Money market funds gain popularity with investment platforms, as interest rates rise

FROM brokerages like moomoo to private market exchange ADDX, more investment platforms are offering their customers the ability to invest in money market funds as an alternative to holding cash.

Higher interest rates have made these funds an attractive investment, giving investment platforms an opportunity to compete with banks for customer monies.

On Aug 29, ADDX launched a cash management tool called ADDX Earn. Clients can invest their money in the Lion Global SGD Enhanced Liquidity Fund or Lion Global USD Enhanced Liquidity Fund, both of which have weighted average portfolio durations of less than a year. The funds had weighted average yields to maturity of 2.22 per cent per annum and 2.38 per cent per annum, respectively, as at Jul 31.

ADDX chief executive officer Choo Oi-Yee said that some clients have become more risk-averse given rising inflation and the growing potential of a recession.

“They are very scared about what’s happening in the markets, so they are actually pulling back cash … (and) waiting for opportunities

“The problem is nobody can see the endpoint. The longer people cannot even speculate on an endpoint, they will likely still keep cash,” she said.

Online brokerage moomoo, too, has introduced a money market product. Called Cash Plus, it offers access to the CSOP USD Money Market Fund or the Fullerton SGD Cash Fund. Both funds had 7-day annualised yields of 2.43 per cent and 2.32 per cent, respectively, as at Sep 14.

Since its launch in end-March, the product has seen the average monthly growth rate for new subscribers and assets under management exceed 100 per cent and 150 per cent respectively.

The yields of money market funds have beaten stock market indices in recent months.

Fullerton Fund Management head of treasury management Darren Tay said that the performance of such funds has been stable amid intense market volatility in risk assets.

For the 8 months ended Aug 2022, Tay noted that the S&P 500 index delivered -13.1 per cent returns and the MSCI Asia ex Japan index delivered -14.2 per cent returns in Singdollar terms.

Over the same period, the Fullerton SGD Cash Fund returned 0.6 per cent. Singapore banks’ savings accounts would have paid 0.1 per cent.

“Money market funds have benefited from the upswing in interest rates, which has enabled them to invest in higher yielding instruments at short notice,” Tay said.

Incorporating money market funds into investment platforms is not new.

FSMOne, the online brokerage platform owned by locally listed iFast Corporation, has for some years had the FSM auto-sweep account, which is a cash management account. Funds in the account are managed by FSM and invested into money market funds and other similarly low-risk, liquid instruments.

The account had a net yield of 1.661 per cent per annum as at Sep 6, based on the weighted average of the latest yield of underlying portfolio constituents after deducting latest fund-related expenses and FSM management fee.

But Lion Global CEO Gerard Lee said that over the last 10 years, he has observed that newer players, especially digital ones, have shown more interest in offering money market funds.

“The whole idea is that they want to offer money market funds so that money doesn’t come out of the platform. They try ways and means to make things as sticky as possible,” he said.

FSM is working hard on that stickiness. The platform recently launched a debit card with payment institution Nium, to allow customers to spend the cash in their account. The card will also provide cashback on payments.

Terence Lin, general manager at wealth advisory platform iFast Global Markets, said customers are looking for higher yields on money that they would normally consider to be their savings.

Sumit Kumar, managing director and partner at Boston Consulting Group, said money market fund offerings would help platforms keep customer cash after investments are sold.

If customers do not have better options, they would take profits out of investment platforms and deposit these into their bank accounts.

“Once (investors) move to another account, a relationship manager will try to sell them something and then there goes the stickiness, you are getting attacked by someone else,” he said.