Substantial one-year charged-expense hikes, fee-waiver levels down

From Money Fund Report®: Charged-expense levels for all money-market funds continued in the third quarter to move away from all-time record lows and fee forgiveness by fund sponsors to benefit shareholders was less in evidence as fund yields recovered further from a long period of near-zero levels, iMoneyNet data revealed.

The use of fee waivers among all taxable money-market funds surveyed by Money Fund Expense Report™ in the third quarter plunged to 90.9 percent from 97.3 percent during third-quarter 2015. The use of fee waivers offered by all money-market funds was 90.3 percent, down from 98.0 percent during the year-ago quarter. The tax-free sector reported a drop to 88.3 percent of funds waiving fees, down from 100.0 percent of tax-free funds absorbing at least some fees one year ago.

By category, fee-waiver offers among Government Retail funds declined to 94.8 percent as of Sept. 30, compared to 99.3 percent during third-quarter 2015. Prime Retail fund-waiver use slipped to 88.0 percent from 99.1 percent last year.

Government Institutional fund fee-waiver use during the third quarter was 89.7 percent versus 99.7 percent of funds waiving fees one year ago. Use of fee waivers by Prime Institutional funds was 90.5 percent, down minimally from 91.1 percent during the year-ago quarter, an apparent attempt to hold onto investor assets flooding out of the funds for government-fund options as the Oct. 14 conversion to floating-NAV structures loomed on the horizon.

Quarterly earnings reports issued last week by State Street and Federated Investors included references to the costs of providing waivers to fund customers. State Street simply mentioned that "lower money-market fee waivers" were partly behind increases in management fees. Federated, the fourth-largest MMF complex with reported assets of $199.05 billion as of Sept. 30, noted that its year-to-date revenue increased by $170.5 million or 25 percent compared to year-ago numbers "primarily due to a decrease in voluntary yield-related fee waivers" (to maintain positive or zero net yields in certain money-market funds) though its operating expenses also rose by 25 percent during the period "primarily due to an increase in distribution expenses as a result of a decrease in voluntary yield-related fee waivers."

Charged-Expense Levels

The average unweighted charged-expense ratio for all MMFs was 0.35 percent in the third quarter, compared to 0.13 percent one year ago. The unweighted charged-expense ratio for all Taxable funds was 0.33 percent, more than double the 0.15 percent average recorded during the year-ago quarter. Tax-Free funds on average charged investors 0.42 percent, six times more than the 0.07 percent assessed during third-quarter 2015; a level that matched the all-time low for the category established in March 2015. Other record lows of 0.11 percent for both all Taxable funds and all MMFs were set during the January-to-March 2014 time frame.

At the other end of the scale, all-time highs for Taxable (All) funds’ charged expenses were set at 0.65 percent in the third quarter of 1989; highest charged-expense averages for Tax-Free (All) funds of 0.62 percent occurred during 2001. Average charged expenses for all MMFs peaked at 0.63 percent during the second half of 1989, as reported in Money Fund Report® #1977 (Nov. 1, 2013).

The third-quarter average charged-expense ratio for all funds on an asset-weighted basis was 0.25 percent on Sept. 30, the same as the previous quarter and up from 0.14 percent as of September 2015.