, because of the lack of [diversity in] deposits ... you're starting to see jurisdictions that we've perhaps never seen in money markets before coming into our products."
On the investor base, Shah states, "I think we've just seen a renewed interest in money funds from, I guess you would call our core client types. So, you know, corporate treasuries, local authorities. I think there's just a renewed interest now that rates are ... more reflective of the interest rate environment. We've also seen -- [though] it's quite a small -- [interest in] retail funds, about L2.7 billion. That's actually gone up about 25% this year. So we are starting to see a bit of traction there as well.... I think it's a product that been on the shelf for so long, that maybe with a renewed sales focus, we might see a lot more growth there."
Singer adds, "My experience, moving to France in the last two years.... There is a significant amount of retail interest there.... For instance, when I opened up my bank account with HSBC, in terms of the suite of offerings, there is an option to put it into a money market fund.... In the U.K., it's just not as institutionalized in terms of the retail psyche.... The structure of the U.K. market, it seems a bit more, you know, the National Savings Fund or you know, the one-year fixed rate from X, Y or Zed Bank."
He comments on money funds in Europe, "We've definitely seen a greater interest from a broader range of investors -- asset managers, private banks, corporate treasuries, and also government accounts, central bank accounts for a variety of reasons. I'd say probably in the corporate treasury side it's just generally net interest.... You're starting to see a lot more diversification, I guess, in terms of the interest in in money markets as an asset class."
Finally, when asked about supply, Shah answers, "The universe for liquidity funds is quite finite. So from an overnight perspective, we have time deposits and overnight reverse repo.... I probably split it 50-50 between overnight repo and time deposits.... We're staring to see competition for overnight deposits.... That's probably a dynamic we haven't seen for ten years, so it's nice to see that dynamic come back in.... Obviously, the bulk of what we do is in CP, CD issuance, and from a credit perspective, variable rate MTNs [based off] SONIA. That market's a bit more interesting."
A press release entitled, "BrightScope/ICI Data Show 401(k) Plans Offering Wide Array of Diversified and Cost-Effective Investment Options" tells us, "Employers play a significant role in designing diverse investment lineups in 401(k) plans, according to an updated study from BrightScope, an ISS Market Intelligence business, and the Investment Company Institute (ICI)." The full study, "The BrightScope/ICI Defined Contribution Plan Profile: A Close Look at 401(k) Plans, 2020," contains a number of mentions of money market funds and shows that GICs and money funds account for just 8% of 401(k) plan assets. They write, "When designing their 401(k) plans, employers choose the number and types of investment options in the plan, looking for a diverse range of options. This study also explores the investment menus that employers have chosen for 401(k) plans in the BrightScope Defined Contribution Plan Database and how investments vary by plan size. The BrightScope Defined Contribution Plan Database contains detailed information from audited Form 5500 reports for nearly 60,000 large private-sector 401(k) plans -- plans with between four and 100 investment options and typically 100 participants or more."
The study says, "In 2020, the average large 401(k) plan offered 28 investment options, of which about 13 were equity funds, three were bond funds, and nine were target date funds. Nearly all plans offered at least one domestic equity fund, international equity fund, and domestic bond fund, and 87 percent of plans offered target date funds. Funds include mutual funds, collective investment trusts (CITs), separate accounts, and other pooled investment products."
It explains, "Mutual funds were the most common investment vehicle in 401(k) plans. Mutual funds held 40 percent of large private-sector 401(k) plan assets in the sample in 2020. CITs held 38 percent of assets, guaranteed investment contracts (GICs) held 6 percent, separate accounts held 3 percent, and the remaining 12 percent were invested in individual stocks (including company stock), individual bonds, brokerage, and other investments. Mutual funds accounted for at least half of the assets in all but the very largest plans, where a larger share of assets was held in CITs."
ICI writes, "Equity funds accounted for the largest share of assets in 401(k) plans. In 2020, 42 percent of large 401(k) plan assets were held in equity funds, 30 percent were held in balanced funds (with most of that being held in target date funds), and 8 percent were held in bond funds. GICs and money funds accounted for 8 percent of assets."
