Short Term Money Market funds

extant465

I'm trying to understand the fee differences between Vanguard SSMMF and Lyxor CSH2.

For SSMMF it appears to be 0.15% platform fee + 0.12% OCF + 0.17% fund-internal transaction fees = 0.44%.

For CSH2 it would appear to be the platform fee + 0.07% OCF + ETF dealing fees + ETF spread.

Have I understood this correctly?

(I realise there are differences in risk profile and tax treatment between these two funds)

InvesterJones

It'll depend on your platform - I'd expect the transactional fees to apply to ETFs as well, but since they're backwards looking in both types of fund platforms don't always list them.

valiant24

NannaH said:

STMM is currently an ideal alternative to holding cash in a Sipp,  if you are building up a cash pot for early retirement especially.
You get a bit of interest on cash but the STMM yield is higher.
 I suppose you need to convert back to cash if / when interest rates start reducing.

Am I right in supposing that, if I hold say £250,000 in cash within my SIPP (or ISA, or dealing account) with say AJ Bell (or ii, or iWeb), only £85,000 is covered by the FCA scheme?
However if I moved (250,000 - 85,000) = £165,000 into, say, a money market fund or a UK Gilt (say TN4), those investments would be ring-fenced so that if AJ Bell or whoever went bust, the £165,000 would be protected in a way that it is not in cash?

Albermarle

valiant24 said:

NannaH said:

STMM is currently an ideal alternative to holding cash in a Sipp,  if you are building up a cash pot for early retirement especially.
You get a bit of interest on cash but the STMM yield is higher.
 I suppose you need to convert back to cash if / when interest rates start reducing.

Am I right in supposing that, if I hold say £250,000 in cash within my SIPP (or ISA, or dealing account) with say AJ Bell (or ii, or iWeb), only £85,000 is covered by the FCA scheme?
However if I moved (250,000 - 85,000) = £165,000 into, say, a money market fund or a UK Gilt (say TN4), those investments would be ring-fenced so that if AJ Bell or whoever went bust, the £165,000 would be protected in a way that it is not in cash?

With AJ Bell ( and similar platforms) if you hold cash, it is actually held in a separate bank account(s) . So here you are covered for £85K per bank account if the bank went bust. Unless you already had money with that bank then it would be £85K in total.
Each platform seem to spread their money around different banks in different ways.
So if A J Bell went bust, your cash should still be safe. If there was some kind of platform fraud, and your cash was not where it should be and had disappeared somewhere, then you are covered up to £85K for that. If you stick to mainstream platforms ( like A J Bell) this scenario can be pretty much discounted.

mebu60

InvesterJones said:

mebu60 said:

NannaH said:

STMM is currently an ideal alternative to holding cash in a Sipp,  if you are building up a cash pot for early retirement especially.
You get a bit of interest on cash but the STMM yield is higher.
 I suppose you need to convert back to cash if / when interest rates start reducing.

That's a question I have been mulling too having recently placed a stash of cash into a STMM fund.

Be most interested to hear views. Thanks.

Not sure about the need to move back to cash if interest rates start reducing - a drop in interest rates will likely affect cash just as much as money market funds.You could try and time the market/banks by fixing for a longer term but as stated in this thread, it can't be predicted ahead of time, and fixing cash kind of takes away the main selling point (if prepared to lock away then can consider other investments as well).

Does the unit cost on STMM funds never decrease? That's what's confusing me. If (when) interest rates decrease won't the attractiveness of the fund diminish? How is that reflected? Does the unit price just increase more slowly?

GazzaBloom

mebu60 said:

InvesterJones said:

mebu60 said:

NannaH said:

STMM is currently an ideal alternative to holding cash in a Sipp,  if you are building up a cash pot for early retirement especially.
You get a bit of interest on cash but the STMM yield is higher.
 I suppose you need to convert back to cash if / when interest rates start reducing.

That's a question I have been mulling too having recently placed a stash of cash into a STMM fund.

Be most interested to hear views. Thanks.

Not sure about the need to move back to cash if interest rates start reducing - a drop in interest rates will likely affect cash just as much as money market funds.You could try and time the market/banks by fixing for a longer term but as stated in this thread, it can't be predicted ahead of time, and fixing cash kind of takes away the main selling point (if prepared to lock away then can consider other investments as well).

Does the unit cost on STMM funds never decrease? That's what's confusing me. If (when) interest rates decrease won't the attractiveness of the fund diminish? How is that reflected? Does the unit price just increase more slowly?

Yes, unless rates turn negative (which can happen), then you will lose money as interest is deducted rather than added as with positive rates.

Take a look at the chart of this Blackrock MMF I plan to use for a "risk off" part of my retirement portfolio next year (it's the only MMF I have access to through my pension:

Fund Performance|Total Returns|BlackRock ICS Sterling Liquidity Acc|ISIN:IE0004807107 (morningstar.co.uk)

You will see the ramp up of returns as interest rates have increased since early 2022

However, what the charts don't show is the invisible grim reaper of inflation. With this MMF returning just an annualised 10 year average return of 0.64%, the buying power of any money held for that duration deteriorated significantly.

But, risk-off is risk-off so the returns are typically going to be below inflation for such little risk.

extant465

mebu60 said:

InvesterJones said:

mebu60 said:

NannaH said:

STMM is currently an ideal alternative to holding cash in a Sipp,  if you are building up a cash pot for early retirement especially.
You get a bit of interest on cash but the STMM yield is higher.
 I suppose you need to convert back to cash if / when interest rates start reducing.

That's a question I have been mulling too having recently placed a stash of cash into a STMM fund.

Be most interested to hear views. Thanks.

