The August issue of our flagship Money Fund Intelligence newsletter, which was sent to subscribers Monday morning, features the articles: "Managers Flee from State Tax Exempt Money Funds," which reviews the recent spate of liquidations among Tax Exempt MMF managers, "American Beacon's Silver on Govt MMFs, Rates and LGIPs," which profiles Vice President & Chief Fixed Income Officer Sam Silver, and, "AFP Liquidity Survey Shows MMFs Up, Deposits Down," which reviews the Association for Financial Professionals' latest findings. We have also updated our Money Fund Wisdom database with July 31, 2017, statistics, and we sent out our MFI XLS spreadsheet Monday a.m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our August Money Fund Portfolio Holdings are scheduled to ship Wednesday, August 9, and our August Bond Fund Intelligence is scheduled to go out Monday, August 14.
MFI's "Managers Flee from State Tax Exempt" article says, "Though overall consolidations and liquidations in the money fund sector have slowed since the money fund reforms went into effect and the Fed began raising rates, exits have continued in the Tax Exempt sector, particularly among State T-E MMFs. Just within the past two months, USAA, Schwab, Dreyfus and Western have all announced or implemented liquidations. We review a number of the recent ones below."
The piece continues, "Tax-exempt MMFs have seen assets decline precipitously over the past decade, and in particular over the past year, falling from $385.6 billion in mid-2007 to $251.7 billion at the start of 2016, to $134.9 billion currently. The number of Tax Exempt funds has also shrunk dramatically, declining from 390 in 2007 to 353 in 2015 to 233 on 7/31/17. State Tax Exempt MMFs have dropped from 187 to 105 over the past 2 years."
Our "profile" reads, "This month, Money Fund Intelligence interviews Sam Silver, Vice President & Chief Fixed Income Officer at American Beacon Advisors, which manages the American Beacon U.S. Government Money Market Select Fund. We discuss the firm's presence in money funds and local government investment pools (or LGIPs), the dramatic changes over the past year in the space, and the outlook for the cash investment space going forward. Our Q&A follows."
MFI asks, "How long have you been running money funds?" Silver explains, "I first joined American Beacon in 1999 and have been involved in the MMF Industry since 1989. `American Beacon has provided cash management since 1986 and opened its first MMF in 1987. American Beacon currently manages over $60 billion between Mutual Funds and Separately Managed Accounts. The makeup of the assets includes Equity, Fixed Income and Money Market/Cash Management accounts."
He explains, "In the cash management space we manage corporate cash accounts along with Local Government Investment Pools (LGIPs). Our government money market fund is an institutional fund, so it is made up of primarily corporate accounts who are looking for a stable NAV with a reasonable yield."
Silver says his biggest priorities include, "We are primarily focused on the Fed, since they've been active here recently. So the Fed and the economic data, just to make sure all the portfolios are properly positioned during this rising interest rate environment that we're in.... As far as looking at opportunities ... we continue to look for clients with stable assets that are a good fit for our government money market fund, and for those who want a stable value alternative to prime funds, we also offer customized separate accounts. [S]ome clients like to have separate guidelines slightly different from money market funds to provide more flexibility than what a money market fund can offer."
Our "AFP Liquidity Survey" update explains, "The Association for Financial Professionals released its "2017 AFP Liquidity Survey" last month. Its summary says, "Treasury and finance professionals remain cautiously optimistic. Safety is still of the utmost importance to them. Despite encouraging signs from the Federal Reserve ... organizations' investment policies are still not focused on yield. Indeed, a general feeling of apprehension is reflected in companies' heavy reliance on bank deposits as their investment vehicles of choice: 53 percent of all corporate cash holdings are still maintained at banks. That is slightly lower than the 55% reported last year."
It continues, "AFP writes, "Seventy-two percent of organizations have a written investment policy that dictates their short-term investment strategy.... `Safety of principal continues to be paramount: two-thirds (67 percent) of survey respondents indicate that safety is the most important short-term investment objective for their organizations.... Thirty percent of survey respondents indicate their organizations' most important cash investment policy objective is liquidity.... Yield continues to be ranked a distant third as the most important objective of an organization's cash investment policy."
In a sidebar, "Schwab: Fee Waivers Over," we write, "A press release entitled, "Schwab Reports Record Quarterly Net Income of $575 Million, up 27%," tells us, "The Charles Schwab Corporation announced today that its net income for the second quarter of 2017 was a record $575 million, up 2% from $564 million for the prior quarter, and up 27% from $452 million for the second quarter of 2016. Net income for the six months ended June 30, 2017 was $1.1 billion, up 32% from the year-earlier period.
Our August MFI XLS, with July 31, 2017, data, shows total assets increased $32.6 billion in July to $2.830 trillion after decreasing $20.2 billion in June, increasing $20.3 billion in May and $68.9 billion in April, but decreasing $25.2 billion in March. (Note that we added $67.3 billion in new funds in April.) Our broad Crane Money Fund Average 7-Day Yield was up 5 bps to 0.68% for the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) was up 5 bps to 0.86% (7-day).
On a Gross Yield Basis (7-Day) (before expenses were taken out), the Crane MFA rose 0.04% to 1.12% and the Crane 100 rose 5 bps to 1.14%. Charged Expenses averaged 0.44% and 0.29% for the Crane MFA and Crane 100, respectively. The average WAM (weighted average maturity) for the Crane MFA was 31 days (unchanged from last month) and for the Crane 100 was 32 days (down 1 day from last month). (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
