Article FundWeb
11 November 2011 | By Rob Langston
The Investment Management Association (IMA) this week announced it would be introducing an additional Money Market sector, as it moves towards new definitions.
However, as the new definitions are brought in for one of the industry’s least popular sector, it has to be asked whether anyone will care.
The changes to the definitions of money market funds will bring them more in line with definitions set down by the Committee of European Securities Regulators (since replaced by the European Securities & Markets Association).
The IMA’s director of markets Jane Lowe says the changes will give more clarity for consumers, no doubt mindful of the some of the scandals to have gripped the sector in recent years.
The Financial Services Authority has made a concerted effort to make changes to the way the funds are marketed and has struggled with the funds.
It’s not yet known where the new funds will sit. Ten will enter the IMA Short Term Money Market sector, six more will be included in the IMA Money Market sector, the remainder of the funds will presumably sit in one sector or the other.
But will anybody notice? According to the IMA’s Asset Management survey published earlier this found low uptake among UK retail investors, with just 0.7% invesing in money market funds. compared with 22% in Europe. Indeed in 2010, the sector saw net outflows of £200m.
The IMA noted in the UK bank and building society deposits are the preferred avenue for cash holdings.
It’s hardly a surprise. According to FE Analytics, one funds offers an eyewatering 7% initial charge. Yet, the average total expense ratio is 0.47% of the 31 funds listed by FE Analytics in the IMA Money Market sector, lower than the average fixed income or equities fund.
Advisers face a particular challenge knowing that charges can eat into returns and customers may be better served by tax-efficient ISAs.
But net sales do not exactly speak volumes for the sector. According to the IMA: so far this year there have been net inflows into the money market sector of approximately £46.9 million. Personal deposits rose by £2.5 billion in September, according to the British Bankers’ Association, while the IMA saw net ISA sales of £151.5m.
Flows over the past year seem to show the funds have been more popular when stock markets have weakened and investors look for safe havens from volatility.
The IMA has been an early adopter in making the changes. Elsewhere, the Association of British Insurers (ABI) says it is currently reviewing its own Money Market sector and debating over whether to adopt the same guidelines.
It was, of course, one of the ABI Money Market sector’s constituents who caused the greatest uproar in recent memory when the Standard Life Pension Sterling fund was fined for investing in floating rate notes. The notes saw their value fall after the collapse of Lehman Brothers.
These concerns still remain with the threat of further bank collapses, as the eurozone sovereign debt crisis continues to rumble on.
But as Fund Strategy reported in September some of these concerns have been tackled more recently, but the suitability of the sector for investors seeking exposure to cash remains uncertain.
So perhaps the question should be asked, is anybody using money market funds? Have your say.
