Insights

Transforming the Cash Management Landscape with Phillip SGD Money Market ETF

By December 8, 2020 No Comments

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).[1]

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[2], and account for an estimated 20% of the total mutual fund assets at end-June 2020[3]. 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[4] 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. [5]

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.


[1]https://eservices.mas.gov.sg/statistics/msb-xml/Report.aspx?tableSetID=I&tableID=I.4

[2] https://www.federalreserve.gov/releases/efa/money-market-funds-investment-holdings.htm

[3] Fitch Ratings, Inc. “Market Liberalisation Will Drive Growth for China’s Mutual Funds”; dated 17 August 2020

[4] “high quality” as defined in the Appendix 2 of the Code on Collective Investment Schemes (last revised on 16 April 2020).

[5] Investors are advised to check with their brokers on brokerage fees for the trading of PSGDMMETF.

Click here for Fund Documents

Important Notice

This publication and the information herein is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in the ETF mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for more information and obtain advice from a financial adviser (“FA”) before making a commitment to invest in the ETF. A copy of the Prospectus and PHS are available from PCM or any of its Participating Dealers (“PDs”).

Investments are subject to investment risks including the possible loss of the principal amount invested. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future performance. There can be no assurance that investment objectives will be achieved. The use of financial derivative instruments will be for hedging purpose.

Any regular dividend distributions, either out of income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the NAV of the ETF. Upon launch of the ETF, please refer to <www.phillipfunds.com> for more information in relation to the dividend distributions.

ETFs are not like typical unit trusts as the Units of ETFs will be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its Net Assets Value (“NAV”) or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus for more details.

This ETF is an exchange-traded money market fund (“MMF”) and not a guaranteed fund. Investing in MMF is not the same as placing funds on deposit with a bank or deposit-taking company and there is no assurance or guarantee that the principal value of your investment can be maintained or preserved.

This ETF is benchmark to an Index that is designed to comprise three-month Singapore Dollar swap offer rates (“SOR”) to measure the performance of short-term Singapore Dollar money markets. The Singapore SOR relies on the USD LIBOR in its computation methodology and the likely discontinuation of LIBOR after the end of 2021 directly impacts the future sustainability of the SOR and the Index. The Singapore Overnight Rate Average (“SORA”) has been identified as the alternative interest rate benchmark for the SOR. In the event that the SOR is discontinued, the Manager will identify or agree with the Index provider or any other index provider for the use of a suitable replacement Index.

This ETF has been developed solely by the Manager. This ETF is not in any way connected to or sponsored, endorsed, sold or promoted by the London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”).

All rights in the Index vest in the relevant LSE Group company which owns the Index. FTSE® is a trade mark of the relevant LSE Group company and is used by any other LSE Group company under license.

The Index is calculated by or on behalf of FTSE Fixed Income, LLC or its affiliate, agent or partner. The LSE Group does not accept any liability whatsoever to any person arising out of (a) the use of, reliance on or any error in the Index or (b) investment in or operation of the ETF. The LSE Group makes no claim, prediction, warranty or representation either as to the results to be obtained from the ETF or the suitability of the Index for the purpose to which it is being put by PCM.

The information herein is not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. This ETF is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the ETF or related thereto. This publication has not been reviewed by the Monetary Authority of Singapore.

Leave a Reply

FATCA NOTICE

With effect from 1st July 2014, this FATCA Notice (the “Notice”) forms part of the terms and conditions of our products and services (the “Terms and Conditions”) governing your relationship (“you”, “your”, “yours” referred to herein include joint-account holders and beneficiary holders of an entity who are a natural person) with Phillip Capital Management (S) Ltd and its related corporations (collectively referred to herein as “PCM”, “us”, “we” or “our”) and should be read in conjunction with those Terms and Conditions, including those under our Personal Data Protection Notice.The existing terms and conditions of any contractual agreement entered into between PCM a nd you (the “Existing Terms and Conditions”) remain in full force and effect. In the event of any conflict or inconsistency between the provisions of this Notice and those of the Existing Terms and Conditions, the provisions of this Notice shall prevail.

We may from time to time update the Terms and Conditions listed here to ensure their consistency with our future developments,industry trends and/or any changes in legal or regulatory requirements. Such updates will be published at http://www.phillipfunds.com/ .

On March 18, 2010, the United States of America’s (“U.S.”) Hiring Incentives to Restore Employment Act of 2010 (Pub.L.111-147H.R.2847)) (the “Act”) was enacted into law. Section 501(a) of the Act added a new chapter 4 (sections 1471-1474) to Subtitle A of the U.S.’s Internal Revenue Code (Code).Chapter 4 expands the information reporting requirements imposed on foreign financial institutions (as defined in section 1471(d)(4)) (FFIs) with respect to certain U.S. accounts (as defined in section 1471(d)(1)) of specified U.S. person, and imposes withholding, documentation, and reporting requirements with respect to certain payments made to certain foreign entities.

