Transforming the Cash Management Landscape with Phillip SGD Money Market ETF
Investors place a great deal of emphasis on managing their core investment portfolio but neglect the cash aspect. To set aside cash for rainy days is a deeply-ingrained value in our Asian DNA. Although generally considered to be liquid and safe, the problem with banks savings accounts is that excess cash simply idle without generating any meaningful interest. This exposes excess cash in savings accounts to the full brunt of inflation, on the downside.
Diagram 1: Effects of inflation on Excess Cash
Source: Phillip Capital Management (“PCM”)
To demonstrate why investors should also take a more proactive approach in managing their excess funds, consider the above illustration. In the illustration, we assume a 2% p.a. inflation rate across the 20-year horizon. Without any active cash management, the real purchasing power for a notional $100,000 would erode bluntly to $67,445 by end of 20 years. With some level of cash management, assuming the investor park the excess funds in a fixed-rate vehicle at 0.50% p.a., his purchasing power at the end of the period would be $69,539.
Now, if we assume that interest rates begin to normalize from 0.5% to 1.5%p.a. after the initial 5 years, a fixed-rate vehicle would not stand to benefit from the pick-up in yield from the marketplace, hencing failing to participate on the upside when interest rates climb. This is one major reason why a floating rate solution would be more ideal compared to say, fixed time deposits. And as illustrated, an investor would see his purchasing power being more preserved at the end of the period with $84,704.
Augmenting Cash Management with Portfolio Management
Despite the undesirable effects of inflation being mainstream knowledge, Singaporeans are largely still leaving their cash in unproductive vehicles. As of July 2020, the total deposits in Singapore amounted to $734 billion and of this, almost $240 billion (approximately one-third) were sitting in savings accounts of residents and corporates (not financial institutions).
Although being financial hub in the ASEAN region, the lack of available tools – or to some degree the lack of awareness for the matter – can be attributed to why substantial portion of cash is sitting in savings accounts.
In the US, Money Market Funds (“MMFs”) have relatively high penetration, with total fund assets in this class amounting to US$5 trillion in August 2020, and account for an estimated 20% of the total mutual fund assets at end-June 2020. In comparison, locally domiciled Singdollar MMFs have total fund assets of approximately $3 billion, as at end September 2020. At this size, the local share of Singdollar MMFs to savings is extremely low at just 1.23%. This signifies potential challenge to improve investors receptiveness to invest in money market products for the opportunity to have better yields than the conventional way of managing cash, that is to put in deposits accounts.
Yet, if anything, the budding robo-advisory scene in Singapore offering cash management solutions are anecdotal signs that such demand are indeed growing as investors gets more sophisticated.
Diagram 2: Single Point of Control with Phillip SGD Money Market ETF
Source: Phillip Capital Management
The idea of the Phillip SGD Money Market ETF (“PSGDMMETF”) is a simple but significant step towards reinventing Singapore’s cash management landscape: Allow investors to manage their liquidity via a tradable security on the local exchange, along with their core investments. By taking advantage of the ETF structure, PSGDMMETF can benefit investors as a low-cost accessible investment tool for liquidity management.
PSGDMMETF – Less Risky, More Useful Investment Tool
As a tradable money market fund, PSGDMMETF also primarily invests in money market securities and fixed deposits of established institutions to improve the yield pick-up for investors’ excess funds.
Money market securities/instruments are short-term (<365 days) financial products, typically issued by governments, financial institutions and large corporations. These are considered to be relatively conservative and safe investments because of shorter time horizon. These instruments must have high credit quality to be considered. However, due to the quantum and size of the investment, investors typically do not get direct access but rather indirectly through mutual funds (known as MMFs) and now with, PSGDMMETF.
Apart from being able to trade the units of PSGDMMETF, investors can also track the short-term interest rate trends through the ETF. This is because PSGDMMETF closely tracks the performance of the FTSE SGD 3-Month Swap Offer Rate (“SOR”) Index.
Due to the pandemic-induced recession, interest rates have been slashed to near zero as central banks around the world fought to keep liquidity flowing. By tracking the prevailing 3-Month SOR rate, investors will also be able to participate on the upside when interest rates begin to climb or normalize. This can only be achieved by having a dedicated team of credit analysts that are always on their toes for changes in interest rates and constantly conduct due diligence on short-term credit papers. Diversification would also help to reduce credit default risk exposure to counterparties in the portfolio.
In juxtaposition with investors placing their monies in fixed deposits directly, PSGDMMETF does not have a lock-in period and hence would not subject investors to penalties for premature withdrawals.
Table 1: Comparison with Fixed Deposits
Compiled by: PCM. Source of Fixed Deposit rates: Monetary Authority of Singapore (“MAS”)
Notwithstanding competitive returns, no lock-in penalties, and transparency of the ETF structure, PSGDMMETF further value-adds by improving convenience for investors when they use PSGDMMETF (instead of deposits) to manage liquidity in their portfolios of investments ((Diagram 2). This would also reduce the hassle involved in managing bank transfers between trading accounts and deposit accounts.
Low Trading & Clearing Fees on SGX
To encourage the participation for PSGDMMETF, SGX has a lower fee structure for clearing and trading of units in Money Market ETFs. For comparison, the combined clearing and trading fee (one-way) on SGX is only 0.0002% for PSGDMMETF compared to 0.04% for non-MMETFs. 
In summary, combining the simplicity of the ETF structure, with the benefits of SGD Money Market, PSGDMMETF would make a straightforward tool for cash management. As a conservative investment vehicle, corporate treasurers should also be able to find all the qualities that befitting their investment mandate in PSGDMMETF.
 Fitch Ratings, Inc. “Market Liberalisation Will Drive Growth for China’s Mutual Funds”; dated 17 August 2020
 “high quality” as defined in the Appendix 2 of the Code on Collective Investment Schemes (last revised on 16 April 2020).
 Investors are advised to check with their brokers on brokerage fees for the trading of PSGDMMETF.
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