Investors should consider money market funds

19-12-2008: Investors should consider money market funds
by John Lim Eu Hock

KUALA LUMPUR: When investors are uncertain about risking investments in equities or bonds, money market funds are the best avenue, said AmInvestment Bank fixed income funds chief investment officer Yvonne Phe.

“Money market funds are a forever green thing. It’s parking your money for the next wave, and it keeps you nimble while waiting for the right time to go back into the market. We have been advocating this to a lot of institutional clients and retail clients,” she said.

She added the risk involved was similar to placing money in fixed deposit (FD) accounts, but money market fund returns were higher with the added benefit of being non-taxable.

Furthermore, she said Bank Negara Malaysia may cut the overnight policy rate (OPR) by another 50 basis points in the first quarter of next year.

“The interest rate swap market is a very good indication of how interest rates are going to be. Currently, it is pricing in further cuts in rates,” Phe said at AmInvestment Bank Group’s media briefing on “Malaysian Money Market Funds (Stability vs Calamity in Financial Turmoil)” yesterday.

She also said local investors shouldn’t draw parallels between what happened in the US money market and the Malaysian market. In September 2008, the Reserve Primary Fund “broke the buck” when its net asset value fell three cents below the par of US$1, resulting in a loss of confidence in money funds.

This was because the fund held US$785 million (RM2.75 billion) worth of commercial papers (CPs) and medium term notes issued by Lehman Brothers Holdings Inc, which went bankrupt in September. In the US, most money market funds invest up to 60% in CPs that are almost entirely related to credit lending and mortgage.

Phe said the situation in Malaysia was different, as all CPs were non-financial and quasi-government, and were underwritten by banks, leading to a lower risk of fallout and a liquidity crisis. In addition, she said, AmInvestment’s fund managers allocate less than 5% of their money market fund assets into CPs, preferring to allocate assets in FDs and corporate bonds.

“In a way your investment is guaranteed by the Malaysian central bank as whatever deposit we collect is passed to the banks, so indirectly you are guaranteed for all placements,” she said.

She added that AmInvestment Group was planning to launch another money market fund in the first quarter of 2009 in addition to its three existing funds: AmCash Management, AmIncome, and AmAl-Amin.

AmInvestment Bank is the largest fixed income unit trust fund manager in Malaysia, overseeing about RM13 billion.

theedgedaily