More and more conservative investment choices namely money-market funds are gaining popularity because of the volatile local and global markets, in a report published last week according to local money-market fund managers.
Amidst the inflation which is constantly on the rise from a global perspective and commodity markets, the same are increasingly becoming volatile in which investors are searching for much safer places to take their cash as long as they get a much higher rate of return than inflation.
The shock waves that were caused by the collapse of unsecured lender African bank are still being experienced which are feeding the present conservative stance of investors.
A money-market fund is regarded as an optimal investment for reducing market risk. A specialist fund manager is responsible for evaluating their credit exposure and manage interest-rate risk. Inflation is now gaining momentum and rate increases are possibly going to happen over the next year.
Investors are now searching for liquidity in their respective investments which a money market fund can utilise along the way. One’s money is available on demand which additionally one’s interest risk is fairly limited and will be reset to a higher interest rate within a variable short term.
With a attached and fixed deposit, investments are locked in for a period of time and the interest rate will remain unaffected despite the erratic movement of the market.
Over the long term, money market funds offer better returns instead of fixed deposits and are considered perfect short-term savings vehicles.
The South African Reserve Bank will maintain the repo rate temporarily on hold for the remainder of the year and there will probably be a small muted rise by 2015 as the U.S. begins in normalising their rates.
Looking ahead, analysts expect the money market to return between 6.5 % to 7 % over the next couple of years in which bonds will return approximately 7.5 % to 8 % along with corporate credit about 1.5 % above bonds.
Lastly, the market may experience another broadening in credit spreads and this will present some purchasing opportunities along the way.