Is there any meaningful difference between MMFs?

hallmark

Some frequently mentioned MMFs include:

CSH https://www.ajbell.co.uk/market-research/LSE:CSH2
Vanguard Sterling https://www.ajbell.co.uk/market-research/FUND:BGB6GZ5
Royal London https://www.ajbell.co.uk/market-research/FUND:B3P2RZ5

Aside from the fact that CSH is Acc & the other two are Inc, is there any meaningful difference between these, and between MMFs in general? I.e. substantial differences in payout or any other gotcha's that might not be obvious?  Or is it mainly a question of personal preference and what's available on your platform?

I hold csh in AJ Bell & Vanguard in Vanguard.

dunstonh

Yes there is, especially between STMM and MM.

You have also listed ETFs and UT/OEICs which have their own differences which can impact on cost and regulatory protection (ETF having no FSCS protection but UT/OIECs do)

masonic

There are meaningful differences in what underlying assets they hold. For example, CSH2 is synthetic and tracks the Euro Short Term Rate hedged back to Sterling, so you are buying into a contract with a counterparty to deliver the return of the index, whereas the other two hold short dated bonds and other securities. The Vanguard fund seems to focus more on Gilts, while the RL fund holds both UK and foreign government and corporate debt. It is unlikely that there would be a substantial difference in payout as these investments are close to the risk free rate, but in a financial crisis their performance could deviate from the norm in different ways depending on what is happening.

GeoffTF

There are $trillions invested in MMFs. If the yield curve reverts to normal, i.e. higher interest for locking up your money for longer period, that money could be pulled out rapidly. That would give a problem for the banks that are borrowing this money. Holding short term debt does not help much if the banks cannot pay. Opinions differ on whether this is a big risk, but MMFs are not savings accounts protected by the FSCS. Vanguard seemed to be the most conservative of the three funds when I last looked. Here is an article that addresses MMF risk:

https://monevator.com/money-market-funds/

Qyburn

hallmark said:

Aside from the fact that CSH is Acc & the other two are Inc, is there any meaningful difference between these, and between MMFs in general? I.e. substantial differences in payout or any other gotcha's that might not be obvious?  Or is it mainly a question of personal preference and what's available on your platform?

Royal London is available as Acc, has slightly lower charges than Vanguard, six monthly dividends. Vanguard pays monthly.

Expotter

Vanguard MMF is now also available as Acc in the Vanguard platform

https://www.vanguardinvestor.co.uk/investments/vanguard-sterling-short-term-money-market-fund-a-gbp-accumulation/overview

Hoenir

GeoffTF said:

There are $trillions invested in MMFs. If the yield curve reverts to normal, i.e. higher interest for locking up your money for longer period, that money could be pulled out rapidly. That would give a problem for the banks that are borrowing this money. Holding short term debt does not help much if the banks cannot pay. 

Investors hold the debt not the banks.  Those exiting the funds would suffer. As liquidatating the investments quickly  in the open market would be the challenge. Takes two parties to conduct a trade. 

GeoffTF

Hoenir said:

GeoffTF said:

There are $trillions invested in MMFs. If the yield curve reverts to normal, i.e. higher interest for locking up your money for longer period, that money could be pulled out rapidly. That would give a problem for the banks that are borrowing this money. Holding short term debt does not help much if the banks cannot pay. 

Investors hold the debt not the banks.  Those exiting the funds would suffer. As liquidatating the investments quickly  in the open market would be the challenge. Takes two parties to conduct a trade. 

Perhaps I have not been clear. The banks have borrowed $trillions from MMFs. This is short dated debt. The banks have come to rely on it. They have come to rely on rolling over that debt when it matures. If a lot of investors want to sell their holdings in the MMFs, the MMFs will not renew the short term debt (they do not have to sell it). That gives the banks a big problem, and they could become insolvent. That gives the MMFs a problem because the banks would soon be unable to pay back any more of the short term debt. So, as I have said, it is a risk for MMFs, as well as the banking system (which is borrowing short term and lending long term). How big a risk is it? Some say it is very big risk. Others disagree. Either way, as I have said, MMFs are not as safe as bank deposits protected by the FSCS.

https://www.youtube.com/watch?v=kx0TRgluVPw

A cautionary warning? Or publicity seeking scare mongering?

hallmark

The YouTube video is food for thought.  I've wondered a few times if there might be unexpected risks with STMMFs based on the rough science that:

- people are piling into them on an unheard of scale (and will at some point pile out of them on an unheard of scale)

- they've gone from being something that the average person hadn't even heard of to something that brokers are actively adding and promoting (for example Lightyear emailed me saying what a great investment they were, not something Brokers typically do).

- they're more opaque than a lot of investments (IFAs might properly understand how they work but not so much your average punter)

- they're a financial instrument that SOUND like the kind of thing that might suddenly/unexpectedly become risky if there's another credit crunch.

- IMO nobody (literally nobody) actually knows what effect QT will have.  But it's not unreasonable to think if it does have an effect it might happen very suddenly.

The flipside to the above is I don't know nearly enough to know if it represents a real risk. I might be talking utter codswallop.

Until now I've been fairly comfortable holding a fair bit in these. But maybe I'll reduce that & just take the reasonably decent interest that's on offer at some places (3.75% at AJ Bell currently on £10,000+).

aroominyork

hallmark said:

Until now I've been fairly comfortable holding a fair bit in these. But maybe I'll reduce that & just take the reasonably decent interest that's on offer at some places (3.75% at AJ Bell currently on £10,000+).

You can get 4.5%-5.0% on short dated gilts (<18 months to maturity) at AJBell. 

hallmark

aroominyork said:

hallmark said:

Until now I've been fairly comfortable holding a fair bit in these. But maybe I'll reduce that & just take the reasonably decent interest that's on offer at some places (3.75% at AJ Bell currently on £10,000+).

You can get 4.5%-5.0% on short dated gilts (<18 months to maturity) at AJBell. 

That's a great idea.  I've had reading up on buying individual gilts on my todo list for awhile (as I'm thinking the index-linked version is preferable to renewing ISLCs) but hadn't really considered buying short dates gilts within SIPP as an alternative to MMFs.

I think I understand some of the basics, I presume you're meaning something like this currently quoted at 100.16
Treasury 5% 07/03/2025 TR25 | GB0030880693 | £

So essentially a case of buy & hold to maturity.   Newb question, is it possible to sell early if for any reason you want to? (I understand that if IRs changed in the meantime it'd affect the price).