1、European Money Market Funds QuarterlyContentsSummary 1Scope of the Report 2European Money Market Funds Commentary 2AuM Trends for European Money Market Funds 2The Interest Rate and Market Environment 4Offshore Money Market Fund Yields 5Market Risk 6Liquidity Management: Building Cash Again 7Credit R
2、isk 8Portfolio Allocation 8Industry Issues 10Sovereign Risk Q210 10New CESR Definition Offers Greater Clarity for European Money Market Funds 11AnalystsLondonRoxana Mahboubian +44 207 070 5811 ParisAymeric Poizot, CFA, CAIA+33 1 44 29 92 Charlotte Quiniou, CFA+33 1 44 29 92 New YorkRoger Merritt+1 2
3、12 908 Q210 July 2010 This is the second issue of Fitch Ratings European Money Market Funds Quarterly report, commenting on trends, developments and pertinent issues in the European money market funds (MMF) industry. This report primarily focuses on the changes in the six months to May 2010. In Q110
4、, assets under management (AUM) in European MMFs experienced their fourth consecutive quarter of negative growth. As at the end of Q110, European MMFs stood at EUR1.26trn, a 10% decrease from the historical high of EUR1.40bn in Q109. However, AUM in AAA-rated CNAV (constant net asset value) European
5、 MMFs experienced a 1.1% growth in their asset base in Q110, and a further 5.8% in Q210. Money market fund managers are currently expecting interest rates across euro, sterling and US dollar to remain stable, at least until the end of the year, with the Federal Reserve potentially being the first ce
6、ntral bank to raise rates. The US dollar and sterling Libor curves steepened in Q2, reflecting anticipated increased interbank rates, due to lower excess liquidity, a change in policy rates early next year and, more recently, some financial stresses. By contrast, the Euribor curve has not moved mate
7、rially as a result of liquidity conditions, and policy rates are unlikely to change given the combination of lacklustre growth and the sovereign debt crisis. Despite the consensus view that interest rates will remain on hold in the short term, most funds are not taking this opportunity to position t
8、hemselves longer on the curve, due to the uncertain market environment and growing concerns over some European sovereigns. SummaryRelated Research“European Money Market Funds: Analysing the New Definition”, (June 2010)“Fitch: Money Market Funds Adjust Southern European Exposures”, (May 2010)“US Mone
9、y Market Funds Quarterly: First-Quarter 2010”, (May 2010) “European Money Market Funds Quarterly Q110”, (March 2010) “European ABCP Conduits: An In-depth Look”, (January 2010)“Global Money Market Fund Rating Criteria”, (October 2009)“European Money Market Funds A Primer for Investors Questions and A
10、nswers Part 1”, (March 2010)2 Credit Asset Management Quarterly Q210 The focus for MMF managers has been managing both credit risk, through shorter tenors, and liquidity risk, through a higher proportion in overnight and up to one-week assets. This has resulted in the weighted average maturity of MM
11、Fs being much lower than would be the case in a stable rate environment. The increased exposure to overnight and one-week maturing assets has only recently emerged (since March 2010). As result of less liquidity in the markets, less certainty as regards the direction of the sovereign crisis, and mor
12、e questions from nervous clients, managers are taking a more prudent view and carrying more liquidity to meet any unexpected redemptions. The more conservative investment practices have also contributed to the lower yields being offered by MMFs. Despite opportunities for funds to achieve higher yiel
13、ds, many managers consider the additional risk unworthy of the additional yield in the current climate. Asset allocation has not changed considerably in the six months to May 2010. New investments have slanted towards banks as opposed to sovereign debt, as these investments have become more attracti
14、ve (especially for USD MMFs, where the returns from banks have increased as Libor rates have moved up). With the sovereign risk issues intensifying over the past few months, money market funds have reduced exposure to certain countries, such as Spain and Portugal, focusing on a handful of stronger b
15、ank names with reduced tenors to limit volatility risk. Managers have also strengthened their sovereign risk assessment, some even putting in place the hard country limits already adopted by a few other managers. The new CESR guidelines for harmonised MMF definitions across Europe will take effect i
16、n July 2011. This brings improved transparency and clarity for European investors and for MMFs themselves.European Money Market Funds CommentaryIn the period since the last European Money Market Funds Quarterly report, the low interest rate environment has continued to create challenges for both inv
