Press Releases & Quotes
Website IndexUniverse writes "ETFs 'Poaching' the Market", which discusses the possibility of a "money market ETF". It cites the recent filing of SSgA's SPDR S&P Commercial Paper ETF and the recent launch of WisdomTree's U.S. Current Income Fund (USY), but says, "None of these funds, however, will be able to call themselves actual money markets just yet." It quotes our Peter Crane, "Right now, ETFs are beginning to hover around the edges of money market mutual funds. But they're not the same thing as money market mutual funds. The seeming simplicity of maintaining a stable value is actually a formidable obstacle for the ETF industry." Also, see Crane Data's July 17 story, "SSgA Files to Launch SPDR SnP Commercial Paper, First Cash ETF", and see IndexFunds' other new article, "Money Market ETFs In Europe".
Investors' Business Daily writes "Parent Firms Bucking Up The Buck", which says about 17 advisors to date "bolstering" their money market funds, "So far the strategy has worked. No fund has broken the buck." IBD quotes Peter Crane, "Money market funds, though they've had painful bailouts, benefited from this.... High yield is good when it comes from certain things. Low expenses are good. A big, diversified (portfolio) is good. Also, a big asset base gives you protection." Also, see ignites.com's "Money Funds Act to Address Investor Concerns", which summarizes recent communications efforts by money funds. (The article was derived in part from Crane Data's "Money Funds Step Up Communications With Conference Calls E-mails").
The Arizona Republic's Russ Wiles writes "Despite the economic worries, there are a few pieces of good news", which says, "But not everything has unraveled on the economic front. Here are a few examples of reasonably good news: Money-market funds: When the credit crunch hit last year, many experts worried about money-market mutual funds. Dozens of funds held exotic IOUs carrying credit risks. The fear was that defaults would cause funds to incur losses so that their prices would 'break the buck' or drop below the standard $1 a share, triggering panic.... But those fears have largely abated. The funds stopped buying shaky instruments, and most problem holdings have since matured, said Peter Crane, publisher of the Money Fund Intelligence newsletter. He said 16 fund-management firms voluntarily absorbed losses on bad holdings, while investors continued to add money to the funds, diluting problems with new cash." It quotes Crane, "The saving grace has been a large cash inflow. Investors haven't blinked."
Friday's New York Times features the article "Rethinking Money Market Funds". The piece discusses support actions taken by money fund advisors to date, saying, "During the last year, big banks and investment companies have committed more than $10 billion to shore up money market funds that were tainted by the mortgage mess." It says at least 17 companies "have moved to bolster funds" and adds, "Regulators say six or seven other investment firms have orchestrated bailouts that have not been made public."
The Times continues, "Money market funds have not experienced such turmoil since 1994 , when about 50 of them had to be rescued because of gyrations in interest rates." It cites disclosures, support actions and/or securities purchases by the following companies: Legg Mason, Credit Suisse, Bank of America, SunTrust, Morgan Stanley, Dresdner Bank, Janus, Lehman Brothers, Wachovia, U.S. Bancorp and TD Waterhouse, HSBC, Northern, SEI, and Wells Fargo.
The piece says, "Experts say fund investors are unlikely to lose money." It also cites the massive recent growth of money fund assets, saying, "The upshot is that assets of money funds have swollen to a record $3.5 trillion since the credit crisis began last year, according to Investment Company Institute data. That is an increase of $900 billion, or 35 percent."
Finally, the Times quotes: Alex Roever, "I think the damage has been done;" Bruce Bent, "Wall Street will respond by offering the next iteration of the questionable paper. If there is demand, we will come;" and Peter Crane, "There is still an awful lot of walking wounded investment money out there. Money funds should be a big beneficiary of that."
Mutual fund news source ignites.com features two stories involving money market mutual funds today. The first, "Auction Rate Replacements Give Closed-Enders Hope", discusses "closed-end [fund] players' efforts at thawing out the frozen auction rate securities market". It quotes Peter Crane, "I think these things are going to go over like a lead zeppelin. The danger of headline risk is just too great." The ignites website also features, "Merrill and BlackRock Make Money Fund Changes." This story discusses "housekeeping" regulatory filings by Merrill Lynch and BlackRock funds, saying, "Merrill's recent filing adds to the list of parties privy to the select portfolio holdings.... `Such expanded reach represents the increased attention investors are paying to money funds and increased demands for disclosure, says Crane." Ignites adds, "Another change to perhaps assuage skittish investors is tighter language around what would happen if the Merrill Lynch funds were to 'break the buck', or slip below a net asset value of $1 per share. Previously, the Merrill prospectus stated that the funds' trustees had 'established procedures designed to stabilize, to the extent reasonably possible,' the $1-per-share net asset value. 'Deviation of more than an insignificant amount,' it read, 'will be reported to the trustees by the manager.'"
Bloomberg writes "Blackrock, Nuveen Sell New Preferred Haunted by Failed Auctions", saying, "Nuveen Investments Inc., BlackRock Inc. and Eaton Vance Corp., the biggest U.S. closed-end fund companies, plan to sell a new form of preferred share that can be bought by money-market funds." It quotes Peter Crane, "I think the funds are going to be gun-shy.... The last thing they want is to be in a story that they're buying auction-rate securities." The piece also quotes Reserve's Bruce Bent, "There are certain advantages to being a pioneer, but not a pioneer with an arrow in his back."
