Money Fund Wisdom

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Money Fund Wisdom is Crane Data's premium product. The product "suite" includes subscriptions to our Money Fund Intelligence, Money Fund Intelligence XLS, and Money Fund Intelligence Daily, as well as a website which allows users to build custom queries on our historical database of money fund performance information. Wisdom also includes our Money Fund Portfolio Holdings data set and our Money Fund Portfolio Laboratory, a program that allows users to "X-ray" money fund portfolios to see aggregate country, maturity, issuer and composition information.

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Money Fund Wisdom News

Nov 06
 

The November issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Friday morning, features the articles: "Callahan, Cunningham on Future of Money Funds," which highlights comments from our recent Money Fund Symposium Online; "ICI's Stevens Tells Symposium: MMFs Didn't Drive Crisis," which quotes from Paul Schott Stevens' MFS keynote speech; and, "Corporates Discuss Liquidity, Prime During AFP Virtual," which covers a cash investment session from the recent AFP 2020 Virtual Experience. We've also updated our Money Fund Wisdom database with October 31 statistics, and sent out our MFI XLS spreadsheet Friday a.m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our November Money Fund Portfolio Holdings are scheduled to ship on Tuesday, November 10, and our November Bond Fund Intelligence is scheduled to go out Monday, November 16.

MFI's lead article says, "Our latest webinar included a session on 'The Future of Money Funds & Cash,' which featured our Peter Crane moderating a panel with Tom Callahan of BlackRock and Debbie Cunningham of Federated Hermes. The three discussed the money fund business overall, prime exits, ESG, portals, technology and potential regulatory changes."

On future reforms, Callahan comments, "Broadly, we think that there needs to be a reform of the commercial paper market and secondary trading, because secondary market liquidity really doesn't exist when you need it in the CP market. Whatever happens to prime funds ... if the CP market isn't fixed in the next crisis, the Fed is going to be right back in bailing the CP market out.... We think there needs to be changing around how banks are able to intermediate and how CP sits on bank balance sheets to make the most logical intermediary more available in these markets when they're needed."

Our latest "Profile" reads, "We recently hosted "Crane's Money Fund Symposium Online," which began with the keynote speech, 'Covid's Impact on Money Markets,' from Investment Company Institute President & CEO Paul Schott Stevens. He tells us, 'Thank you, Pete, for that introduction and for the opportunity to join you.... This conference, virtual though it is, is just another example of the invaluable service that Crane Data and you Pete personally provide to the fund industry and to cash managers everywhere.... I thank you most sincerely for your contributions and for your friendship."

He explains, "As you've alluded to, this conference is one of my last public events as President and CEO of ICI. In January, I announced my retirement effective at year end.... It's been 16 1/2 years in this role. Earlier this month, the institute's board unanimously elected a new president and CEO Eric Pan, who will take the reins on Nov. 9th.... I'm pleased to be leaving ICI in such capable hands."

Stevens says, "I spent nearly half of my working life at ICI. Before I leave, I have one last assignment directing the completion of a comprehensive report on the market turmoil triggered by the Covid-19 pandemic and the economic restrictions that governments imposed in response. We are focusing especially on the experiences of regulated funds in that episode. We are currently publishing that report as a series of research papers, and the next paper we publish will look at money market funds, which landed back in the headlines in March because institutional prime funds had outflows, and because the Federal Reserve created a Money Market Mutual Fund Liquidity Facility to add liquidity to the markets and restore the flow of credit to the economy. (Note: ICI released its "Report of the Covid-​19 Market Impact Working Group: Experiences of US Money Market Funds During the COVID-​19 Crisis" yesterday.)

The "Corporates" article tells readers, "The Association for Financial Professionals' held its 'AFP2020 Virtual Experience' (see our Oct. 8 Link of the Day, 'AFP2020 to Feature ICD, More Cash') over the last two weeks in October. While it didn't hold a candle to the live event, there were a handful of interesting sessions discussing cash investments, including one entitled, 'Aligning Investment Strategy with Your Company's Operations.' This panel, led by Sebastian Ramos of ICD, featured Kim Kelly-Lippert of American Honda, Ryan Seghesio of California ISO and Tom Wolfe of MGM Resorts."

