Tara Dougherty (TD):
Flows have been strong into money market funds recently. Focusing on the sterling market, why are investors choosing money market funds over bank deposits?
Joanne Bartell (JB):
There are several advantages to investing in money market funds rather than placing cash in overnight bank deposits. Money market funds aim to deliver returns above bank base rates and they achieve this by adding duration while still providing access to cash. Historically, money market funds offer a premium yield, especially in a rate-cutting environment. For example, when the Bank of England cuts rates, banks immediately pass that reduction to customers. In contrast, money market fund yields decline more gradually due to portfolio composition and added duration – while still offering same-day liquidity.
TD
Higher for a longer?
JB
Exactly – higher for longer. The other thing is we’re talking about yield, which is important, but capital preservation is our primary objective. We invest only in high-quality, highly rated, liquid assets with short durations and maintain a conservative credit list. These factors help reduce exposure to the market volatility we’ve seen over the past couple of years.
TD
We’re proud to be a leading global liquidity provider. Can you share how you work with that credit list daily and find opportunities?
JB
We have a dedicated money market credit team which is comprised of seven or eight analysts focused solely on money market credit. Every day we review updates – overnight news, rating agency changes – so, we’re always fully aware of where we are, and we’d never invest without being fully sure where we’re going to be investing. Within those parameters, we still manage to maintain a high yield.
TD
You wear two hats: portfolio manager and active trader. How does that help you achieve capital preservation and strong yields?
JB
It’s a dual approach. Each day, we monitor markets continuously, review economic data, overnight news, rating changes, and credit moves. We analyse the yield curve – one or two points depending on where we sit with the central bank’s monetary policy – and invest where we find value. This provides a bit of comfort to our clients.
TD
You and the team have been doing this for several years. How do you manage investor flows throughout the month or quarter?
JB
We’ve got an investor base that we’re very comfortable with. Our fund has no internal cash – it’s generally made up of investors. We have certain clients that move in the same way and have predictable liabilities, so we position our portfolios accordingly.
We’ll have excess liquidity, and we’ll buy at these points we where we find value. And obviously when we lose that cash, we know we’re going to lose that cash. So, we’ll be looking at O&M, we’ll be looking at liquidity and just gauging where we sit within that month – it’s a tale of two halves. Typically, inflows occur at the beginning of the month and outflows at the end. But we plan for this by positioning our portfolio accordingly.
TD
Clients often ask about counterparty risk. How do money market funds help mitigate that?
JB
Yes, there are advantages, and diversification is key in a money market fund. We can invest in a range of securities and instruments across a broad range of issuers, reducing exposure to any single counterparty risk – unlike placing cash with one bank overnight. We’re spreading that credit risk.
