With all the talk of repo becoming scarce, we wondered how the largest US money funds were reacting and what they were investing in. This is an important structural question not just for bank funding but for all sorts of funding – at US$2.7 trillion AUM, the way that money funds invest has an impact throughout financial product supply and demand.
To get some answers, we looked at the holdings of the ten largest US institutional mutual funds as ranked by iMoneyNet.com. These were:
1. CJPXX – JP Morgan Prime Money Market Fund
2. FIPXX – Fidelity Institutional Prime Money Market Fund
3. FMPXX – Fidelity Institutional Money Market Fund
4. FTIXX – Goldman Sachs Financial Square Treasure Instruments Fund
5. MGSXX – Morgan Stanley Institutional Liquidity Funds, Government Securities Portfolio
6. POIXX – Federated Prime Obligation Fund
7. TMPXX – Blackrock Liquidity Temp Fund Portfolio
8. VMXX – Vanguard Prime Money Market Fund
9. WFJXX – Wells Fargo Advantage Heritage Money Market Fund
10. SSIXX – State Street Institutional Liquidity Reserves Fund
The ten funds accounted for US$507 billion in assets, or 28% of all US institutional money fund assets according to the Investment Company Institute’s February 25, 2015 figures.
Based upon filing requirements by SEC, we were able to examine each fund and their monthly schedule of portfolio holdings. We used Form N-MFP from the Edgar database. We pulled up the most recent month available, December 2014. From the filed reports, we then assessed asset class breakdowns and coverage both on an aggregate and fund-by-fund basis.
We found that these 10 funds held an average 45% of their holdings in “Other Repurchase Agreements,” 37% in “Government Agency Repurchase Agreements” and 3% in “Treasury Repurchase Agreements.” Say what you want about repo, but its definitely not dead as far as big money funds are concerned. The remaining assets were 6% in CDs and 9% in a mix of other fixed income and commercial paper.
We wondered about the Other Repurchase Agreements category and found that it was a mix of financial commercial paper, government debt and asset backed securities. Is this a reach for yield or a reaction to less US Treasury repo in the private sector? Probably a bit of both, although this isn’t the sort of thing that portfolio managers want to discuss on a shareholder call. The reality is that its a tough investing environment, and money funds are doing the best they can with limited options.
Generally speaking, the funds were similar in their mix of asset class holdings although outliers caused the figures to vary substantially. Vanguard’s Prime Money Market Fund for example held a sizeable 32% of assets in certificates of deposit, compared to the average of 11%. Wells Fargo’s Heritage invested in asset types no other funds held positions in, for example US$40 million in “Insurance Company Funding Agreements” and US$94 million in “Other Municipal Debt.” Lastly, Goldman Sachs’ Financial Square Treasure Instruments Fund listed 100% of their fund holdings in Treasury Debt – the second closest fund, the Vanguard Prime MMF, held 27%, and the third closest at a much lower 3%.