PCM will be obliged to comply with the provisions of FATCA under the terms of the inter-governmental agreement (“IGA”) Model I between the U.S. and Singapore and under the terms of Singapore’s subsidiary legislation which will be issued pursuant to Singapore's Income Tax Act (Cap. 134) to implement the IGA. “FATCA” or “Foreign Account Tax Compliance Act” means Chapter 4 (sections 1471 to 1474) to Subtitle A of the U.S. Internal Revenue Code.

“FATCA” or “Foreign Account Tax Compliance Act” means Chapter 4 (sections 1471 to 1474) to Subtitle A of the U.S.Internal Revenue Code.

“U.S. person” means a U.S. citizen or resident individual, a partnership or corporation organised in the U.S. or under the laws of the U.S. or any state of the U.S. thereof, a trust if: (i) a court within the U.S.would have authority under the applicable law to render orders or judgments concerning substantially all issues regarding the administration of the trust; and (ii) one or more U.S. persons have the authority to control all substantial decisions of the trust, or an estate of a decedent that is a citizen or resident of the U.S..This definition shall be interpreted in accordance with the provisions of the U.S. Internal Revenue Code.

  • You shall provide all required documentation or information, including but not limited to your date of birth, countries of citizenship, countries of permanent residence, countries of tax residency and associated taxpayer identification numbers, which may be required to enable PCM to ascertain your U.S. tax status and share information and /or documents relating to you and/or your account(s) with domestic and international authorities for the purpose of complying with all the requirements of FATCA, the IGA between Singapore and U.S or other countries,any applicable Singapore or international laws or regulations.
  • You represent and warrant that you have provided to PCM all documentation or information in relation to change in your tax status or as required by PCM for compliance with all the requirements of FATCA, the IGA between Singapore and U.S or other countries,any applicable Singapore or international laws or regulations. You shall provide all required documentation or information within seven (7) days of a request from PCM in writing or otherwise.
  • You shall notify PCM in writing immediately in the event of any change that affects your tax status for the purpose of complying with the requirements of FATCA, the IGA between Singapore and U.S or other countries,any applicable Singapore or international laws or regulations. Such change that affects your tax status may include any change of the country or territory of your domicile or residence or any change of your nationality or obtaining of any new nationality. In these instances, you shall provide all information and/or documents as required or requested by PCM.
  • You acknowledge and agree that when you fail to provide accurate and timely information pursuant to this Notice, for the purpose of complying with the FATCA, the IGA between Singapore and U.S or other countries, any applicable Singapore or international laws or regulations, PCM may deem you as a recalcitrant and/or a reportable person and report this information to the Singapore Inland Revenue Authority, in accordance with applicable laws and regulations, which will in turn report to the IRS.
  • It is the existing policy of PCM that investment products and investment accounts managed by PCM (“PCM Products and Services”) are not being offered or sold to U.S. Persons and that subsequent transfer of PCM Products and/or Services to a U.S.Persons are prohibited.
  • If investment accounts or products managed by PCM are beneficially owned by a U.S. Person or if PCM deemed you as a recalcitrant and/or a reportable person,PCM may compulsorily cancel your pending subscription order or capital injection,terminate the contractual relationship with you and withhold an amount for transferring to the relevant tax authorities as required under the FATCA, the IGA between Singapore and U.S or other countries, any applicable Singapore or international laws or regulations. PCM shall have no liability for losses,fees, costs, expense, damages, liabilities of any kind which you may have suffered in connection with such cancellation, termination, withholding amount and/or as a result of our complying with the requirements of FATCA, the IGA between Singapore and U.S or othercountries,any applicable Singapore or international laws or regulations,even if we make an incorrect assessment and decision.

PDPA

PERSONAL DATA PROTECTION NOTICE

With effect from 1st July 2014, this Personal Data Protection Notice (the “Notice”) forms part of the terms and conditions of our products and services (the “Terms and Conditions”) governing your relationship (“you”, “your”, “yours” referred to herein include joint-account holders and beneficiary holders of an entity who are a natural person) with Phillip Capital Management (S) Ltd and its related corporations (collectively referred to herein as “PCM”, “us”, “we” or “our”). Without prejudice to the existing terms and conditions of any contractual agreement entered into between PCM and you (the “Existing Terms and Conditions”), which remain in full force and effect, this Notice shall be read in conjunction with the Existing Terms and Conditions. In the event of any conflict or inconsistency between the provisions of this Notice and those of the Existing Terms and Conditions, the provisions of this Notice shall prevail.

We are required under the Personal Data Protection Act (“PDPA”) to put in place the necessary arrangements to protect personal data and comply with the PDPA. Personal data includes any data and information, whether true or not, about an individual (a natural person) who can be identified from that data or information, such as your name, NRIC, passport or other identification number, telephone numbers, address, email address and any other information relating to individuals which you or your authorized representative have provided to us or we are likely to have access to (“Personal Data”).

This Notice outlines the purposes for the collection, use and/or disclosure of your Personal Data by PCM, how we protect your Personal Data and your rights with respect to the collection, use and/or disclosure of your Personal Data. This Notice supplements but does not supersede nor replace any other consents which you may have previously provided to us in respect of your Personal Data, and your consents herein are additional to any rights which we may have at law to collect, use and/or disclose your Personal Data. We may from time to time update the Terms and Conditions listed here to ensure their consistency with our future developments, industry trends and/or any changes in legal or regulatory requirements. Such updates will be published at http://www.phillipfunds.com/.

