More investment platforms roll out cash management accounts – should you put your money in them?
Online brokerage Tiger Brokers and private market exchange ADDX are among the investment platforms that have rolled out cash management solutions, which they describe as “low-risk” alternatives to holding cash.
SINGAPORE: As investors flock to safety in an uncertain environment, several investment platforms have rolled out cash management accounts as an alternative to holding idle cash in banks.
These accounts – typically made up of money market funds whose yields have moved up alongside rising interest rates – tout projected returns of above 2 per cent, beating regular savings accounts and on par with some fixed deposit rates. They also offer easy withdrawals with no lock-in period.
Online trading platform Tiger Brokers is one of those that have rolled out such an option recently.
Its Tiger Vault, launched last month, allows users to choose from eight money market funds and earn up to 2.8 per cent based on current estimates. Withdrawals can be done anytime, with fund transfers back to one’s bank account taking around one business day.
Ms Grace Yong, Tiger Brokers’ business development director, said investors want safe havens away from volatile markets to park their money, but rising inflation is eroding the value of their cash savings.
Money market funds – mutual funds that invest in debt securities with short maturities and low credit risk, and have yields that tend to track central banks’ interest rates – hence could be an attractive option.
“Money market funds are traditionally regarded as a stable form of investment which offer investors a relatively low level of risk and high liquidity,” said Ms Yong.
“Like all investments, Tiger Vault carries investment risks. But as the underlying funds invest in safe assets like fixed deposits and government bonds, the risk of a negative return on any one day is low.”
Likewise, private market exchange ADDX noticed that more investors are leaving capital idle in their wallets on its platform. While some are waiting for a suitable investment opportunity, others had excess funds after redeeming earlier investments or receiving distribution payouts.
“Some investors … might even transfer the capital out to their bank accounts to deploy in an external cash management solution, before transferring it back to their ADDX wallets for their next investment,” said chief executive officer Choo Oi-Yee.
The platform introduced its own cash management tool in August. ADDX Earn, as it is called, includes two money market funds with weighted average yields to maturity of 2.22 and 2.38 per cent per annum as of end-July.
With the funds targeting low-volatility assets and having weighted average portfolio durations of less than a year, the new tool aims to “withstand short-term volatility while preserving capital”, ADDX said.
A CROWDED MARKET
To be sure, cash management accounts are not new and there are already several options offered by the likes of robo-advisers and brokerages.
Robo-adviser Syfe, for one, has a Cash+ portfolio whose projected yields have gone up in tandem with rising interest rates – from a per-annum 1.2 per cent at the start of the year to 2.3 per cent as of Sep 26.
Cash+ puts investors’ money into money market funds and debt securities with maturities of less than six months, with each maturing at different times, said head of investment advisory Ritesh Ganeriwal.
“As bonds mature, the proceeds are reinvested into new bonds at the prevailing interest rates, which are higher due to the rate hikes. As a result, the overall projected rate increases in tandem with the rate hikes, but may not track it exactly,” he added.
StashAway has made six revisions so far to the yields of its cash management solution. Simple, as the solution is called, currently offers a 2.1 per cent projected return, up from 1 per cent in May.
The robo-adviser also introduced a “slightly higher risk” version of Simple in July, citing demand from customers for medium-term options while maintaining a part of their portfolios in relatively low-risk assets.
Simple Plus – which includes money market funds, as well as short and ultra-short duration bond funds – offers higher projected returns of 3.6 to 4.1 per cent. But bond funds “can experience short-term volatility” so investors must be prepared to hold their cash for at least 12 months, the firm said.
Overall, StashAway said its cash management portfolios have attracted “increased” inflows amid the rise in expected returns.
Syfe noted that inflows into Cash+ “almost tripled” within a week when it first raised its projected returns, with total inflows “rising steadily” to date.
“With the latest hike (in September), we continue to expect similar levels of inflows compared to previous times,” said Mr Ganeriwal.
Over at Tiger Brokers, its product has since attracted about 12,000 users, with assets under management slightly under S$100 million.
“These numbers are very encouraging, and we continue to see the product picking up momentum,” Ms Yong told CNA.
