J.P. Morgan Asset Management published a brief on the "J.P. Morgan Prime Money Market Fund," entitled, "Capitalizing on prime money market funds (MMFs)." They write, "In times like these, it's important to understand how the markets can impact your cash portfolio. During the month of March as COVID-19 gripped markets, our Prime Money Market Fund maintained weekly liquid assets above 35% and a floating net asset value within an attractive range relative to our peers, highlighting our conservative management style, attractive portfolio positioning and ultimately superior performance. Despite the volatility this past year, we would like to reiterate the importance of prime in your portfolios as an important diversifier and yield enhancer for your cash portfolio." (Note: The Investment Company Institute released its "Report of the Covid-19 Market Impact Working Group: Experiences of US Money Market Funds During the COVID-19 Crisis" Thursday morning. See their press release, "ICI: Prime Money Market Funds Didn't Trigger Financial Turmoil in March," and watch for more coverage in the pending November issue of our Money Fund Intelligence.)
JPMAM's document says there are, "Four Reasons to Invest in Prime Today," including "attractive yield, size matters, active liquidity management and historical FNAV. It explains, "Spreads between government and prime MMFs remain attractive by historical standards and yields on prime MMFs are compelling relative to other investments. This spread will remain compelling even as rates approach zero. During the last zero interest rate period, prime money market funds still offered meaningful yield above government and treasury funds."
It continues, "With AUM of over $80 billion, the J.P. Morgan Prime Money Market Fund is the largest prime MMF in the industry. Scale of this magnitude can enhance investor diversification, cash flow flexibility, and trading and execution efficiency.... We actively manage Weekly Liquid Assets (WLA) well above the 30% regulatory threshold by implementing a robust liquidity buffer. We can utilize a number of tools to increase the buffer, such as limiting term security purchases and/or selling portfolio securities. We also employ a rigorous governance framework to manage client concentration risk. Lastly, our dedicated distribution model fortifies our client relationships, supporting active dialogue and significantly curtailing unknown cash flow activity."
Lastly, they comment, "Our focus on risk management and credit analysis plays a critical role in keeping FNAV fluctuations within a narrow band. The high-end of the recent range of the NAV was heavily influenced by the Federal Reserve's emergency rate cuts which totaled 150 basis points over just a thirteen day period. In the days that followed, the NAV dipped below $1.0000, but the recovery back to par was rapid as the Fed stepped in to support the orderly functioning of fixed income markets."
In other news, a Prospectus Supplement for the T. Rowe Price Summit Municipal Money Market Fund explains, "On May 4, 2020, the Board of Directors of the T. Rowe Price Summit Municipal Money Market Fund (the 'Fund') approved a plan of reorganization pursuant to which the Fund will transfer substantially all of its assets and liabilities to the T. Rowe Price Tax-Exempt Money Fund (the 'Acquiring Fund') in exchange for Investor Class shares of equal value of the Fund (the 'Reorganization')."
It continues, "If the proposal is approved by a majority of the Fund's shareholders, the Reorganization is expected to close on or around October 19, 2020, at which point Fund shareholders will receive Investor Class shares of the Acquiring Fund representing the same total value as their shares of the Fund on the business day immediately preceding the closing. The Reorganization is not a taxable event, but redeeming or exchanging shares of the Fund prior to the Reorganization may be a taxable event depending on your individual tax situation."
TRP also says, "Following the Reorganization, the Investor Class shares received in the exchange will be distributed to the Fund's shareholders in complete liquidation of the Fund. The Fund and the Acquiring Fund have relatively similar investment objectives and investment programs, the same portfolio manager(s) and similar performance history.... To allow for potentially greater economies of scale and to reduce inefficiencies resulting from substantially duplicate products, the Fund and the Acquiring Fund's Boards of Directors determined that (i) participation in the transactions is in the best interest of shareholders of the Fund and the Acquiring Fund and (ii) the interests of existing shareholders will not be diluted as a result of the transactions."
A separate filing adds, "On October 20, 2020, the assets and liabilities of the fund were transferred to, and the fund was reorganized into, the T. Rowe Price Tax-Exempt Money Fund through a tax-free reorganization. As a result, the fund is no longer offered to shareholders for purchase."
Finally, Federated Hermes posted a monthly commentary entitled, "Plenty on the plate." Author Deborah Cunningham writes, "Polls and predictions won't matter for long as Election Day arrives tomorrow, but uncertainty is going to stick around longer. Historically, the money markets don't experience volatility anywhere near that of other asset classes, but they don't like uncertainty any less than their equity and fixed-income brethren. No matter who wins the election, there will be heightened anxiety and many unknowns."
She continues, "In the financial sphere, we will see continued scrutiny of money market funds. This was a topic of discussion during Crane Data's online Money Fund Symposium last week. (Thanks again to Peter Crane for inviting me to speak.) A major focus was the persistent inaccurate blame ascribed to money funds for the March crisis. Paul Schott Stevens, soon to retire from a celebrated tenure as CEO of the Investment Company Institute (ICI), laid out the subject well in a keynote address. He rightly pointed out that the Federal Reserve intervened to support the entire financial system. The Money Market Mutual Fund Liquidity Facility (MMLF) was just one of eight programs the Fed launched and was 'dwarfed by other Fed actions.' He added that, 'When usage of the MMLF was at its peak on April 8, that facility accounted for only 2.7% of the expansion of the Fed's balance sheet.'"
Cunningham comments, "The fact that policymakers had to rescue nearly every part of the financial sphere hasn't stopped many pundits from -- again -- making money funds the scapegoat. Yet it was the broader market, especially both commercial paper and CD primary- and secondary-market trading, that froze. Banks and dealers didn't make markets with their own paper, let alone that of other firms. That was unprecedented. The focus must be there. Stevens and Federated Hermes argue that money funds actually alleviated the pressure. All funds were able to provide daily liquidity with a market rate of return at par. Not a single fee was levied or a gate shut. No clients were unable to redeem shares. Our hope is that regulators will realize the money fund reforms of 2016 didn't address the source of the problem, but rather a symptom."
She adds, "The future of the cash-management sector is not just about the past. Plans to enhance access to it both across the globe and through an expanded window of time through new technology are just some of the positive developments. The shift from the London interbank offered rate (Libor) to the Secured Overnight Financing Rate (SOFR), while rocky, is progressing and will leave the industry with a stronger, more reliable and more trusted system."
Cunningham concludes, "As for the near future, after the election is decided we expect some measure of fiscal stimulus. This should bring a wave of Treasury bill issuance to fund stimulus checks, action that could offer relief to short-term rates. For now, the Treasury and Libor yield curves remain fairly flat, and SIFMA, while rising slightly over October, has been holding fairly steady. We kept the weighted average maturities of our funds in our target ranges of 35-45 days for government and 40-50 days for prime and municipals during the month."
