Morningstar U.K. on Money Funds
Morningstar U.K. asks, "Should You Park Cash in a Money Market Fund?" They begin, "With interest rates at rock bottom, Money Market funds offer limited returns, but investors are flocking to them anyway.... On the face of it, there is little reason to invest in a Money Market fund. After all, why would you pay a fund manager to put your money in a savings account when you could easily do that for yourself? ... According to Morningstar data, some £2.8 billion has been invested into Money Market funds over the past year and the category has experienced positive inflows for the past six months in a row. Yet the returns are meagre at best ... so why would you choose one?" The article, which contains a table of Sterling Money Market Fund performance, explains, "It's a very stressful time for investors -- Brexit, a US-China trade war, uncertainty in Europe where an election is on the cards in Italy and a recession looms in Germany -- there is much to be nervous about. As well as that, many stock markets are trading at all-time highs, leaving many fearful of a sudden correction. With such a fraught backdrop, it's not surprising that many investors are increasing their allocation to cash.... You can squirrel money away quite literally under the mattress at home, find a high street savings account or choose a Money Market fund." The piece adds, "The benefits of the latter are liquidity (your money is not tied in for a set period as it might be with a savings account) and diversification (a money market fund will spread your cash across a number of different deposits rather than leave it all in one place)." They quote David Callahan, head of Money Market at Lombard Odier, on credit research, "We establish a universe of eligible issuers, based on internal credit assessments, as well as external agency rating. `People may not want the concentration risk of having their money sitting with just on or two banks." It also says, "Another benefit of Money Market funds is that they can reduce interest rate risk.... Not only has that made it harder for savers to find an inflation-beating interest rate on the high street but it has forced bond yields down as more money has flowed into fixed interest. In recent weeks the bond yield has even inverted, meaning that investors are being better rewarded for lending their money to the government for two years rather than, say, 30 years." Finally, Morningstar quotes Royal London's Craig Inches, "A cash rate of 0.75% looks very attractive when the alternative is locking into a negative rate of interest for years to come."