Not sure about the need to move back to cash if interest rates start reducing - a drop in interest rates will likely affect cash just as much as money market funds.You could try and time the market/banks by fixing for a longer term but as stated in this thread, it can't be predicted ahead of time, and fixing cash kind of takes away the main selling point (if prepared to lock away then can consider other investments as well).

Does the unit cost on STMM funds never decrease? That's what's confusing me. If (when) interest rates decrease won't the attractiveness of the fund diminish? How is that reflected? Does the unit price just increase more slowly?

If/when the BoE policy rate changes, the fund value won't change like a bond fund because it hold very short term securities (days to weeks) to maturity so the market price of those won't impact the fund value because their value remains the sum of remaining coupons plus face value. Because it will take some days for these to mature and be replaced by new securities reflecting the new base rate, the rate of fund value increase over the course of the month will change gradually to approach the new SONIA. Then the fund value will then dip back to 1 when the dividend is paid out at the end of the month.

Hopefully, I have got that correct - more experienced investors please correct any errors.

extant465

extant465 said:

mebu60 said:

InvesterJones said:

mebu60 said:

NannaH said:

STMM is currently an ideal alternative to holding cash in a Sipp,  if you are building up a cash pot for early retirement especially.
You get a bit of interest on cash but the STMM yield is higher.
 I suppose you need to convert back to cash if / when interest rates start reducing.

That's a question I have been mulling too having recently placed a stash of cash into a STMM fund.

Be most interested to hear views. Thanks.

Not sure about the need to move back to cash if interest rates start reducing - a drop in interest rates will likely affect cash just as much as money market funds.You could try and time the market/banks by fixing for a longer term but as stated in this thread, it can't be predicted ahead of time, and fixing cash kind of takes away the main selling point (if prepared to lock away then can consider other investments as well).

Does the unit cost on STMM funds never decrease? That's what's confusing me. If (when) interest rates decrease won't the attractiveness of the fund diminish? How is that reflected? Does the unit price just increase more slowly?

If/when the BoE policy rate changes, the fund value won't change like a bond fund because it hold very short term securities (days to weeks) to maturity so the market price of those won't impact the fund value because their value remains the sum of remaining coupons plus face value. Because it will take some days for these to mature and be replaced by new securities reflecting the new base rate, the rate of fund value increase over the course of the month will change gradually to approach the new SONIA. Then the fund value will then dip back to 1 when the dividend is paid out at the end of the month.

Hopefully, I have got that correct - more experienced investors please correct any errors.

The last part about div payment only applies to income MMFs like the Vanguard STMMF.

GeoffTF

extant465 said:

mebu60 said:

InvesterJones said:

mebu60 said:

NannaH said:

STMM is currently an ideal alternative to holding cash in a Sipp,  if you are building up a cash pot for early retirement especially.
You get a bit of interest on cash but the STMM yield is higher.
 I suppose you need to convert back to cash if / when interest rates start reducing.

That's a question I have been mulling too having recently placed a stash of cash into a STMM fund.

Be most interested to hear views. Thanks.

Not sure about the need to move back to cash if interest rates start reducing - a drop in interest rates will likely affect cash just as much as money market funds.You could try and time the market/banks by fixing for a longer term but as stated in this thread, it can't be predicted ahead of time, and fixing cash kind of takes away the main selling point (if prepared to lock away then can consider other investments as well).

Does the unit cost on STMM funds never decrease? That's what's confusing me. If (when) interest rates decrease won't the attractiveness of the fund diminish? How is that reflected? Does the unit price just increase more slowly?

If/when the BoE policy rate changes, the fund value won't change like a bond fund because it hold very short term securities (days to weeks) to maturity so the market price of those won't impact the fund value because their value remains the sum of remaining coupons plus face value. Because it will take some days for these to mature and be replaced by new securities reflecting the new base rate, the rate of fund value increase over the course of the month will change gradually to approach the new SONIA. Then the fund value will then dip back to 1 when the dividend is paid out at the end of the month.

Hopefully, I have got that correct - more experienced investors please correct any errors.

The fund value will change exactly like a bond fund - a bond fund with very short dated bonds. Your return will be partly dividends (taxed as savings income), if they are paid, and partly a capital gain or loss.

wmb194

GeoffTF said:

extant465 said:

mebu60 said:

InvesterJones said:

mebu60 said:

NannaH said:

STMM is currently an ideal alternative to holding cash in a Sipp,  if you are building up a cash pot for early retirement especially.
You get a bit of interest on cash but the STMM yield is higher.
 I suppose you need to convert back to cash if / when interest rates start reducing.

That's a question I have been mulling too having recently placed a stash of cash into a STMM fund.

Be most interested to hear views. Thanks.

Not sure about the need to move back to cash if interest rates start reducing - a drop in interest rates will likely affect cash just as much as money market funds.You could try and time the market/banks by fixing for a longer term but as stated in this thread, it can't be predicted ahead of time, and fixing cash kind of takes away the main selling point (if prepared to lock away then can consider other investments as well).

Does the unit cost on STMM funds never decrease? That's what's confusing me. If (when) interest rates decrease won't the attractiveness of the fund diminish? How is that reflected? Does the unit price just increase more slowly?

If/when the BoE policy rate changes, the fund value won't change like a bond fund because it hold very short term securities (days to weeks) to maturity so the market price of those won't impact the fund value because their value remains the sum of remaining coupons plus face value. Because it will take some days for these to mature and be replaced by new securities reflecting the new base rate, the rate of fund value increase over the course of the month will change gradually to approach the new SONIA. Then the fund value will then dip back to 1 when the dividend is paid out at the end of the month.

Hopefully, I have got that correct - more experienced investors please correct any errors.

The fund value will change exactly like a bond fund - a bond fund with very short dated bonds. Your return will be partly dividends (taxed as savings income), if they are paid, and partly a capital gain or loss.

You mean interest, not dividends.