They say, "Domestic equity funds, international equity funds, and domestic bond funds -- all of which include both index and actively managed funds -- were the most likely investment options to be offered in large 401(k) plans in 2020. Nearly all large plans offered these types of funds, which can be mutual funds, collective investment trusts (CITs), or separate accounts.... Nearly 90 percent of large plans offered target date funds, and nearly 60 percent offered non–target date balanced funds. Forty-five percent of large 401(k) plans offered money funds, and 71 percent offered guaranteed investment contracts (GICs)."
The survey states, "In 2020, large 401(k) plans included three bond funds (mostly domestic, including both index and actively managed funds) in their investment lineups, on average.... Plans also offered money funds, GICs, and other options. These investments were not offered as widely ... and were often included as the single choice in that investment type.... Larger 401(k) plans tended to be somewhat more likely to offer these options and offered more of these funds when including that investment category."
It continues, "Similarly, domestic bond funds are widely available, offered in 98.0 percent of large 401(k) plans in 2020, but, on average, three domestic bond funds (including both index and actively managed funds) are offered in large 401(k) plans including that investment type. Forty-five percent of large 401(k) plans offer one money fund on average, and about 70 percent of large 401(k) plans offer one GIC on average. About 95 percent of large 401(k) plans in 2020 had index funds in their investment lineups, offering nine index funds on average."
Brightscope/ICI also comment, "Although employers choose the investment options offered in 401(k) plans, participants generally choose where to allocate the money in their accounts among the available options. In 2020, equity funds (including both index and actively managed funds) held the largest share (42.0 percent) of large 401(k) plan assets in the BrightScope database, with the bulk invested in domestic equity funds.... Balanced funds held the next largest share, with 30.2 percent of large 401(k) plan assets, which was divided between target date funds (28.0 percent of assets) and non–target date balanced funds (2.2 percent of assets). Other investments (which include company stock) followed with 12.4 percent of assets, then bond funds (mostly domestic) with 7.5 percent of assets. GICs held 6.4 percent of assets, and money funds held 1.5 percent."
A footnote here states, "Asset allocation in the BrightScope Defined Contribution Plan Database is broadly similar to the EBRI/ICI 401(k) database. At year-end 2020, the EBRI/ICI 401(k) database shows that equity funds held 41.8 percent of assets; balanced funds held 34.7 percent; bond funds held 8.7 percent; money funds held 0.9 percent; GICs and other stable value funds held 5.6 percent; and company stock, other, and unknown assets accounted for the remaining 7.2 percent of assets."
Discussing expenses, the survey says, "The average expense ratio for domestic bond mutual funds (including both index and actively managed funds) was lower than the average expense ratio for domestic equity mutual funds (0.34 percent of assets for domestic bond mutual funds compared with 0.39 percent of assets for domestic equity mutual funds), but expense ratios for international bond mutual funds were higher than those for international equity mutual funds (0.52 percent of assets for international bond mutual funds and 0.50 percent of assets for international equity mutual funds) in 2020.... Balanced mutual funds, which invest in a mix of equity and fixed-income securities, tend to have expense ratios that reflect the share of their investments in the different asset categories. Money market mutual funds had the lowest expense ratio of any of the asset classes with an asset-weighted average expense ratio of 0.19 percent of assets in 2020 for money market mutual funds in large 401(k) plans."
It adds, "Asset-weighted average mutual fund expenses decreased for the consistent 401(k) plans as a group and across all plan size asset and mutual fund investment categories. This is similar to the analysis of snapshots of 401(k) plans over time. For example, the asset-weighted average expense ratio for domestic equity mutual funds (including both index and actively managed funds) among 401(k) plans in the database every year between 2009 and 2020 decreased from 0.65 percent of assets in 2009 to 0.39 percent of assets in 2020, a decline of 26 basis points.... The asset-weighted average expense ratio for international equity mutual funds fell 35 basis points, from 0.84 percent in 2009 to 0.49 percent in 2020, and money market mutual fund expenses fell by 11 basis points, from 0.30 percent in 2009 to 0.19 percent in 2020. The asset-weighted average expense ratio for target date mutual funds decreased from 0.61 percent in 2009 to 0.36 percent in 2020 in these consistent 401(k) plans." (For more on "MMFs in Retirement Plans," see the last section of our Sept. 20 News.)