Kelly-Lippert says, "Pre-covid, we were big proponents of the prime funds.... In addition to the prime funds, we utilize government money market funds, bank deposits, euro time deposits, and then for some additional yield pickup we occasionally took advantage of a very selective [group of] asset-backed securities. But the majority of our liquidity was available overnight. We redeem the funds out of our money market funds for our daily obligations."

The latest MFI also includes the News piece titled, "Federated's Donahue Asked About Regs," which says, "During their Q3 earnings call, he comments, 'I believe that the thing that’s being talked about the most is the restriction on that 30% [liquidity] trigger.... It caused more problems than it solved. And there are a lot of ways around that. If the SEC wants to keep the trigger, fine. You just don't have to do the things that wave a red flag in front of the marketplace. Ameliorating the impact of that 30% is the number one thing that's being discussed. [M]oney market funds came through this situation much like they did before, with a lot of resilience. Therefore there is no need to further diminish prime funds.... We just don't think that it makes a lot of sense to eliminate the spear point of the short term markets at this time. So what will happen with regulation? I cannot predict, but I can assure you that we will be in there defending the beauty and efficacy of prime money market funds.'"

A second news brief entitled, "SEC Statistics: Assets, Yields Down Again; Prime Drops Below $1 Trillion," tells us, "The Securities and Exchange Commission's latest 'Money Market Fund Statistics' summary shows that total money fund assets fell $117.8 billion in September to $4.863 trillion, the 4th decrease in a row but just the 5th over the past 25 months. The SEC shows Prime MMFs dropped by $145.6 billion in September to $992.8 billion (reflecting the reclassification of Vanguard Prime MMF), while Govt & Treasury funds rose $35.3 billion to $3.749 trillion. Tax Exempt funds decreased $7.5 billion to $121.1 billion. Yields were mixed in September with Prime and Govt & Treasury yields falling while Tax Exempt yields increased."

Our November MFI XLS, with October 31 data, shows total assets dropped by $46.8 billion in October to $4.748 trillion, after decreasing $121.2 billion in September $42.3 billion in August, $44.2 billion in July and $113.0 billion in June. Assets increased $31.6 billion in May, $417.9 billion in April and $688.1 billion in March. Our broad Crane Money Fund Average 7-Day Yield fell to 0.02% during the month, our Crane 100 Money Fund Index (the 100 largest taxable funds) sits at 0.03%.

On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA was unchanged at 0.19% while the Crane 100 was also 0.19%. Charged Expenses averaged 0.16% for both the Crane MFA and Crane 100. (We'll revise expenses on Monday once we upload the SEC's Form N-MFP data for 10/31.) The average WAM (weighted average maturity) for the Crane MFA and Crane 100 was 41 (up one day) and 45 days (up a day) respectively. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)

Oct 27
 

This month, BFI profiles Yoana Koleva, Managing Director at Lord Abbett and Portfolio Manager of Lord Abbett Ultra Short Fund. The Jersey City-based manager runs the largest Ultra-Short Bond Fund and second largest Short-Term Bond Fund and ranks 12th overall in our bond fund family rankings. Koleva discusses the firm's history, the fund's strategies and a number of other topics in the ultra-short space. Our Q&A follows. (Note: The following is reprinted from the October issue of our Bond Fund Intelligence, which was published on Oct. 15. Contact us at info@cranedata.com to request the full issue or to subscribe. Also, please join us for Crane's Money Fund Symposium Online, which will be held Tuesday, October 27 from 1-4pm ET.)

BFI: Give us a little history. Koleva: Lord Abbett was actually founded back in 1929, so we've been around for a very long time. Within the short duration space, we also have a very long history and a pretty significant presence. Our Short Duration Income Fund was launched in early 2008. We invest in short-term, credit-oriented securities and the goal is to generate strong, consistent returns with low volatility. We have a multi-sector approach where we invest in investment grade, high yield corporate securities, CMBS and ABS, and the way we add value is through sector rotation and security selection. Currently, the short duration strategy has over $60 billion in assets.

