“Money market funds offer a useful parking bay for investors’ cash allocations, allowing you to earn better returns than bank rates with good liquidity. But when it comes to picking money market funds, investors tend to focus on one metric only: yield. By implication, this oversimplistic comparison assumes that aside from yield, all money market funds are equal – a common mistake which could place your investment at greater risk than you may have thought,” Samantha Steyn, Chief Investment Officer at Cannon Asset Managers writes in MoneyMarketing.
Steyn advises that, given the current uncertain environment, it is crucial to understand the nuances between various funds to ensure that you have selected the right money market fund for your needs. She provides the reader with a simple guide to understanding and selecting money market funds.
According to Steyn there are essentially two options that enable some money market funds to offer more attractive yields than others. Firstly, getting the forecasts on interest rates right; and secondly including a higher ratio of lower-rated debt. “Analysing which of these two themes may be at play is key to better understanding and ultimately selecting a money market fund,” she states.
Click here to read her MoneyMarketing article that explains the two options.
Over the years we have seen a number of smaller operators, posing as moneymarket funds, folding as they opted to exceed their mandate by investing in risky schemes in order to obtain better yields to lure more investors. The onus is on us as advisers to guard our clients against risky schemes and greedy investors who tend to ignore sound advice in search of improbable returns.
