How the fund managers do it

Money market fund managers work in a more constricted investment universe than, say, equity fund managers.

Though there are a number of cash instruments to invest in returns will be the same or similar. Obtaining the best returns requires the correct asset allocation and a view about interest rates and inflation that can be acted on.

That’s why most money market fund managers tend to hold instruments of short duration to try and lock in higher interest rates.

But performance isn’t really the top priority but rather capital preservation and steady income.

“Money market funds are the conservative part of investing. We’re not going to get the returns of an equity fund, so we follow the conservative route,” said Ansie van Rensburg, head of money markets and a portfolio manager at Stanlib.

With more than R100bn assets under management in its three money market funds, Stanlib is South Africa’s largest money market manager.

Van Rensburg and her team look after those assets on behalf of clients.

She said liquidity may be one of the attractions for investors, as they can access their money within 24 hours if they want to. “As per regulation, we can’t have more than 30% of the portfolio with one bank. We also can’t hold an investment longer than one year but have an average duration of 90 days.”

What type of assets does Van Rensburg hold in her funds?

“Typically, only the short duration money market assets, such as call deposits, fixed deposits, treasury bills and negotiable certificates of deposit.”

Using the R39bn retail fund as an example, she says it should comprise the cash portion of an investor’s portfolio, such as a retired person who needs regular income.

“The fund is also suited to someone saving to buy something like a car at a future date.”

Van Rensburg says the fund only invests in SA’s five big banks plus some offshore banks, but only through their offices in SA. “We’re not allowed to invest offshore. It’s a rand-denominated fund, so even if we have some exposure to an offshore bank we’re not affected by the currency.”

How does Stanlib try and beat competing money market funds?

“We have two dedicated credit analysts and work with the economist, so it’s very much about approach. If you get the directional bets right and the yield curve right, that’s how you beat competitors.”

But she emphasised that while the funds strive for upper quartile performance they don’t necessarily want to shoot the lights out one year and then be at the bottom of the pile the next year.

“Stability and consistency are at our core,” she said.

What’s the outlook for money market funds?

“We are probably at the bottom of the interest rate cycle. Economic growth isn’t coming through as the SA Reserve Bank governor would like, so I think interest rates will be flat for the next year or so. Then there’s inflation, with the producer price index recently coming in at 9.4%. That was a bit of a shock to the market and could indicate higher inflation next year.”
 

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