Below we list a number of links to websites which may be of interest to money market and mutual fund professionals and investors. If you have a money fund-related website or a link we're missing, please submit it to: links@cranedata.com.
A new posting entitled, "How Do Prime MMFs Manage Their Liquidity Buffers?" written by SEC staffers Viktoria Baklanova, Isaac Kuznits and Trevor Tatum, tells us, "Based on data filed by money market funds (MMFs) on Form N-MFP, this article offers insights about the composition of prime MMFs' liquidity buffers. The analysis shows that prime MMFs mainly rely on government securities and repos to meet their daily and weekly liquidity thresholds. Prime MMFs' investments in government securities increased during the pandemic, reaching an all-time high of 38% of their portfolios in August 2020." (Note: Thanks to those who attended our Money Fund Wisdom Product Training webinar Tuesday. For those that missed it, you can see the replay here.) They explain, "Many investors use MMFs to manage their liquidity needs given that MMFs invest in short-term, high- quality debt securities that, under normal market conditions, exhibit limited price volatility. MMFs typically provide somewhat better returns than holding assets in cash. Institutional investors, in particular, make significant subscription and redemption requests on a frequent basis, especially during stressed market conditions. To meet investor needs for liquidity, MMFs are expected to hold a sufficient amount of assets that can be quickly converted to cash. Since 2010, SEC rules have included minimum liquidity requirements for MMFs, including a minimum of 10% of investments in daily liquid assets (DLA) and a minimum of 30% of investments in weekly liquid assets (WLA). MMFs report the size of their DLA and WLA to the public daily on their websites. MMFs also report these metrics to the SEC monthly on Form N-MFP. Using these data, this article examines the composition of prime MMFs' daily and weekly liquidity buffers from October 2016 through May 2021, a period that includes the heightened market volatility in March 2020 and the economic uncertainty that followed." The SEC piece states, "If an MMF's portfolio falls below the 10% DLA or 30% WLA threshold, it may not acquire any assets other than DLA or WLA until these thresholds are met. A prime MMF may impose liquidity fees or temporarily suspend redemptions if the fund's WLA declines below 30% of its total assets. To date, no MMF has used these tools. On average, prime MMFs have historically maintained DLA and WLA well above the regulatory minimums." It continues, "DLA are expected to be readily available to meet investor redemptions and generally include cash and securities that mature within one business day (or have a daily demand feature). In addition, MMF holdings of Treasury securities qualify as having daily liquidity. WLA include cash, securities that mature within five business days (or that funds can redeem for cash within one week), Treasury securities, and certain government agency securities with remaining maturities under 60 days." The piece says, "Prime MMFs can invest in a broad range of short-term, high quality fixed-income instruments such as U.S. Treasury bills, federal agency notes, bank obligations such as certificates of deposit (CD) or time deposits (TD), commercial paper (CP), repos, and obligations of states, cities, or other types of municipal agencies. Because many of these assets do not qualify as daily or weekly liquid assets, unexpected and rapid shareholder redemptions from a fund may cause DLA or WLA to fall below their regulatory minimums. For example, at the onset of the pandemic in March 2020, investors withdrew $125 billion from prime MMFs causing a general reduction of WLA, which approached the 30% threshold for some funds and fell below 30% in one case. However, according to Form N-MFP filings, no prime MMF reported DLA declining below the 10% threshold in March 2020, suggesting that these funds maintained available liquidity to meet daily redemptions up to 10% of the funds' total assets." It adds, "The data show that nearly all prime MMF investments in repos have historically been used to meet DLA and WLA thresholds.... In addition, most prime MMF investments in government securities are used as WLA.... In contrast, only a small portion of total CP investments by prime MMFs are used as DLA (5% of the total CP investments, on average) and WLA (11% of the total CP investments, on average) (Figure 10). Lastly, only 18% of prime MMF investments in banks' CD and TD, on average, are used as DLA and 22% of these investments, on average, are used as WLA." In other news, The Wall Street Journal writes, "Assets in Ant Group's Flagship Money-Market Fund Tumble to 2016 Levels." The article explains, "Assets under management at Ant Group Co.'s highly popular money-market fund fell to their lowest level in years after pressure from China's regulators forced the company to sit out an industrywide boom. Data for the second quarter, released Wednesday, showed that the Tianhong Yu'e Bao money-market fund had the equivalent of $120.4 billion of assets at the end of June, down 20% percent from three months earlier to a level last seen in late 2016. Last autumn, before Chinese regulators forced Ant to call off its blockbuster initial public offering, the giant fund had more than $180 billion in assets under management." It tells us, "At its peak in early 2018, the fund managed