17、estors seeking liquidity and an attractive return on cash assets and for MMF managers. In this report, Fitch will focus on the changes in MMF management and portfolios in the six months to May 2010, and highlight future expectations. AuM Trends for European Money Market FundsAt the end of Q110, the
18、European MMF industry stood at EUR1.26trn, a 10% decrease from its Q109 level, where it had reached its historical high of EUR1.40bn. Q110 represented the fourth consecutive quarter of negative growth in AUM. As can be seen in the chart below, not all segments of the European MMF universe have adopt
19、ed the same pattern. In contrast to the rest of the market, AAA-rated CNAV European funds experienced a 1.1% growth of their asset base in Q110. In Q210, this trend saw AAA-rated CNAV assets increasing Scope of the ReportFor the purpose of this report, Fitch will focus on European MMFs with the prim
20、ary objective of security of principal and daily liquidity. As per Fitchs “Global MMF Rating Criteria”, published on 5 October 2009, such funds are assigned a rating on Fitchs MMF rating scale, with an mmf subscript. Such ratings are dedicated specifically to these types of funds. Except where state
21、d, the information in the tables and the charts refers to AAA-rated MMFs included in iMoneyNets offshore MMF universe. This universe comprises MMFs with the primary objective of capital preservation and daily liquidity, domiciled outside of the US, predominantly in Ireland and Luxembourg. By AAA rat
22、ings, Fitch refers to AAA ratings that are assigned to MMFs by Nationally Recognised Statistical Rating Organisations (NRSRO). Most observations and conclusions may also be applicable to a broader universe, comprising conservative European MMFs, even if unrated.All data in charts are as end of month
23、.02004006008001,0001,2001,400Dec 05 Dec 06 Dec 07 Dec 08 Dec 09European MMFs (UCITS)French MMFsAAA-rated CNAV MMFsEuropean MMF UniverseAuM in EURbnSource: EFAMA, AMF, IFIA, iMoneyNet(EURbn)3by a further 5.8%, reaching EUR469bn at end-June 2010. Over the same period, French MMFs lost 6.6% of assets a
24、nd were standing at EUR428bn at end-June 2010.France, Luxembourg and Ireland are the three largest markets in terms of domiciliation for European MMFs, with market shares of 37%, 25% and 24% respectively. While France-domiciled funds are predominantly held by French investors in variable NAV (VNAV)
25、funds, Irish funds are generally Constant NAV (CNAV), with a geographically diversified investor mix. Luxembourg funds include both CNAV and VNAV funds, held by investors across a broad range of countries. In spite of the varied asset growth trends in 2009, the breakdown of MMF assets by country of
26、fund domicile has barely changed year-on-year. There is little public information available on MMF investor mix. Through the Institutional Money Market Fund Association (IMMFA), AAA-rated CNAV European funds have nevertheless started to collate information on their average investor breakdown, as sum
27、marised the two graphs below. This analysis highlights the diverse nature of European MMF investors, with financial institutions (31%), corporates (26%) and retail investors (directly or via asset managers, 28%) holding approximately one third of the market each, at end-December 2009. From a geograp
28、hical perspective, the UK still has the largest investors in IMMFA funds, accounting for 48% of total assets. Investors from Continental Europe, not an historical market for such funds, were holding as much as 30% of IMMFA assets at end-2009.Portal7%Retail9%Public sector2%Other financial institution
29、s13%Insurers10%Banks9%Corporates25%Asset Managers19%Pension schemes6%Type of Investors in AAA-rated CNAV FundsAs at Dec 2010 Source: IMMFAOther Cont. Europe13%Benelux17%UK48%Latam a typical situation when interest rates increase.With the expectation that official interest rates will not change befor
30、e years end, one would normally expect MMFs to extend the maturity of their portfolios (notably as curves are reasonably steep). This has not been the case, however, as the bigger focus for MMFs has been on liquidity and credit. Rather than attempting to achieve additional yield by slightly lengthen
31、ing portfolios, MMFs have continued to be conservative, focusing on building up liquidity, including overnight exposure, and investing in shorter-dated credits. Overnight rates in sterling and euro have remained consistent over the six-month period to end-May 2010, relative to longer-dated rates, hi
32、ghlighting the high level of short-term liquidity remaining in the system. Euro and sterling funds that have increased their overnight exposure have therefore found it more difficult to achieve a higher yield over the period. However, overnight rates in dollar have increased during the period, as th
33、e Federal Reserve has tried to reduce liquidity in the system. This, together with the general steepening of the yield curve, has contributed to the additional yield offered by US MMFs since January 2010.The median seven-day yield in the US dollar universe went up by 4bp in the period from end-Decem
