Until recently, two beliefs were common: that the 60/40 portfolio was ideal for most investors and that “cash was trash.” And with rates at zero for much of the past three years, money market was a forgotten asset class.
However, persistent inflation, rising interest rates, and growing recession fears have battered markets in 2022, with bonds and equities down at the same time, causing many investors to restructure their portfolios. Meanwhile, yields on high-interest savings ETFs and other traditional money market funds continue to trend higher as central banks raise interest rates. Subsequently, money market funds have been having a record year with positive monthly inflows as investors seek solace in their relative safety and high yields.
From October 10th to the 14th, the Purpose High Interest Savings ETF (PSA) had the most inflows compared to any other Canadian-listed ETF, adding $140 million. The fund currently holds over $3 billion in assets under management.
Cash is becoming popular again
Just within the past few weeks, markets have moved from pricing in a 50bps hike from the Bank of Canada (BoC) to now pricing in 75bps as the base case for the next BoC rate announcement on October 26th. We expect BoC to maintain their hawkish tone and downplay any weakness in economic growth as they reinforce their 2% inflation target. These shifts in expectations and taking an active stance helps create opportunities to generate strong returns for investors.
In the video below, our CIO, Greg Taylor, outlines the benefits that cash plays in a portfolio, especially in the current market environment. He also speaks to our industry-leading cash solutions lineup, which includes the world’s first high-interest savings ETF (PSA) and our newly launched Purpose Cash Management Fund (MNY).
In anticipation of a continued hawkish rhetoric, MNY focuses on active management and has been positioned so that more than one-third of the portfolio matures within two weeks after the BoC interest rate announcement. This positioning allows for the fund to quickly roll into higher rate structures. Additionally, about two-thirds of the portfolio is set to mature before year end, providing further flexibility in this environment.
The fund has the ability to generate competitive yield without sacrificing quality as the vast majority of its holdings are invested in money market instruments, which are either sponsored (i.e., Commercial Paper) or guaranteed (i.e., Banker’s Acceptance) by big six Canadian banks with the highest credit rating (R1-H). Currently, there are no positions in the portfolio that are rated R1-low or below, as anticipated liquidity remains one of the most significant elements to investment in the space. With its current positioning, MNY is set to take swift advantage of any subsequent rate hikes by the BoC.
Purpose High Interest Savings ETF (PSA), the world’s first high interest savings ETF, has been an industry favourite for investors looking to maximize yield on their cash for the last nine years since its launch in 2013.
The fund invests its assets with Schedule I banks, and the yield on the ETF rises in lockstep with every interest rate increase by the Bank of Canada.
The Purpose Cash Suite Advantage
Unlike Guaranteed Investment Certificates (GICs), MNY and PSA offer competitive yields with no lock-up periods. The funds can be bought or sold anytime during the trading day, which means your money is not tied up, giving you the flexibility to withdraw or reallocate when needed to adjust to the ever-changing market environment.
Plus, unlike GICs, which offer interest rates set at a fixed point in time, these funds help keep up with the rising cost of living by increasing in tandem with interest rates. Now is the time to capitalize on rising interest rates and use them to your advantage.
— Hilbert Wan, Portfolio Analyst at Purpose Investments
Sources: Charts are sourced to Bloomberg L. P. unless otherwise noted.
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