Why now might be the time to consider money market funds

 

April 2023 | 2 min read   

Why now might be the time to consider money market funds 

As investors grapple with the consequences of the sudden banking turmoil where some regional US banks, ended up causing an avalanche in the Swiss Alps, uncertainty prevails in international markets.

Risk indicators have been on the rise and we witness a general widening in credit spreads as well as signs of stress in the US and European banking sectors. The Fed and the European Central Bank (ECB), which held their monetary policy meetings during particularly frantic days, and the Swiss National Bank (SNB), hope to have nipped the crisis in the bud.

  

Heightened volatility has triggered a flight-to-quality as investors directed their attention towards money market funds, which have seen substantial inflows over the past weeks, after long being neglected.

We believe that considering the heightened interest to be only a consequence of investors looking for safety could potentially overshadow some of the other key advantages money market funds could offer.

In our view, the current yields offered on money market funds appear to be more attractive, on average, than those on bank deposits. In addition, the rate hikes that exacerbated the distress for Silicon Valley Bank (SVB), and which triggered a liquidity shortage and consequent run on banks, have benefitted money market funds. As a result, investors have started realising the potential of a positive trade-off between compelling returns and lower risks, which may be the reason for the renewed interest in money market funds.

Furthermore, during periods of stress and sudden market movements, having liquid investments could be beneficial as having access to funds during periods of high volatility could be advantageous.

Money market funds could potentially also contribute to overall diversification*, as they can complement other traditional asset classes in the portfolio thanks to their safer risk profile, reducing overall volatility.

Lastly, we consider transparency to be another key element in the management of money market funds. Constant access to detailed and timely information could help investors make more informed decisions.

Amundi, your trusted partner for cash management¹, offers a full range of added-value services to address your liquidity needs.
 

To learn more about our product range, please visit our Best Ideas.

Learn more

Sources:

* Diversification does not guarantee a profit or protect against a loss
¹ No1 in Money Market Management in Europe in euros. FundFile - End June 2022 - Open-ended Funds domiciled in Europe and in euros only.

Important information

Unless otherwise stated, all information contained in this document is from Amundi Asset Management S.A.S. and is as of 5 April 2023. Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the author and not necessarily Amundi Asset Management S.A.S. and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. All investors should seek professional advice prior to any investment decision, in order to determine the risks associated with the investment and its suitability. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not a guarantee or indicative of future results.

Date of first use: 5 April 2023
Doc ID: 2828181