assets totaling 1.69 trillion yuan, the equivalent of $260.6 billion at present exchange rates, and was the largest such vehicle in the world. It used to produce returns far in excess of Chinese bank deposit rates by buying bank certificates of deposit and other higher-yielding products. Its rapid growth and large size drew regulatory scrutiny at the time, leading Ant to impose investment caps and open up its Yu'e Bao money-market investing platform to rival products. The caps were subsequently scrapped after the giant fund started shrinking and losing investors to other funds." The Journal states, "More recently, the original Tianhong Yu'e Bao fund has come under fresh pressure. In April this year, as part of a five-point overhaul of Ant, Chinese financial regulators ordered Ant to reduce the flagship fund’s assets under management further. Officials said the fund, which serves hundreds of millions of small investors, would need to shrink to avoid posing a risk to the financial system, though they didn't specify an appropriate size for it, people familiar with the matter said. In response to the April order, the fund has refrained from chasing better yields or actively promoting itself to investors, the people said." They write, "Tianhong didn't go into detail about why the fund's assets shrank significantly. The money-market fund's seven-day annualized yield was 2.093% at the end of June, slightly lower than that of some rival funds sold on the same platform. For the second quarter, Tianhong reported a net return rate of 0.5255% and 4.5 billion yuan in profit after fees." Finally, the WSJ quotes Aidan Shevlin, head of International global liquidity portfolio fund management at J.P. Morgan Asset Management, "The bigger a fund is, the more troublesome it could potentially be if it runs into problems." He said `China's biggest funds tied to e-wallets were also very widely owned. "So if anything were to happen, that would be very concerning." (For more on Chinese money funds, see our June 24 News, "Asian Money Fund Symposium Recap: JPMAM's Shevlin on Chinese MMFs," and our June 18 News, "Worldwide MF Assets Jump in Q1'21 Led by US, China; Europe Sees Drop.") |
Janus |
American Beacon | Morgan Stanley |
American Century | Northern |
American Funds | Oppenheimer |
BMO Funds | PIMCO Funds |
BlackRock | PNC Funds |
DWS | Putnam |
Dreyfus | RBC Funds |
Federated Investors | SEI Investments |
Fidelity Investments | Schwab Funds |
First American Funds | State Street (SSGA) |
Goldman Sachs | T. Rowe Price |
HSBC Investor Funds | TD Asset Management |
Invesco | UBS |
JP Morgan | Vanguard |
Fidelity Investments published, "Get More Yield on Your Cash," subtitled, "CDs and short-duration bonds may offer higher yields but more risk than savings accounts." The article explains, "In early February, average rates on savings accounts nationally were around 0.11%. That's not nothing, but it sure is close. The bad news for savers is that there isn't a lot of yield to be found, at least not from investments that are safe enough to be considered as a home for your cash. But even if you can't earn a lot on your cash, that doesn't mean you can't do significantly better. "There are a range of income options that can offer a meaningful increase in income; you could potentially increase the yield on your savings by a significant amount," says Richard Carter, a vice president of fixed-income products and services at Fidelity. "The key is to understand what you need the money for, and then find an option that makes sense for your situation."" The piece reviews high-yield savings accounts, CDs, money markets, and short-duration bond funds. On money market funds, it says, "The good news: Money market funds offer easy access to your investment and very little risk. Held in your brokerage account, they come with check-writing and ATM card access similar to a savings account, and making these investments a good option for funds you may need in a hurry. And, if interest rates rise, those higher rates will pass through to money market funds quickly. Some prime and government money market funds have seen yields tick up with the Fed's year-end move, with yields on some prime funds at 0.20%-0.30%, and the average prime fund offering about 0.12%. The bad news: The yields offered by the types of securities in which money market funds invest have been stubbornly low in recent years.... So you may find security and easy access to your funds, but you won’t find much yield unless the interest-rate environment continues to change. You should also note some regulatory changes taking place for prime and municipal money market funds. In a time of market stress, these non-government types of funds could be subject to a fee or temporary halt on withdrawals. So they may no longer be as liquid as U.S. Treasury or government money market funds." In other news, "The Federal Reserve released the Minutes from its January 26-27 FOMC meeting. On the Reverse Repo Program they said, "The Committee then resumed its consideration of matters related to the System's reverse repurchase agreement (RRP) facilities, focusing in particular on the appropriate aggregate capacity of the ON RRP facility going forward.... [P]articipants reiterated that the Committee expects to phase out the facility when it is no longer needed to help control the federal funds rate, and they unanimously expressed the view that it would be appropriate to reintroduce an aggregate cap on ON RRP operations at some point."
