A smarter way to manage your cash
June 2023
As global uncertainties remained elevated, investors in Singapore are increasingly turning to cash as a safer haven. With major central banks still raising interest rates albeit at a slower pace, many savers are moving their money into fixed deposit (FD) offerings to ride the rate increase, even if depositors must put up with queues and FD lock-in periods.
This is where cash funds managed by investment professionals come in, offering a simpler way to invest in fixed deposits without the hassle.
Typical objectives of a well-managed cash fund
Note: For illustration purposes only.
1) Provide competitive returns to bank deposits
Cash funds are actively managed by investment managers who have increased visibility across a wide range of banks and market intelligence. These dedicated investment managers closely monitor macroeconomic data, track interest rate trends and assess counterparties. This enables them to diversify their placements, invest in Bills, and dynamically adjust placement periods, with the objective of maximising returns and liquidity while effectively managing counterparty risks.
2) Preserve capital
Cash funds are diversified across financial institutions, which could potentially reduce risk, smooth volatility and yield higher returns in comparison to single deposits.
The Monetary Authority of Singapore’s Code on Collective Investment Schemes prescribes that assets can only be invested in financial institutions with short-term ratings of at least F-2 by Fitch, P-2 by Moody’s, or A-2 by S&P’s (i.e. investment grade) or the equivalent as deemed by the investment manager, further mitigating counterparty risks.
3) Provide liquidity for investors
Cash funds typically provide next business day settlement during redemption allowing investors to quickly access their funds in case of unexpected expenses, or as reserve for potential investment opportunities. This is because investment managers actively manage the maturity periods across invested deposits to ensure liquidity.
In addition, investing in cash funds is also convenient, with subscriptions available via investment platforms offered by bank incumbents, digital brokerages, or robo-advisers, and accessible with no preset minimum investment amount. A well-run cash fund can deliver these advantages at a competitive management fee1, some as low as 0.1% p.a., and with 0% subscription charge, making it a cost-effective option for investors seeking to add bank deposits to their investment portfolios.
Interest rate outlook2
As we enter mid-2023, investors are closely monitoring geopolitical developments in regions such as Russia, Ukraine, U.S., China, Taiwan, North/South Korea, Japan, Iran and Israel as it has the potential to disrupt supply and demand and keep inflation sticky.
While jumbo rate hikes of 50-100bps are likely finished, the U.S. Federal Reserve's rate hikes may be close to peaking, despite banking turmoil in March. The recent MAS Policy Statement on April 2023 drifted towards a pause on further tightening as Singapore acted earlier than the U.S. and Europe, and inflation is under control in the ASEAN trading partners.
The interest rate environment in Singapore was elevated recently, which was advantageous for the cash portfolios with short-dated strategies contributing to higher yields.
1For illustrative purpose only
2As of June 2023. Views are subject to change without notice.