1. PCM may collect, use and/or disclose your personal data for any of the following purposes listed below (collectively “Permitted Purposes”):-

i) carrying out activities, duties and obligations in connection with our products and services which you have applied for, including evaluating your eligibility and credit profile, verifying the identity or authority of your representatives, administration of your account and/or managing our overall relationship with you (including but not limited to the outsourcing of any of our functions to service providers or vendors, due diligence checks, accounting and portfolio valuation, billing and collections, business continuity and print management);

(ii) developing new services and/or products;

(iii) providing you with marketing, advertising and promotional information, materials and/or documents related to financial products and/or services that we may be selling, marketing, offering or promoting, whether such financial products or services exist now or are created in the future;

(iv) marketing and promotional events, including but not limited to images, photographs or videos of you during the events;

(v) meeting or complying with PCM’s internal policies and procedures and any applicable rules, law, regulations, codes of practice or guidelines, orders or requests issued by any court, legal or regulatory bodies (both national and international) (including but not limited to disclosures to regulatory authorities or financial industry self-regulatory bodies; conducting audit checks (internal/external), surveillance and investigation; handling of customer feedback or complaint; dispute resolutions; recording of telephone conversations and/or electronic communications with you; conducting checks or investigations for prevention and/or detection of financial crimes such as money-laundering, financing of terrorism, fraud and/or bribery etc.);

(vi) legal purposes, including but not limited to obtaining legal advice and enforcing or defending our legal and/or contractual rights against you;

(vii) risk management, statistical and trend analysis;

(viii) processing and/or storing data and/or information related to your relationship with PCM.

2. PCM, in order to facilitate the discharge of its duties and obligations to you, may be required to disclose your Personal Data for the Permitted Purposes and/or for processing of the Permitted Purposes on a need-to-know basis, to any of the following entities and the directors, officers, staff, employees and agents of any such entities, whether located within or outside Singapore (“Relevant Persons”):-

(i) any associate or related company of PCM and the directors, officers, staff, employees and agents of any such person;

(ii) any actual or proposed assignee or transferee of any of PCM’s rights and obligations or any actual or proposed delegate of any of PCM’s functions and duties under its contractual relationship with you;

(iii) any relevant governmental, supervisory or regulatory authority or court of law, including the Monetary Authority of Singapore, to which PCM is or may be subject;

(ix) any person in order to give effect to any instruction from you or any person acting or purporting to be acting on behalf of you;

(x) any person as PCM may consider necessary in order to comply with any order, directive or policy of any court or governmental or regulatory authority in any jurisdiction;

(xi) any person when required to do so in accordance with the laws of any applicable jurisdiction or rules of any professional self-regulatory bodies or securities exchanges;

(xii) any agent, contractor or third party service provider who provides their services in connection with the operation of PCM’s fund management business, including but not limited to the custodians, trustees, fund administrators, registrars, banks, legal firms, accounting and auditing firms, printing firms, IT service providers, credit reference agencies, credit bureaus, data screening entities for the purpose of due diligence checks and the prevention and detection of financial crimes.

3. PCM’s related companies and third party service providers shall be bound by the same provisions as set out in this Notice and we will require them to ensure that your Personal Data are kept confidential and secure.

4. You represent and warrant that your Personal Data provided to us is accurate and complete for us to make a decision that affects you or to disclose your Personal Data to the above-mentioned Relevant Persons on a need-to-know basis. Where applicable, when you provided Personal Data relating to another individual (e.g. your dependent, spouse, children and/or parents) to us, you represent and warrant that such Personal Data is accurate and complete and the consent of that individual has been obtained for the collection, use and disclosure of his/her Personal Data in accordance with the provisions listed in this Notice.

5. We will retain your Personal Data to the extent that one or more of the Purposes for which your Personal Data was collected, used and/or disclosed is/are still valid and for legal, regulatory reporting or regulatory investigations purposes for which retention may be necessary.

6. PCM may terminate any contractual relationship which you may have with us, if any information provided to us is insufficient, misleading or erroneous or if any information that is required to be disclosed to any regulatory authority for compliance with any law or regulation is not provided by you.

7. You may request access to or make corrections to your Personal Data records. Depending on the information requested PCM may charge a small fee when you request access to your Personal Data. Upon your request and subject to the provisions under the PDPA, PCM will respond accordingly within reasonably possible time. Please submit your request to our Data Protection Officer via pcm@phillip.com.sg.

8. You may withdraw your consent to any use or disclosure of your Personal Data for any or all of the Purposes as set out in this Notice by giving written notice to us. If you withdraw your consent(s), depending on the nature of your request, we may not be in a position to continue to provide our products or services to you or administer any contractual relationship in place. Such withdrawal may be considered a termination by you of any agreement you may have with us. Where there is any breach of your contractual obligations or undertakings, PCM’s legal rights and remedies are expressly reserved in such event.