Press Releases Archives: April, 2015

Today, we excerpt from the April issue of Crane Data's newest publication, Bond Fund Intelligence, which tracks the bond fund marketplace with a focus on the ultra-short and most conservative segments. The article says: Our April Bond Fund Intelligence "profile" interviews `Putnam Investment's Portfolio Managers Joanne Driscoll and Michael Salm, who is also Co-Head of Fixed Income at the firm. Driscoll and Salm run the $2.2 billion Putnam Short Duration Income Fund, one of the largest funds in our Conservative Ultra Short Bond Fund universe. They talk about the importance of differentiating between various types of Ultra Short Bond Funds and why this niche is poised for growth in an environment of rising rates and more regulations.

BFI: How long have you been involved in this space? Driscoll: I have been at Putnam for almost 20 years and currently oversee the short-term liquid markets team where I'm responsible for all of our front-end strategies. Putnam launched Short Duration Income Fund in October 2011 -- with Mike and I serving as the lead managers. In 2009, we looked at the changing regulatory environment for money funds, driven by the pending amendment to SEC Rule 2a-7. While money funds were forced to shorten their investments, issuers were being told by regulators that they needed to become less reliant on the front end and extend the duration of their debt. So, our goal in launching this fund was to leverage the changes in money funds and the opportunities that were created in the market by this change. We felt this would create a demand for a fund just outside of 2a-7, but something more conservative than a short term bond fund.

Salm: During my 18 years at Putnam, I have focused quite a bit on structured products, mortgages in particular. Over time, I have worked a lot on liquid markets in general, focusing on interest rates and volatility, as well as our views about the Fed. In thinking about this strategy, there was a lot of overlap in using our expertise on the front end of the curve and in using our expertise just beyond the traditional 2a-7 venue. We wanted to leverage this very interesting combination of investment processes that you don't necessarily see blended together in normal fund structures.

BFI: How has the Short Duration Income Fund been received? Driscoll: The fund has grown to about $2.2 billion in assets under management. The objectives of our fund are capital preservation and income maximization. Our process is primarily built around the best ideas of our credit team, which focuses on alpha generation within a host of areas. We believe that prudent short term investing requires relentless focus on credit quality and risk management. Due to the nature of the fund, we focus on credit fundamentals and the risk-return trade off. Something that really differentiates Putnam in this space is the way our fixed income team works: We can leverage the entire research team; our analysts cover the sectors across all asset types -- high yield, high grade, money markets, and munis in some cases. With our broader coverage, we can put an intense focus on credit analysis.

We have found that the fallout from the financial crisis has made the ratings agencies reactionary and that impacts many issuers. While our analysts view some of these companies to be either equal to or stronger than prior to the downgrade, due to the ratings requirements of 2a-7, they cannot be purchased by money funds, even though internally we feel that they would be appropriate. These institutions are attractive purchases for Putnam Short Duration Income Fund and add some good yield to the portfolio.

There's a big difference between our fund and our peer group. Putnam Short Duration Income Fund is generally higher quality than many of its peers. We don't buy below investment grade, so we don't have high yield or floating rate bank loans like you see in some competitors. We limit our investments in the low triple-B category because we're trying to minimize the volatility in this fund as much as possible. The reception to the fund has been very positive. We find a lot of investors are challenged by the low level of interest rates and the new 2a-7 amendments. We see more and more interest in the fund because they are looking for products that can add incremental yield over a money fund with low NAV volatility.

BFI: What are the challenges for this fund? Driscoll: For us, it's making sure that financial advisors understand that this is not a money fund or a cash alternative. Prior to the crisis, many firms sold cash alternatives that behaved and looked more like a short term bond fund, and those outcomes, as we know, weren't always good. We spend a significant amount of time educating our financial advisors on the strategy and the risk-return tradeoff, so there are few, if any, surprises. We've seen a large amount of variability in this peer group, so we want to make sure the advisors understand what this fund is.

Salm: In fact, we're very sensitive about distinguishing ourselves so that people know that this category itself can be very heterogeneous. Don't mistake us in any way, shape, or form as a money market fund. We think there's a really good space between the ultra-short bond fund and money market fund categories, which is where the Short Duration Income Fund resides. The fund has been able to meet its objective in the last three years, delivering a high degree of capital preservation and a consistent return.

Watch for more of our latest BFI profile in coming days, or contact us to see the latest issue of our Bond Fund Intelligence. (BFI is $500 a year, or $1,000 including our BFI XLS spreadsheet.)

Crane Data has posted the preliminary agenda and is now accepting registrations for its 3rd Annual European Money Fund Symposium (, which will be held Sept. 17-18, 2015, at The Conrad Hilton in Dublin, Ireland. Crane Data's previous European event, held last September in London, attracted over 110 attendees, sponsors and speakers, and we expect our return to Dublin to be even bigger and better. We expect once again to host the largest money fund conference in Europe. European Money Fund Symposium offers "offshore" money market portfolio managers, investors, issuers, dealers and service providers a concentrated and affordable educational experience, as well as an excellent and informal networking venue. Our mission is to deliver the best possible conference content at an affordable price to money market fund professionals. Attendee registration for our 2015 Crane's European Money Fund Symposium is $1,000. Thanks for your support, and we hope to see you in Dublin! Finally, also visit to learn more about our big U.S. show, Crane's Money Fund Symposium which will be held June 24-26, 2015, in Minneapolis, and to learn more about our "basic training" event, Crane's Money Fund University, which will take place January 21-22, 2016, in Boston, Mass.

