Nov 12 - Fitch Ratings says in a new report that the European money market funds (MMFs) it rates have reallocated almost 20% of their portfolios by geography over the past two years. This represents an industry-wide geographic shift of around EUR100bn of assets.
The reallocation has been from peripheral Europe, the US and the UK, to core Europe, the Nordic countries and, to a lesser extent, Asian and Middle East issuers. Nevertheless, MMFs retain large exposures to European issuers, with the average portfolio 75% exposed to Europe.
Fitch believes that further adoption of issuers from non-traditional geographies will be slow, driven by investment manager and investor preferences and volumes of issuance in the funds' base currency, rather than credit considerations. Among Fitch-rated European MMFs, only 12% invest in Middle Eastern issuers and 25% in Asian ex-Japan issuers at end September 2012. Exposure to Asia Pacific issuers is a growing portion of MMF portfolios across all currencies; increasing 7% on average over the past two years.
Bank rating downgrades, sovereign concerns, and a lessened need for banks' short-term funding are leading investment managers to consider a wider universe of potential holdings. Some investment managers are more willing than others to invest outside of their traditional country range - a function of research resources and asset managers' caution, amongst other considerations.
Link to Fitch Ratings' Report: Reallocation of European MMF Regional Exposures