Everest Wealth, established in 2002, focused to offer sound investment management, promoting stable returns over the medium to long term.

Contact

+27 87 654 8705

3rd Floor, Building C, Westend Office Park, 250 Hall Street, Centurion, Pretoria, 0046.

info@everestwealth.co.za

ABSA closure of
money market fund, worth R75 billion.

Absa’s recent decision to close their money market fund, which is worth more than R75 billion, has sparked numerous questions about money market funds and discussions regarding it.

This Absa money market fund represents nearly a fifth of all the money in South African money market funds, so why close it? 

Absa’s money market fund was performing well and achieving positive returns (around 3.9% currently), but they found that investors were using it as a bank account and expecting guarantees on its returns, which is not the case when it comes to money market funds. On the other hand, the decision to close a successful fund illustrates that even a money market fund is touchable and involves risk. Furthermore, this raises the concern that ‘safe and secure’ are not synonyms for ‘guaranteed’.

As no further information has been given from Absa as to why they have decided to close the fund, it is important to address this worrying concern that investors are struggling to understand the difference between funds and their offering. Money market funds cannot be used as bank accounts, as normal saving accounts offer a fixed interest rate compared to a money market fund which can earn a higher return because of the funds being pooled together of investors and funds being invested into money market instruments. The main money market instruments include: Treasury Bills (T-bills), Fixed Deposits, Negotiable Certificates of Deposit (NCD’s), Commercial Paper and Promissory notes. Thus, these instruments have nothing to do with a normal bank account and further illustrates that a money market fund differs in many ways to a normal bank account. Investors should rather think of money market funds as an alternative to a bank account as it is not guaranteed by the bank, like with a regular banking account, but it tends to be safer than other investments like stocks and even medium- to long-term bonds.

According to Sunette Mulder, senior policy advisor at ASISA (Association for Savings and Investment South Africa), money market funds, on average, outperformed unit trusts that invested in shares (net of fees). Even during 2020, at the height of the South African lockdown, a record amount of R88 billion worth of investments were made into unit trusts (BusinessInsider, 2020). Furthermore, more than one third of assets under management in South African unit trusts are held in SA interest-bearing portfolios, like money market funds.

Making an investment decision is difficult and the differences between investments can become blurry at times.
During current uncertain times, the avoidance of risk and volatility in investment portfolios have been seen to be on the uprise and investors are demanding a stable return, which Everest is proud to have been able to achieve.
By diversifying into the unique and alternative investment class known as Private Equity. With decades of experience we assist clients in maneuvering this alternative landscape in promotion of more stable returns.

Leave a comment

Your email address will not be published. Required fields are marked *