The April issue of Crane Data's Money Fund Intelligence was sent out to subscribers Wednesday morning. The latest edition of our flagship monthly newsletter features the articles: "BlackRock Latest to Telegraph Changes; 7-Day Max Maturity," which reviews big changes from the country's third largest money fund manager, BlackRock; "Wells Fargo's Weaver Says Clients Still Want Yield Too," which profiles Wells Capital Management's new head of money market funds, Jeff Weaver; and "Deposits, FDIC 'Amalgamators' Growing; Going Inst," which examines the increasing availability of FDIC insurance far above the $250K limit. We have also updated our Money Fund Wisdom database query system with March 31, 2015, performance statistics, and have sent out our MFI XLS spreadsheet. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our April Money Fund Portfolio Holdings are scheduled to go out on Friday, April 10, and our March Bond Fund Intelligence is scheduled to ship next Wednesday, April 15.

The lead article in MFI on BlackRock and Western's Changes says, "Another month, another major announcement in the money market fund world. This time it’s from the second largest money fund manager, BlackRock, which informed clients of significant changes to its MMF lineup, including fund conversions, liquidations, and the addition of innovative new 7-day maximum maturity funds. Also notable: the fourth largest MMF, BlackRock TempFund -- a Prime Institutional fund -- will remain as is. BlackRock writes in its April 6 letter, "A number of clients have indicated they are interested in continuing to invest in prime funds. We plan to maintain our largest prime fund, the $66.5 billion TempFund as a prime institutional fund. Our historical analysis shows that in normal market conditions, TempFund has demonstrated minimal per share net asset value volatility. Given the anticipated forward environment, we believe that institutional prime funds are likely to offer investors a compelling yield premium relative to CNAV government funds."

On the proposed 7-day maximum maturity funds the article comments, "The $2.4 billion BlackRock TempCash Fund, however, will be converted to a 7-day maximum maturity fund, essentially eliminating the floating NAV and the concerns over emergency gates and fees. The letter explains, "Some clients have indicated interest in a cash investment product that fits between a CNAV government fund and a FNAV institutional prime fund.... BlackRock will offer an institutional prime fund that limits holdings to those with a maturity of seven days or less."

In our middle column, we feature an interview with Wells Fargo's new head of MMFs, Jeff Weaver. It reads, "When Dave Sylvester, the long-time head of money market funds at Wells Fargo, announced his retirement at the end of 2014, the reins were handed over to Jeff Weaver, who now wears two hats. Weaver, the head of Wells Capital Management's short-duration team, also become head of the money market fund team effective January 1, 2015. We sat down with him to get his thoughts on not just money funds, but on separate accounts and the short-duration bond fund space. He also discussed how Wells is evaluating its money fund lineup to prepare for the upcoming rule changes."

We asked him, "Will you make any lineup changes? Weaver: We remain committed to offering retail and institutional prime, government, and municipal funds -- particularly if that's what our clients want -- and we believe they do. Many of our clients are in a wait-and-see mode until that October 2016 deadline approaches. Right now, we're evaluating our product lineup. We're speaking with clients with the goal of developing product solutions that best meet their needs. Our client base is largely institutional -- 90% institutional versus 10% retail -- so that is always front of mind as we're making these changes. Once we finalize a plan of action, we will present it to our Funds' board. We will not make any announcements until the board has seen and approved those changes."

The article on "Deposits and FDIC 'Amalgamators'" says, "Zero yields and the expiration of unlimited FDIC insurance haven't stopped the growth of bank deposits over the past year or two. Deposits have increased by almost $500 billion in the year through Jan. 31, 2015, and they've increased by almost $1.6 trillion the past 3 years. Bank and thrift deposits combined have almost doubled since the financial crisis hit hardest in late 2008; they now total a massive $7.65 trillion." It adds, "We also discuss the continued rapid growth of FDIC insurance "amalgamators," who are in the business of breaking too-big-for-insurance deposits into smaller FDIC insured pieces (spreading them among a network of banks). This segment continues to grow via brokerage sweeps, and is starting to see growth from the institutional and corporate cash segment."

Crane Data's April MFI XLS, with March 31, 2015, data shows total assets decreasing in March, the third month in a row, down $20.9 billion to $2.576 trillion after falling $1.6 billion in February and $44.6 billion in January. Our broad Crane Money Fund Average 7-Day Yield and 30-Day Yield remained at 0.02%, while our Crane 100 Money Fund Index (the 100 largest taxable funds) stayed at 0.03% (7-day and 30-day). On a Gross Yield Basis (before expenses were taken out), funds averaged 0.14% (Crane MFA, same as last month) and 0.18% (Crane 100, up from 0.17%) on an annualized basis for both the 7-day and 30-day yield averages. Charged Expenses averaged 0.13% (unchanged) and 0.15% (up from 0.14%) for the two main taxable averages. The average WAMs for the Crane MFA and the Crane 100 were 41 and 43 days, respectively. The Crane MFA WAM was the same as last month while the Crane 100 WAM is down 1 day from the prior month. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)