Given our experience and our success in short duration, in 2016 we decided to launch our Ultra Short Bond product. If you recall, 2016 was the year when we had a major change in the regulatory landscape driven by the Money Market Reform. We believe that created an opportunity for a new product. You saw significant outflows from the Prime money market space as gates and floating NAVs were introduced. Prime money markets dropped by nearly $1 trillion driven by investor outflows and fund conversions into government money market funds. For the investor that focuses on principal preservation and return above Treasuries there were really very limited opportunities. We saw that market dynamic and identified it as an opportunity for the ultra short space. We currently manage over $20 billion in assets in the space, so it's been a huge success.

In terms of my background, I have been with Lord Abbett since 2011. I initially started as a credit research analyst focusing on financials. I was an analyst for about four years, and in 2015, I moved over to the portfolio management team as our AUM was growing and our portfolio management team was expanding. I was part of the Ultra Short strategy launch in 2016, and in 2018 I assumed the role of lead portfolio manager. Prior to joining Lord Abbett, I was actually on the sell side. I was at Morgan Stanley and was a bank analyst there.

If you look at the performance, especially of Short Duration, it has been very strong over the past 10 years. We haven't had a negative return year in the last decade and have consistently delivered positive returns. We believe that there is an anomaly in short duration credit – short duration securities are overlooked by investors and over time they generate better risk-adjusted returns. The average duration of the short duration portfolio is two years and as such you have a lot of visibility in what the credit profile for a company might look like over the next two years. And given also the short duration of these assets, you have limited volatility. A two-year bond isn't going to exhibit the same type of volatility that you might see with a 10-year or a 30-year bond. So, our view is that the front end of the curve has been in a way neglected by investors, and on a risk-adjusted basis that's actually where you get superior returns.

BFI: Tell us about the team. Koleva: We have 65 investment professionals within taxable fixed income and we all work together and collaborate to identify investment opportunities. We have a team-based approach, there is no star portfolio manager that makes one or two key decisions. It's all about each team identifying market inefficiencies and opportunities within their space. There are three parts to the team: you have the portfolio management team, the credit research analyst team, and the trading team. Within portfolio management, we are all divided based on our areas of expertise. I am part of the corporate portfolio management team. We have an ABS team, a CMBS team, a rates team, and a leveraged credit team, and we are tasked with identifying opportunities within our area of expertise.

The second leg to the stool, so to speak, is the credit research analyst team. We have over 20 analysts covering all the major sectors. We have a centralized approach to credit research. Each analyst is a sector expert and covers all the credits that would be in their sector across the credit spectrum. For example, an energy analyst would cover all companies, ranging from single-A, at the higher end of the quality spectrum, all the way to triple-Cs. That gives them a very holistic view of their space, which is very helpful, especially with crossover credits, such as rising stars or fallen angels.

The third leg of the stool is the trading team. The traders work very closely with the portfolio managers and credit analysts. They know what the portfolio management team and the credit analysts views are, and they help us identify opportunities that we can invest in.

BFI: What are your major priorities? Koleva: With Ultra Short, the goal of the strategy is to generate excess return over Treasuries while maintaining at the same time limited downside volatility. The ultra short strategy is managed by the same team that manages the rest of the credit focused funds. Thus, we can leverage the expertise that we have across the team. Currently, we believe corporate credit provides an attractive opportunity and we have a rigorous process to identify the securities that can generate superior risk adjusted returns.

BFI: How is the fund positioned? Koleva: For Ultra Short specifically, the asset classes that we invest in are: commercial paper, asset-backed securities and fixed and floating rate corporate notes. To take a step back, when you think about what the key risks for strategies like ultra short are, I would bucket them into three categories: liquidity risk, credit risk and interest rate risk. The different sectors that we invest in are designed to address those risks.

If you think about liquidity risk, the way we address this is by investing in commercial paper. The commercial paper provides a natural liquidity for the fund, as it is staggered and is very short term. The commercial paper part of the portfolio ranges at about 20 to 30% of the fund. There’s a natural liquidity that comes from that commercial paper maturing.

