There is a lagged impact of rate cuts on the yields of the Nedgroup Investments Cash Solutions fund range.
This was explained in the 14 April 2020 edition of matters OF INTEREST, following the SARB’s surprise 100 bps cut in the Repo rate. To recap, this lag is due to the floating rate instruments held in the funds having a 3 month reset to market rates.
Following the rate cuts the bank call rate dropped to 4%, and there was also a simultaneous shift downwards in the fixed deposit rates offered by banks. The net result is that our range of funds is offering some of the highest spreads over call that we have witnessed for many years.
As can be seen from the chart below (and attached) the net Nedgroup Investments Money Market fund yields equate to an equivalent yield of a 2 year fixed deposit. The net yield on the Nedgroup Investments Core Income Fund is equivalent to that of a four year fixed deposit. Investors hardly need reminding that while the Nedgroup Investments Cash Solutions funds offer fixed deposit type yields, there is no fixed deposit type “lock up”, and our funds offer liquidity – same day for money market funds, and within 24 hours for the Core Income Fund. A secondary benefit of parking cash in money market type funds is that they offer diversification predominantly between the big banks, depending on the money market fund’s mandate.
The fund yields will drop gradually as the instruments they hold reset to the new, lower rates, and settle at the normal premium over the call rate.
Please keep healthy, fit and positive.
The Cash Team