The Wall Street Journal's "Planning an Out for Auction-Rate Issues says, "Still, regardless of the safety of the new securities, investors in money-market funds may be scared off by the mere suggestion of involvement with auction-rate securities, said Peter Crane, president of Crane Data LLC. It adds, "Throughout the crisis, money-market funds have managed to maintain their status as havens." "The last thing money-market funds need right now is to be linked to auction-rate securities," Mr. Crane said.
The Economist this week writes on "Money-market funds: A boom amid the bust." The article discusses money market mutual funds' development and popularity among institutions, as well as funds' role in, and windfall from, the current credit crunch.
The article says, "Long an unexciting province within asset management, money funds have played a big role in the crunch. They bought much of the short-term debt that propped up structured finance. It was their sudden withdrawal that caused the market in asset-backed commercial paper (ABCP) to seize up. And banks' liquidity problems are largely the result of money funds' recent reluctance to hold their debt."
"If this makes them villains, then crime pays. Money funds have been taking market share from banks for years: big banks were less interested in competing for deposits during the securitisation boom, since they were selling on their loans. The crisis only accelerated this shift, since money funds were seen as one of few havens. In America, the biggest market, their assets have increased by 39% over the past year, to a record $3.5 trillion, even as returns have fallen," says the weekly.
The Economist also sources a Crane Data & ICI chart of annual asset growth and returns, and adds, "Money funds have also benefited from a withering of the competition. Ultra-short bond funds and enhanced-cash funds, which touted themselves as cash alternatives but invested in spicier debt than true money funds are allowed to, have fallen by the wayside. Peter Crane of Money Fund Intelligence, a newsletter, puts their combined assets at $70 billion, down from over $600 billion before the crisis. Meanwhile, the market for auction-rate securities is a shadow of what it was."
Finally, the Economist says, "Will money funds be able to hold on to the huge inflows? Mr Crane expects America's to continue registering double-digit annual asset growth. On the other hand, the funds tend to suffer when short-term interest rates rise, or when turmoil subsides. In a recent report, Jan Loeys, an economist at JPMorgan, predicted a bleak future for the funds in which the banks that have become so dependent on them fight back. As the lend-and-hold model of banking regains ground, he argues, so banks' interest in cutting out those interposed between them and their retail customers will grow. Already they are jostling for deposits with new-found vigour."
MarketWatch's Chuck Jaffe writes "Low yielding, high-cost money funds are safe but unsound" in his "Stupid Investment of the Week" columb. It quotes us, "A lot of people who are in cash are more interested in return of principal than return on principal, so they don't care about the yield, and that shows," said Peter Crane of Crane Data, publisher of the Money Fund Intelligence newsletter. "If you are running away from a crashing stock market or a financial crisis, having your buying power eroded by inflation isn't exactly tops on your list of imminent perils," he adds. "Investors tend to underestimate the length of time they remained parked."
Crane Data Founder and President Peter Crane speaks today at the Treasury Management Association of New England's 2008 Conference in Boston on the topic "Is Your Money Market Fund Safe? Examining The Crisis in Cash". Crane answers with a resounding "Yes", citing money market mutual funds nearly spotless record of safety, their extensive body of evolving regulations, and the sector's enthusiastic support from both investors and fund sponsors. No money market mutual funds have "broken the buck" during the current crisis, and none are expected to, says Crane.
The Great Liquidity Panic of 2007-8 is nearly ended. While the episode was painful for fund advisors, who likely will end up losing hundreds of millions on soured extendible ABCP and SIV investments, this is a mere fraction of their almost $15 billion in annual revenue -- more than Hollywood earns at the box office, says Crane. Money fund investors came out unscathed. He says to keep in mind that money market mutual funds have survived similar events in the past, including the 2001 default of Pacific Gas & Electric and the 1994 spate of "derivatives" bailouts. Nineteen ninety four also saw the only case in history of a fund "breaking the buck" as the tiny ($82 million) Community Bankers U.S. Government Money Fund was liquidated at $0.96.
Crane cites money funds' protective quality, maturity and diversity regulations -- Rule 2a-7 of the Investment Company Act of 1940 -- as one of the keys to their success. Money market mutual funds are not allowed to invest in lower quality or longer maturity instruments, and they are only allowed to own a 5% maximum position in any single issuer. Money funds also are exempt from other mutual funds' "mark-to-market" requirement, using "amortized cost" accounting.
Funds have also withstood the unprecedented stress in the money markets due unprecedented inflows, over $1 trillion over the past year, which were helped in part by the Fed's interest rate cuts. Prudent investment policies and actions by the vast majority of fund advisors were instrumental too. Extremely diversified investors bases, long track records of performance, and of course deep-pocketed parent companies didn't hurt either. Money funds continue to stand while almost every "cash" substitute around them has faltered; their record of safety has only grown during the recent crisis, says Crane.
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