The Securities and Exchange Commission's latest monthly "Money Market Fund Statistics" summary shows that total money fund assets increased by $114.2 billion in August to a record high of $6.073 trillion. The SEC shows Prime MMFs jumping $18.5 billion in August to $1.259 trillion, Govt & Treasury funds increased $92.2 billion to $4.692 trillion and Tax Exempt funds increased $3.5 billion to $122.6 billion. Taxable yields jumped again in August after moving higher in July. The SEC's Division of Investment Management summarizes monthly Form N-MFP data and includes asset totals and averages for yields, liquidity levels, WAMs, WALs, holdings, and other money market fund trends. We review their latest numbers below. (Month-to-date in September through 9/27, total money fund assets have increased by $52.5 billion to $6.032 trillion, according to our separate, and slightly smaller, MFI Daily series.) (Note: Thank you to everyone who joined us at our European Money Fund Symposium last week in Edinburgh. Mark your calendars for next year's European MFS, which is scheduled for Sept. 19-20, 2024 in London.)
August's overall asset increase follows an increase of $28.8 billion in July, $19.6 billion in June, $156.6 billion in May, $49.9 billion in April, $364.4 billion in March, $52.1 billion in February, $53.2 billion in January, $54.8 billion in December, $48.5 billion in November and $35.6 billion in October. Assets decreased $9.4 billion last September. Over the 12 months through 8/31/23, total MMF assets have increased by $968.4 billion, or 19.0%, according to the SEC's series.
The SEC's stats show that of the $6.073 trillion in assets, $1.259 trillion was in Prime funds, up $18.5 billion in August. Prime assets were up $28.9 billion in July, $11.0 billion in June, $13.7 billion in May, $36.0 billion in April, down $22.2 billion in March, up $35.4 billion in February, $86.2 billion in January, $10.5 billion in December, $28.0 billion in November, $36.6 billion in October, $15.8 billion in September and $43.5 billion in August. Prime funds represented 20.7% of total assets at the end of August. They've increased by $298.5 billion, or 31.1%, over the past 12 months. (Note that the SEC's series includes a number of internal money funds not tracked by ICI, though Crane Data includes most of these assets in its collections.)
Government & Treasury funds totaled $4.692 trillion, or 77.3% of assets. They increased $92.2 billion in August, $3.1 billion in July, $4.9 billion in June, $137.4 billion in May, $19.3 billion in April, $387.9 billion in March, $16.1 billion in February, decreased $33.2 billion in January and increased $41.3 billion in December and $23.1 billion in November. Govt MMFs decreased $12.8 billion in October, $20.8 billion in September and $47.1 billion in August. Govt & Treasury MMFs are up $658.5 billion over 12 months, or 16.3%. Tax Exempt Funds increased $3.5 billion to $122.6 billion, or 2.0% of all assets. The number of money funds was 293 in August, unchanged from the previous month and down 11 funds from a year earlier.
Yields for Taxable and Tax Exempt MMFs both moved higher in August. The Weighted Average Gross 7-Day Yield for Prime Institutional Funds on Aug. 31 was 5.46%, up 11 bps from the prior month. The Weighted Average Gross 7-Day Yield for Prime Retail MMFs was 5.53%, up 10 bps from the previous month. Gross yields were 5.39% for Government Funds, up 7 basis points from last month. Gross yields for Treasury Funds were up 8 bps at 5.39%. Gross Yields for Tax Exempt Institutional MMFs were up 33 basis points to 4.32% in August. Gross Yields for Tax Exempt Retail funds were up 42 bps to 4.14%.
The Weighted Average 7-Day Net Yield for Prime Institutional MMFs was 5.40%, up 11 bps from the previous month and up 311 basis points from 8/31/22. The Average Net Yield for Prime Retail Funds was 5.26%, up 9 bps from the previous month, and up 303 bps since 8/31/22. Net yields were 5.15% for Government Funds, up 7 bps from last month. Net yields for Treasury Funds were up 8 bps from the previous month at 5.17%. Net Yields for Tax Exempt Institutional MMFs were up 33 bps from July to 4.21%. Net Yields for Tax Exempt Retail funds were up 42 bps at 3.89% in August. (Note: These averages are asset-weighted.)