The second risk we talk about is credit risk. The way we mitigate that is by investing in very high-quality assets. Think about our ABS book, it's triple-A. The corporate bonds are investment grade with a big focus on single-A rated securities. The overall average rating of the fund is A-plus. We're talking about very high-quality assets.

The third component to risk is interest rate risk. The way we protect against interest rate risk is by investing in floating rate products. So, depending on our view of whether we are in a rising or lower rate environment, we can dial up and down our exposure to floating rate notes. Those are the main asset classes that we invest in.

Where our expertise and value comes in is identifying relative value across the different asset classes to determine where the best opportunities are, and doing the sector rotation that I talked about. We could be overweight any of the four asset classes we invest in, depending on what our view of relative value is within that sector. Our ability to identify inefficiencies and relative value across the different sectors is one of the main ways we add value.

BFI: Talk about your investors. Koleva: It's blend of both retail and institutional. We have had a very strong history and a very strong presence within the retail space. So, I would say we are more retail-oriented. But we have seen strong growth within the institutional space as well, especially over the past couple of years, within the short duration and ultra short strategies.

BFI: What's your outlook? Koleva: We are constructive on the short credit space. We expect rates to stay at near zero for an extended period. In that type of environment, if you are interested in earning excess yield over Treasuries and you are concerned about principal protection at the same time, you don't have many choices. Money markets are yielding near zero. At the same time, the absolute level of yield is very low. If inflation picks up, taking duration risk puts you in a vulnerable position. So I think the ultra short and short duration funds are very well positioned. Also, I think the ultra short space is a good alternative if you want to preserve optionality in case we have another bout of volatility similar to what we had in March. If you have a more defensive view, and you’re waiting for a better opportunity to enter the market, having exposure to ultra short near term is a good alternative.

Oct 26
 

A press release, "Eric J. Pan Named President and CEO of ICI," says, "The Board of Governors of the Investment Company Institute has unanimously elected Eric J. Pan as ICI's next president and chief executive officer.He succeeds Paul Schott Stevens, who is retiring at year-end after more than 16 years as ICI's president and CEO."

Oct 15
 

The October issue of our Bond Fund Intelligence, which was sent to subscribers Thursday morning, features the lead story, "Worldwide Bond Funds Jump $820B in Q2'20 to $11.6 Trillion," which discusses the latest jump in bond fund assets globally, and "Lord Abbett Rules in Short-Term Bond Kingdom," which interviews Portfolio Manager and MD Yoana Koleva. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund yields were higher and returns were lower in September. We excerpt from the new issue below. (Contact us if you'd like to see our Bond Fund Intelligence and BFI XLS spreadsheet, or our Bond Fund Portfolio Holdings data.)

Our Worldwide piece reads, "Bond fund assets worldwide skyrocketed by $816.9 billion in Q2'20 to $11.6 trillion, driven higher by increases in the U.S., Luxembourg and Ireland. Brazil was the only major country showing a decrease in the latest quarter. We review the ICI's 'Worldwide Open-End Fund Assets and Flows, Second Quarter 2020' release and statistics below."

ICI says, "Worldwide regulated open-end fund assets increased 12.4% to $53.87 trillion at the end of the second quarter of 2020.... The Investment Company Institute compiles worldwide regulated open-end fund statistics on behalf of the International Investment Funds Association (IIFA).... On a US dollar-denominated basis ... bond fund assets rose by 7.5% to $11.63 trillion in the second quarter. Balanced/mixed fund assets increased by 10.7% to $6.48 trillion.... Money market fund assets rose by 6.1% to $8.16 trillion."

Our latest Fund Profile says, "This month, BFI profiles Yoana Koleva, Managing Director at Lord Abbett and Portfolio Manager of Lord Abbett Ultra Short Fund. The Jersey City-based manager runs the largest Ultra-Short Bond Fund and second largest Short-Term Bond Fund and ranks 12th overall in our bond fund family rankings. Koleva discusses the firm's history, the fund's strategies and a number of other topics in the ultra-short space. Our Q&A follows."

