CSH2 query

valiant24

I bought some CSH2 on Friday (Lyxor Smart Overnight Return Money market fund).

I looked at the portal yesterday and saw that I had made a small loss.  And indeed, in Mon 24th the fund did close lower than it opened (see below).  My "buy" price on 21st Feb was 117,087.

I'm not too bothered but am just interested, for my education, on how a cash fund like this can ever drop, even for a day.

Could someone complete my education please?

cloud_dog

It may be 'cash like' but it is still a pot of holdings which act to reflect the 'index' it tracks, and it rarely (ever?) trades at its NAV.  Plus there will always be a bid/offer spread.

GeoffTF

There are lots of reasons. In this case, the opening price was about 0.1% less than the previous opening price. ETFs can trade at a premium of discount to the net asset value of the fund. There is a mechanism to stop discounts and premiums from getting too large, but it is not perfect. Bond ETFs can sometimes trade at huge discounts when that mechanism fails completely. It is generally a good idea not to trade at opening, and wait for the market to settle down. The ETF price can also fall if the net asset value falls. CSH2 is not really a cash fund. It aims to behave as though it was by using swaps. If you look at historical prices, you will find that some money market funds have been better than others at trading through crises.

valiant24

GeoffTF said:

.... CSH2 is not really a cash fund. It aims to behave as though it was by using swaps ...

Does the same apply to the Royal London equivalent, would you know?

LHW99

RLSTMM - if that's the one you mean is an OIEC, so no bid-offer spread and trades once a day. Also AFAIU CSH2 invests rather differently to the Royal London fund.

masonic

The RL fund actually invests in ultra-short bonds and the like. It could also go down slightly from one day to the next, but for the usual reasons.

valiant24

LHW99 said:

RLSTMM - if that's the one you mean is an OIEC, so no bid-offer spread and trades once a day. Also AFAIU CSH2 invests rather differently to the Royal London fund.

Yes that's the one.   Better, worse?   Or (I assume) "It Depends" ;-)

GeoffTF

I decided that the Royal London fund was the best of the bunch, but it depends on what you want. It is important to understand that none of these funds are cash deposits. You have to do your own research.

leosayer

The Royal London fund largely holds cash or equivalents with different institutions whereas CSH2 tracks the euro short-term rate ("€STR") via the use of swap (derivative) contracts with different counterparties.

Very different method although both achieve similar performance outcomes.

leosayer

GeoffTF said:

There are lots of reasons. In this case, the opening price was about 0.1% less than the previous opening price. ETFs can trade at a premium of discount to the net asset value of the fund. There is a mechanism to stop discounts and premiums from getting too large, but it is not perfect. Bond ETFs can sometimes trade at huge discounts when that mechanism fails completely. It is generally a good idea not to trade at opening, and wait for the market to settle down. The ETF price can also fall if the net asset value falls. CSH2 is not really a cash fund. It aims to behave as though it was by using swaps. If you look at historical prices, you will find that some money market funds have been better than others at trading through crises.

Do you have more information about this mechanism?

Thanks in advance.

GeoffTF

leosayer said:

GeoffTF said:

There are lots of reasons. In this case, the opening price was about 0.1% less than the previous opening price. ETFs can trade at a premium of discount to the net asset value of the fund. There is a mechanism to stop discounts and premiums from getting too large, but it is not perfect. Bond ETFs can sometimes trade at huge discounts when that mechanism fails completely. It is generally a good idea not to trade at opening, and wait for the market to settle down. The ETF price can also fall if the net asset value falls. CSH2 is not really a cash fund. It aims to behave as though it was by using swaps. If you look at historical prices, you will find that some money market funds have been better than others at trading through crises.

Do you have more information about this mechanism?

Here is a good account:

https://www.blackrock.com/au/insights/ishares/authorised-participants-and-market-makers