Considering STMM Funds

Aged

When my pension portfolio was set up by an IFA seven years ago, one of the 10 equal tranches was invested in a short-term money market fund. Over the years as I started to take more interest in my portfolio and how it was invested, I failed to see the point of this really. I have sufficient other cash investments outwith the portfolio which have (until recently) been earning very little in interest, and I would have thought that everything in the pension wrapper would have been better being invested. I have reallocated a bit of the STMMF cash to other investments, but there's still a reasonable amount sitting in there and in addition, I now have substantially more cash sloshing around in the pension wrapper which I believe (for now at least) earns a couple of percent or so in interest. Given that interest rates are now no longer 'negligible', I feel the need to take this situation in hand in order to get the best return I can on every single penny, beginning with trying to understand more about money market funds.

What do I need to look at to compare one STMM fund with another? The one I am invested in has an OCF of 0.14% and the yield according to Trustnet is 2.77%. FE fundinfo risk score is 2 (why not 1, I wonder?). Another one I'm looking at, the information on Trustnet does not give an OCF - why would that be? Yield is quoted as 3.85%, and risk score again is 2. 

As always, I'm simply trying to learn so please be kind and patient 

dunstonh

When my pension portfolio was set up by an IFA seven years ago, one of the 10 equal tranches was invested in a short-term money market fund

When a portfolio is set up, it is built for the long term.  An economic cycle is around 15 years.  So, often the portfolios consider all bits of the cycle.   The good, the bad and the ugly.        You are only seven years and whilst MM funds were not great for 5 of those years, they have been for the last 17 months.   

Your portfolio would have been built to your risk profile.  So, if defensive assets were needed, then the choice would be to use funds like money market, gilts and bonds.    Rather than use all gilts, it appears your adviser selected some for money markets.

 I failed to see the point of this really. I have sufficient other cash investments outwith the portfolio which have (until recently) been earning very little in interest, and I would have thought that everything in the pension wrapper would have been better being invested. I have reallocated a bit of the STMMF cash to other investments, 

To maintain a broadly similar risk profile, you would have had to move the money market funds to gilts or bonds.   If you moved them to equities, then you would have shoved the portfolio up the risk scale.

What do I need to look at to compare one STMM fund with another? The one I am invested in has an OCF of 0.14% and the yield according to Trustnet is 2.77%.

Forget the historic yield as part of the last year is lower interest rates.     Not all money market funds are the same but most tend to benchmark to SONIA.  That is what you are really looking for.

FE fundinfo risk score is 2 (why not 1, I wonder?)

Reduced FSCS protection as money market funds are investments and not cash.

 Another one I'm looking at, the information on Trustnet does not give an OCF - why would that be? Yield is quoted as 3.85%, and risk score again is 2. 

Forget the yield again.  No OCF may mean its not a UT/OEIC but an ETF.  ETFs use TER.

Aged

Hi dunstonh thanks for replying.

dunstonh said:
When a portfolio is set up, it is built for the long term.  An economic cycle is around 15 years.  So, often the portfolios consider all bits of the cycle.   The good, the bad and the ugly.        You are only seven years and whilst MM funds were not great for 5 of those years, they have been for the last 17 months.   

Your portfolio would have been built to your risk profile.  So, if defensive assets were needed, then the choice would be to use funds like money market, gilts and bonds.    Rather than use all gilts, it appears your adviser selected some for money markets.

I understand what you're saying - got to look at the bigger picture. The original defensive assets setup was 20% bonds, 10% property and 10% cash. That makes sense now.

To maintain a broadly similar risk profile, you would have had to move the money market funds to gilts or bonds.   If you moved them to equities, then you would have shoved the portfolio up the risk scale.

Yes, looking now at the bigger picture, I can see that. I will try to restore the overall balance.

Forget the historic yield as part of the last year is lower interest rates. Not all money market funds are the same but most tend to benchmark to SONIA.  That is what you are really looking for.

OK, will focus on the benchmark.

Reduced FSCS protection as money market funds are investments and not cash.

I understand.

Forget the yield again.  No OCF may mean its not a UT/OEIC but an ETF.  ETFs use TER.

It's not an ETF - I dug a bit further and found the FMF which is 0.10%.