Royal London Short Term Money Market Fund Y Acc

aroominyork

GeoffTF said:

aroominyork said:

GeoffTF said:

aroominyork said:

Thanks dunstonh. masonic has explained some of this before. I simply can't grasp the concept of how an equity fund benchmarks against SONIA. If you have the patience to try to explain...?

By not being and equity fund.

OK sm@rt@rse, you explain it. dunstonh said "It is a 100% US equities fund..." and the top ten holdings are Amazon, Meta etc. Over to you!

Sorry, you replied to that post before I deleted it. As I understand it, Amundi holds a portfolio of equities, and enters into contracts with Société Générale, Crédit Agricole, BNP Paribas and J.P. Morgan. These banks provide a euro cash return in exchange for the return of the fund's equity portfolio. If those banks go bust, the global financial system is in big trouble. There are measures in place to protect your investment if those banks do go bust. Collateral, insurance and money has to be paid up daily. Derivatives are used to convert the euro cash return of the base fund to Sonia, which is denominated in GBP. Nonetheless, it is all very complicated, and I do not pretend to understand all the details. The risk rating of the fund is 1, but that does not mean that it is risk free. Amundi had €2 trillion AUM when I last looked, by the way.

Thanks. So does that mean that RL STMM's return will adjust towards a lower base rate (when BoE reduces it) over the 46 day average maturity of its holdings, but CSH2 will adjust to the new SONIA immediately?

GeoffTF

aroominyork said:

GeoffTF said:

aroominyork said:

GeoffTF said:

aroominyork said:

Thanks dunstonh. masonic has explained some of this before. I simply can't grasp the concept of how an equity fund benchmarks against SONIA. If you have the patience to try to explain...?

By not being and equity fund.

OK sm@rt@rse, you explain it. dunstonh said "It is a 100% US equities fund..." and the top ten holdings are Amazon, Meta etc. Over to you!

Sorry, you replied to that post before I deleted it. As I understand it, Amundi holds a portfolio of equities, and enters into contracts with Société Générale, Crédit Agricole, BNP Paribas and J.P. Morgan. These banks provide a euro cash return in exchange for the return of the fund's equity portfolio. If those banks go bust, the global financial system is in big trouble. There are measures in place to protect your investment if those banks do go bust. Collateral, insurance and money has to be paid up daily. Derivatives are used to convert the euro cash return of the base fund to Sonia, which is denominated in GBP. Nonetheless, it is all very complicated, and I do not pretend to understand all the details. The risk rating of the fund is 1, but that does not mean that it is risk free. Amundi had €2 trillion AUM when I last looked, by the way.

Thanks. So does that mean that RL STMM's return will adjust towards a lower base rate (when BoE reduces it) over the 46 day average maturity of its holdings, but CSH2 will adjust to the new SONIA immediately?

In principle perhaps, but:

* The return of RL's investments will reflect the market's expectation of future base rates, and the market expected rates to fall.

* The RL fund can use reverse repurchase agreements and derivatives, which might muddy the water.

* CSH2 is an ETF and can trade at a discount or premium to NAV. If there is a tradable difference between the prices of the two funds, the big boys will likely have harvested it before you get a sniff of it.

There is "noise" in the pricing of both funds, and assessing whether a change in the slope of the price graph is instantaneous or gradual is a difficult judgement to make. Nonetheless, you can study what happened to the prices of both funds at previous base rate changes.

where_are_we

Over the last 2 years I have enjoyed a reasonable lowish risk return with CSH2 as part of my S&S ISA. The rest of my wealth is 10% in fixed cash ISA`s, 15% of in EA cash ISA`s which I use to fund numerous RSs and 4% in IFISAs.

I have to decide where to place this years ISA money knowing that CSH2 returns will probably diminish as BOE rates reduce. I am tempted to increase my IFISA and put the rest into equities in my S&S ISA and not add to my CHS2 holding.