The SEC posted a primer entitled, "Ultra-Short Bond Funds: Know Where You're Parking Your Money. It says, "Ultra-short bond funds are mutual funds that generally invest in fixed income securities with extremely short maturities, or time periods in which they become due for payment. Like other bond mutual funds, ultra-short bond funds may invest in a wide range of securities, including corporate debt, government securities, mortgage-backed securities, and other asset-backed securities. If you are considering investing in an ultra-short bond fund, keep in mind that ultra-short bond funds can vary significantly in their risks and rewards. In fact, some ultra-short bond funds may lose money despite their investment objective of preserving capital. The level of risk associated with a particular ultra-short bond fund may depend on a variety of factors, including: Credit Quality of the Fund's Investments -- It's important to know the types of securities a fund invests in because ultra-short bond funds may experience losses due to credit downgrades or defaults of their portfolio securities. Credit risk is less of a factor for ultra-short bond funds that principally invest in government securities. By contrast, if you invest in an ultra-short bond fund that invests in bonds of companies with lower credit ratings, derivative securities, or private label mortgage-backed securities, you'll generally be subject to a higher level of risk. Maturity Dates of the Fund's Investments -- The maturity date of a security is the date that it becomes due for payment. An ultra-short bond fund that holds securities with longer average maturity dates will be riskier than a fund with shorter average maturity dates — assuming the funds are otherwise similar. Sensitivity to Interest Rate Changes -– Generally, when interest rates go up, the value of debt securities will go down. Because of this, you can lose money investing in any bond fund, including an ultra-short bond fund. In a high interest rate environment, certain ultra-short bond funds may be especially vulnerable to losses. Before you invest in any ultra-short bond fund, be sure to read about a fund's "duration," which measures how sensitive the fund's portfolio may be to changes in interest rates." Finally, note that Crane Data plans to launch a new publication, Bond Fund Intelligence, to cover the largest ultra-short bond funds, ETFs, "enhanced cash" vehicles, and separate accounts in this space. Contact us at info@cranedata.com for more information or to receive the beta issues of our pending Bond Fund Intelligence.
USA Today published a column, "Keeping Your Cash Safe: What New SEC Rule Means," by Sharon Epperson at CNBC. Epperson writes about the differences between money market mutual funds and money market deposit accounts. "Millions of investors use money market mutual funds to stash "cash" in their portfolios, since they're generally viewed as safe, convenient short-term investments -- and there are major changes on the horizon designed to make them safer. But are money funds the safest place for your cash? Many consumers don't know what distinguishes money market funds and money market accounts offered at their local bank or how to assess which is the safest place for their hard-earned dollars.... Money market mutual funds are investments and are not insured. The funds invest in low-risk, highly-liquid investments like U.S. Treasury security (T-bills), certificates of deposit (CDs) and corporate commercial paper. They are regulated by the SEC and their value is determined by underlying investments, but they are not guaranteed investments. Money market deposit accounts, like savings accounts, are FDIC insured. A money market account is like a "souped-up" savings account that can also invest your money in treasury notes, CDs and other short-term investments to give you a slightly better yield than a regular savings account. As with a savings account, the federal government insures your deposits in a money market account up to $250,000. Money market account rates are currently better than money market fund yields. Historically, money market funds have had higher yields than bank deposits. But with interest rates so low, yields on money market funds after expenses are near zero. While the average yield on a money market fund is 0.01%, savings and money market account rates are about 0.10% on average. Some online banks offer money market account rates of almost a full percent, according to Bankrate.com. Where is the safest place for your cash? It depends on how you'll use it. If you need the money for emergencies -- to pay household bills if you lose your job or fix the boiler or roof of your home -- you may want to put those funds in a money market account at the bank. On the other hand, if you want to keep some of your investment portfolio in "cash," a money market fund may be the easiest way to make sure you have funds on the sideline that can readily be moved into other investments. For most investors, it's probably a good idea to have a little money in both."
Wikipedia's definition of money fund. The free encyclopedia also explains retail vs. institutional funds, and gives some history.
NYSE's "Informed Investor" Questions About Brokerage Sweep Accounts This publication lists questions investors should ask regarding cash "sweep" options in their brokerage accounts.
The Deposity Trust Company (DTC) provides back-end processing and clearing of money market securities and is a member of the Federal Reserve System.
The Commercial Paper Issuers Working Group (www.cpiwg.org) is an organization representing 27 of the largest commercial paper (CP) issuers.
Money Fund Ratings: Standard & Poor's Website shows the most recent fund ratings, ratings methodology, and ratings by domicile.
ICI's Frequently asked Questions About Money Market Mutual Funds The ICI (Investment Company Institute) explains the basics of money market funds.
Rule 2a-7 of the Investment Company Act of 1940 The SEC's (Securities and Exchange Commission) regulations on money market mutual funds.
Fidelity's "What Are Money Market Funds?" Fidelity Investments' definition and explanation of money market mutual funds.
Investorwords.com Investorwords.com's definition of money fund.