BFI says, "Give us a little history." Koleva responds, "Lord Abbett was actually founded back in 1929, so we've been around for a very long time. Within the short duration space, we also have a very long history and a pretty significant presence. Our Short Duration Income Fund was launched in early 2008. We invest in short-term, credit-oriented securities and the goal is to generate strong, consistent returns with low volatility. We have a multi-sector approach where we invest in investment grade, high yield corporate securities, CMBS and ABS, and the way we add value is through sector rotation and security selection. Currently, the short duration strategy has over $60 billion in assets."

She continues, "Given our experience and our success in short duration, in 2016 we decided to launch our Ultra Short Bond product. If you recall, 2016 was the year when we had a major change in the regulatory landscape driven by the Money Market Reform. We believe that created an opportunity for a new product. You saw significant outflows from the Prime money market space as gates and floating NAVs were introduced. Prime money markets dropped by nearly $1 trillion driven by investor outflows and fund conversions into government money market funds. For the investor that focuses on principal preservation and return above Treasuries there were really very limited opportunities. We saw that market dynamic and identified it as an opportunity for the ultra short space. We currently manage over $20 billion in assets in the space, so it's been a huge success."

Our Bond Fund News includes the brief, "Yields Up, Returns Dip in September," which explains, "Bond fund yields inched higher while returns were mostly lower last month. Our BFI Total Index returned -0.12% over 1-month and 3.83% over 12 months. The BFI 100 fell 0.10% in Sept. but rose 4.80% over 1 year. Our BFI Conservative Ultra-Short Index returned 0.05% over 1-mo and 1.75% over 1-yr; Ultra-Shorts averaged 0.10% in Sept. and 1.78% over 12 mos. Short-Term returned -0.02% and 3.33%, and Intm-Term fell 0.04% last month and 6.14% over 1-year. BFI's Long-Term Index fell by 0.17% in Sept. but rose 7.94% for 1-year. Our High Yield Index fell 0.57% last month and is up just 1.54% over 1-year."

In another News brief, we quote the Economic Times', "Bonds Suck in $26B, Pricing in US Democrats Win," which says, "Bond funds have seen the second-largest weekly inflows ever of $25.9 billion, BofA said on Friday, as the market continues to price in a Democrats victory.... Riskier high yield bond funds attracted $5 billion in the week to Oct. 7, the highest in 11 weeks, while government bond funds sucked in $3.8 billion, the largest inflows in 14 weeks."

A third News update tells readers, "The SEC Published, 'U.S. Credit Markets: Interconnectedness and the Effects of the COVID-19 Economic Shock' (and hosted a Roundtable Oct. 14). It says, 'Though many observers have been concerned about the ability of bond funds to access liquidity to meet redemption requests during periods of market stress, these concerns did not materialize during the market turmoil in March. Commission staff estimate that bond mutual funds experienced $255 billion of net outflows during March 2020, with another $21 billion in outflows from bond ETFs.' ICI also published, 'The Impact of COVID-​19 on Economies and Financial Markets.'"

BFI also features a sidebar entitled, "Barron's on Best Bond Funds." Their article, 'The Best Bond Funds for Uncertain Times.' explains, 'The drastic changes in the fixed-income market in recent months -- largely driven by the Federal Reserve's signaling that interest rates will stay near zero until 2023 ... -- necessitates a reassessment of bond portfolios.... With CDs and money markets paying nothing, income investors tend to gravitate toward short- or ultrashort-term bond funds. But many of these have taken on credit risk to bolster their yields, so they took bigger losses at the height of the crisis than most investors would expect from their 'safe' investment bucket, says Morningstar analyst Garrett Heine.'"

Finally, a brief entitled, "BF Inflows Slow, Then Jump," explains, "Bond funds continue to see strong inflows and asset gains, but they paused briefly in late September. ICI's 'Combined Estimated Long-Term Fund Flows and ETF Net Issuance,' says, 'Bond funds had estimated inflows of $25.02 billion for the week, compared to estimated inflows of $4.40 billion during the previous week [and $5.04B the prior week]. Taxable bond funds saw estimated inflows of $22.54 billion, and municipal bond funds had estimated inflows of $2.48 billion.' Over the past 5 weeks, bond funds and bond ETFs have seen inflows of $63.3 billion.'"