34、ber 2009 to end-May 2010. For the sterling and euro, the changes were an increase of 5bp and a fall of 9bp, respectively. Yields offered by MMFs investing exclusively in government debt have also declined, as these funds have started concentrating more on core European countries whose yields have fa
35、llen due to the flight to quality. From a yield perspective, investors have not had much incentive to move into sovereign MMFs. 6 Credit Asset Management Quarterly Q210Modest yield divergence emerging among USD and sterling AAA-rated Offshore MMFsThe charts above show the variance in the seven-day n
36、et yield in AAA-rated offshore MMFs. During the financial crisis in 2008, the spread between the lowest yielding and highest yielding MMFs widened significantly in each of the currency classes. Within three months of the Lehman Brothers collapse in September 2008, the yield differential peaked at sl
37、ightly above 2.7% for each currency. From 2009, spreads started converging; as reflected by the charts above, AAA-rated offshore euro MMFs have continued this trend in the six-month period to end-May 2010. For sterling and USD MMFs however, there has been a modest divergence since April 2010, reflec
38、ting the re-emergence of different risk appetites amongst MMF managers. Market RiskDespite a stable rate environment, in the short-term, there remains an overall aversion to extend the weighted average maturity to reset The weighted-average maturity to reset (WAMr) is the traditional measure of a MM
39、Fs exposure to interest rate risk. Factors affecting the funds WAMr include the fund managers view on future interest rates, the need for portfolio liquidity (as internal policy, for future expected redemptions and/or post sudden unexpected redemptions) and the credit view. Earlier in the year there
40、 was an expectation that, all else being equal, portfolios would shorten much more than they have. The view at that time, that perhaps there would be rate rises by the middle of this year, started to evaporate as economic data failed to improve and market sentiment became more negative (a result of
41、the sovereign debt crisis). Now that rate hikes are not expected from the European Central Bank, the Bank of England or the Federal Reserve until the end or the year (or even next year), one would expect MMFs to extend maturity. This has not, however been the case, as demonstrated by the WAMr charts
42、 below. 0102030405060May 09 Aug 09 Nov 09 Feb 10 May 10Median Min MaxWAMr - EuroSource: iMoneyNet0102030405060May 09 Aug 09 Nov 09 Feb 10 May 10Median Min MaxWAMr - SterlingSource: iMoneyNet0102030405060May 09 Aug 09 Nov 09 Feb 10 May 10Median Min MaxWAMr - US DollarSource: iMoneyNet0.00.51.01.52.0M
43、ay 09 Aug 09 Nov 09 Feb 10 May 10Median Min Max(%)7 Day Net Yield - Euro Source: iMoneyNet0.00.51.01.52.02.5May 09 Aug 09 Nov 09 Feb 10 May 10Median Min Max(%)7 Day Net Yield - SterlingSource: iMoneyNet0.00.51.01.5May 09 Aug 09 Nov 09 Feb 10 May 10Median Min Max(%)7 Day Net Yield - US DollarSource:
44、iMoneyNet7WAMr in MMFs across all currencies fell notably from March this year, as managers deemed the risk-return trade-off unattractive and chose instead to build liquidity and manage credit risk. Although there is no expectation of a greater jump to default by the bigger and more highly rated ban
45、ks which typically comprise a large portion of MMF portfolios there is a considerable amount of headline risk, marked-to-market risk, and liquidity risk that is keeping managers cautious. MMFs that invest exclusively in sovereign securities have been excluded from the charts above, as some of these
46、funds maintain a very low WAM, which can create discrepancies in the figures. and the Weighted-Average Days to Final MaturityThe weighted-average days to final maturity (WAMf) is a measure of spread risk and liquidity. In January 2010, Fitch started monitoring the WAMf of its AAAmmf rated funds. The
47、 charts above display WAMf for Fitch-rated MMFs for the period January 2010 to May 2010. There has been no significant change in the average WAMf levels of Fitch-rated funds since January 2010. The levels had already significantly reduced in 2008 and 2009, as a result of changing portfolio managemen
48、t strategies (aimed at strengthening liquidity and credit profiles), and reduced investments in floating rate notes and their tenors. The WAMf level across all three currencies declined slightly in May, as the sovereign crisis intensified. Liquidity Management: Building Cash AgainIn its last quarter
49、ly MMF report, Fitch highlighted the importance of managing a MMFs portfolio of investments, consistent with the expected liquidity requirements of investors. The agency also highlighted some of the sources of liquidity risk in the funds. As evident from the three charts below, the average levels of overnight and one week liquidity in euro, sterling and US dollar MMFs have not onl
