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PNC Taxable Money Market Funds
Quarterly Market Commentary
Second Quarter 2014
Economy and the Fed
As long as yields on money market funds remain historically low, all eyes will continue to focus on Janet Yellen and the Federal
Open Market Committee (FOMC) for any signal of a policy change. During the second quarter, the FOMC held steady in its
view that the current 0-25 basis point (bps)¹ target range for the federal funds rate remains appropriate and will continue to
be for some time. The committee indicated that economic growth has rebounded modestly from the harsh winter months,
while household spending and business investment has improved. The Committee also announced at both meetings that it will
continue to reduce the pace of asset purchases by $10 billion at a time. If this pace of tapering continues, the asset purchases,
or quantitative easing , will conclude this fall. Following the June FOMC meeting and statement release, Janet Yellen held her
second press conference as Chairwoman. She reiterated her stance that the Fed expects interest rates to remain low after the
asset purchases end, but she declined to give a concrete timetable. She also glossed over concerns about rising inflation and
viewed any uptick in inflation as “transitory.” Looking ahead to the second half of this year, we do not anticipate any rise in the
federal funds target rate in the coming months. The fed funds futures market is currently pricing in an increase in fed funds to
0.50% in September 2015.
Money Markets
Activity in the short-term markets during the second quarter was characterized by low volatility and the persistence of
historically low yields as demand continued to outpace supply. The LIBOR curve did not materially change during the quarter.
As April tax receipts streamed in, Treasury bill outstandings declined by almost $200 billion from the end of March to the
end of April, further draining needed supply from the market. By the end of the quarter, yields on short-dated Treasury bills
were at or even below zero. The Fed’s overnight reverse repurchase facility received record usage at the end of the quarter,
as approved counterparties were allotted $340 billion. This compares with less than $200 billion each at April and May month
ends, and less than $250 billion last quarter end.
In early June, the European Central Bank (ECB) lowered its main refinancing rate and deposit rate by 10bps, to 0.15% and
-0.10%, respectively. The ECB was the first major central bank to dip into negative territory. While there was no effect on shortterm rates in the U.S. market, yields on some Euro CP and bills dropped by 4-5bps. This action was meant to discourage banks
from leaving deposits with the ECB and instead provide incentive for banks to lend money, thereby spurring economic growth
in the euro area.
Investment Strategy
The relatively flat money market yield curve offers little incentive to extend maturities. As such, we are targeting Weighted
Average Maturity (WAM) in days in the low 50s for our Government and Treasury money market funds and the mid to high
40s for our prime money market funds. As we approach the first fed funds rate hike we will proactively shorten the WAMs
in all of our money market funds to facilitate the timely transition to higher fund yields. Additionally, we are adding floating
rate investments when attractive to favorably position the funds for the eventual rise in short-term interest rates. We will
continue to maintain appropriate levels of liquidity and emphasize high credit quality, as spreads for corporate issuers are
very compressed.
One basis point is equal to 0.01% (1/100th of a percent).
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PNC Taxable Money Market Funds
Second Quarter 2014
Regulatory Update
For more than a year, short-term investors have been debating about and waiting patiently for
additional money market regulatory reform. Following the release of four additional studies
from the SEC’s Division of Economic Risk and Analysis at the end of the first quarter of this
year, SEC Chairwoman Mary Jo White stated that the long-awaited new rules surrounding the
money market industry would be released in the near term. Prior to this publication, various
media outlets reported on July 10 that the SEC has finalized its long-awaited reform proposal
and would vote on the proposal later in July. The SEC reportedly has the votes to pass it.
We will continue to monitor FOMC comments closely, as well as SEC reform developments,
and we will publish an explanatory piece that details the changes when more information
becomes available.
MANAGEMENT TEAM
Richard J. Stevenson
Portfolio Manager
Patrick J. Azouri, CFA
Portfolio Manager
Kelly K. Peel, CFA
Portfolio Manager
The views expressed in this investment report represent the opinions of PNC Capital Advisors, LLC and are not intended to predict
or depict performance of any investment. All information contained herein is for informational purposes and should not be construed
as investment advice. It does not constitute an offer, solicitation or recommendation to purchase any security. The information herein
was obtained by various sources; we do not guarantee its accuracy or completeness. Fund performance quoted above is for class
I shares. Past performance does not guarantee future results. These views are as of the date of this publication and are subject to
change based on subsequent developments.
The dividend yield paid by PNC Money Market Funds will vary with changes in short-term interest rates. With respect to the
PNC Money Market and Government Money Market Funds, the value of debt securities within each Fund’s portfolio may be
affected by the ability of the issuer to make principal and interest payments. The PNC Government Money Market Fund is
subject to counterparty risk, which is the risk that another party in a repurchase agreement may not fulfill its obligations
under the agreement.
An investment in the money market funds is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although the Funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose
money by investing in the funds.
You should consider the investment objectives, risks, charges and expenses of the PNC Funds carefully before investing.
A prospectus or summary prospectus with this and other information about the Funds may be obtained at 800-622-FUND
(3863) or pncfunds.com. Please read the prospectus carefully before you invest or send money.
PNC Capital Advisors, LLC, a subsidiary of The PNC Financial Services Group Inc., serves as investment adviser and coadministrator to PNC Funds and receives fees for its services. PNC Funds are distributed by PNC Funds Distributor, LLC,
which is not affiliated with the adviser and is not a bank.
©The PNC Financial Services Group, Inc. All rights reserved.
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