WALs and WAMs were mostly mixed in August. The average Weighted Average Life, or WAL, was 43.8 days (down 0.4 days) for Prime Institutional funds, and 47.0 days for Prime Retail funds (up 8.1 days). Government fund WALs averaged 68.1 days (up 0.5 days) while Treasury fund WALs averaged 58.1 days (up 2.9 days). Tax Exempt Institutional fund WALs were 8.4 days (down 1.1 days), and Tax Exempt Retail MMF WALs averaged 22.6 days (up 1.8 days).
The Weighted Average Maturity, or WAM, was 22.1 days (up 1.2 days from the previous month) for Prime Institutional funds, 25.3 days (up 4.2 days from the previous month) for Prime Retail funds, 24.8 days (down 0.2 days from previous month) for Government funds, and 23.4 days (up 1.5 days from previous month) for Treasury funds. Tax Exempt Inst WAMs were down 0.6 days to 8.4 days, while Tax Exempt Retail WAMs were up 2.2 days from previous month at 21.8 days.
Total Daily Liquid Assets for Prime Institutional funds were 53.1% in August (up 0.7% from the previous month), and DLA for Prime Retail funds was 43.3% (up 0.5% from previous month) as a percent of total assets. The average DLA was 71.2% for Govt MMFs and 97.4% for Treasury MMFs. Total Weekly Liquid Assets was 66.6% (down 0.6% from the previous month) for Prime Institutional MMFs, and 60.9% (down 1.3% from the previous month) for Prime Retail funds. Average WLA was 83.0% for Govt MMFs and 99.4% for Treasury MMFs.
In the SEC's "Prime Holdings of Bank-Related Securities by Country table for August 2023," the largest entries included: the U.S. with $137.3B, Canada with $131.0 billion, Japan with $117.2 billion, France with $94.0 billion, the Netherlands with $43.0B, the U.K. with $41.4B, Germany with $36.9B, Aust/NZ with $23.5B and Switzerland with $9.5B. The gainers among the "Prime MMF Holdings by Country" included: the U.S. (up $14.1B), Japan (up $11.8B), Canada (up $7.0B), Switzerland (up $1.4B) and Germany (up $0.3B). Decreases were shown by: Netherlands (down $4.1B), Aust/NZ (down $2.3B), France (down $1.2B) and the U.K. (down $1.0B).
The SEC's "Prime Holdings of Bank-Related Securities by Region" table shows The Americas had $268.3 billion (up $21.1B), while Eurozone had $195.4B (down $6.4B). Asia Pacific subset had $164.5B (up $10.4B), while Europe (non-Eurozone) had $110.3B (up $3.7B from last month).
The "Prime MMF Aggregate Product Exposures" chart shows that of the $1.253 trillion in Prime MMF Portfolios as of Aug. 31, $545.2B (43.5%) was in Government & Treasury securities (direct and repo) (up from $545.1B), $326.6B (26.1%) was in CDs and Time Deposits (up from $306.5B), $183.9B (14.7%) was in Financial Company CP (up from $179.6B), $138.2B (11.0%) was held in Non-Financial CP and Other securities (up from $138.0B), and $58.6B (4.7%) was in ABCP (down from $60.1B).
The SEC's "Government and Treasury Funds Bank Repo Counterparties by Country" table shows the U.S. with $292.2 billion, Canada with $160.4 billion, France with $167.3 billion, the U.K. with $112.5 billion, Germany with $25.9 billion, Japan with $113.4 billion and Other with $41.8 billion. All MMF Repo with the Federal Reserve was down $188.0 billion in August to $1.565 trillion.
Finally, a "Percent of Securities with Greater than 179 Days to Maturity" table shows Prime Inst MMFs 6.1%, Prime Retail MMFs with 7.3%, Tax Exempt Inst MMFs with 0.5%, Tax Exempt Retail MMFs with 4.1%, Govt MMFs with 13.4% and Treasury MMFs with 8.0%.
