Money Market funds pay out almost R3bn in extra interest in 2016

Ian Ferguson, Head of Distribution for Cash Solutions at Nedgroup Investments.

In spite of an extremely turbulent and unpredictable year, The South African Money Market fund industry has shown robust growth throughout 2016, providing jittery investors with a safe-haven for idle cash. There has also been a noticeable increase in corporates with surplus cash using money market funds as a parking place to increase yield while retaining same day access to their cash.

According to recent Association for Savings and Investments South Africa (ASISA) stats, the local Money Market industry averaged Assets under Management (AUM) R 280 billion for Q3 2016 and paid an average yield of 7.75% after fees in interest. This was up from AUM R267 billion in Q1 this year and AUM R265 billion in Q3 2015. Based on these figures Ian Ferguson, Head of Distribution for Cash Solutions at Nedgroup Investments, says money market funds paid investors extra interest of over R2.8billion in 2016.

“This is a huge boost for users of Money Market funds compared to what they would have received had the cash remained in call accounts - even assuming the best call rate of 6.75% which, in South Africa, is only available to top corporates. And, Money Market accounts afforded them the same benefits of liquidity that they would have with a call account,” says Ferguson.

Ferguson says the increase in the adoption of Money Market funds has increased in recent months.

According to the latest ASISA figures, of the top 10 local Money Market Funds, Nedgroup Investments displayed the highest monthly growth – growing from R31billion in August 2016 to R36billion at end September 2016.

Ferguson says the growth in the Money Market industry - particularly the corporate Money Market fund flows – is indicative of the increasing pressure on corporate treasurers to protect and optimise cash reserves in the face of rising volatility and costs.

“In the current environment where there is poor confidence in the economy and the government, many corporates are withholding cash until the outcome and knock-on effects of the ratings decisions become clearer. However, a difference of 1 or 2 per cent yield on a large cash reserve is significant, particularly in times of such low earnings growth.”

“Money Market funds, with higher yields, high credit quality and excellent liquidity are a great tool to maximise yields on cash. They offer a lucrative and convenient alternative to call accounts and operate in a highly regulated environment,” he says.