Experts said that beyond tapping into the current demand for low-risk instruments, the newer players are also interested in offering cash management solutions as part of growing their overall user base and business.
“For all the players, especially the newer ones, attracting users into their cash management options is not the end,” said Professor Lawrence Loh from the National University of Singapore (NUS) Business School.
“It’s the possibility of customers pivoting to other instruments or investment solutions within the platform after coming on board,” he added. “It is more of a step to other possibilities.”
The new players are already looking at ramping up their offerings, with Tiger Brokers set to increase the number of currencies that Tiger Vault supports and include more money market funds.
Currently, its users can invest in Singapore-dollar and US-dollar funds without incurring foreign exchange conversion fees. Funds in Hong Kong dollars will be added soon.
ADDX said it is looking beyond money market funds and may consider ultra-short and short-duration bond funds that provide investors with higher returns.
Ms Choo added that demand for cash management tools will be “evergreen”, be it in a risk-off or risk-on environment.
This is because there will always be undeployed capital as investors consider their opportunities. Such idle funds are also coming from multiple sources and at different times, such as investment returns or capital set aside from a regular salary.
“There is a place for cash management solutions in (a) portfolio in any investment environment,” she said.
WHAT RETAIL INVESTORS SHOULD KNOW
Given the potential to earn some returns while enjoying a high degree of liquidity, cash management accounts made up of money market funds may be an option for retail investors in the current uncertain investing environment.
The projected returns are also likely to remain on an uptrend with central banks still on a rate-hike race.
But not all cash management portfolios are the same, with some having minimum investment sums or management fees.
Other factors to consider include credit ratings, number of securities and average maturity which help investors to evaluate risk levels, said Mr Victor Wong, director of wealth management at Financial Alliance.
Things to consider when choosing a cash management account
1. Average credit rating of the underlying portfolio
Simply put, the higher the credit rating, the better the quality of the underlying bonds or securities.
This in turn translates into a lower default risk in time of market stress, noted Mr Victor Wong, director of wealth management at Financial Alliance.
2. Number of securities
Having more securities will provide better diversification.
“This means there is lesser concentration risk so that one or two defaults would not substantially affect the portfolio,” Mr Wong said.
3. Average maturity or duration
With short-term interest rates rising rapidly, it may be better to stick to cash management accounts that have a shorter duration, said Mr Wong.
This is because such a portfolio will be less sensitive to interest rate movements.
“That is also the reason why money market funds which typically hold securities with maturity less than one year – hence less sensitive to interest rate rise – are deemed less risky than short-duration bond funds which usually have duration (of) more than a year,” he added.
4. Compare historical performances and other factors
Investors should also compare past performances when shopping around.
“A good cash management portfolio should be able to give the same or better return with lower volatility,” said Mr Wong.
Echoing that, Syfe’s head of investment advisory Ritesh Ganeriwal said it is important to look beyond projected yields and assess a product based on its track record and actual net annualised returns.
Cash+, for one, has always achieved its previously projected returns, he added.
StashAway also noted that its Simple portfolio has “never booked a day of negative returns” in the last 12 months despite market volatility.
In addition, the robo-adviser gives “100 per cent of the rebates back” to customers.
“With rebates consistently compounding, you get a far better long-term strategy for your cash management,” said co-founder and chief executive Michele Ferrario.
Also, while money market fund offerings are typically low risk, they are not entirely risk free.
Mr Wong explained: “In a normal market scenario where there are no market stress or liquidity crisis, corporates are normally able to make repayment and investors can enjoy the higher yield.
“However, in an environment of extreme market stress, such as the 2008 global financial crisis where many companies fail or default, cash management solutions which hold short-term corporate bonds may suffer some principal loss.”
As such, investing in money market funds is still slightly riskier than other options like the Singapore Savings Bonds and Treasury bills issued by the Singapore Government, as well as fixed deposits, he added.
Prof Loh stressed that cash management accounts are investment products and investors “should not mistake them” as bank deposits despite the high liquidity.
As with all investments, investors should consider the reputation of the company and read the fine print about protection and recourse should things go wrong, he added.
On that, the investment platforms told CNA that they are licensed by the Monetary Authority of Singapore. In accordance with the regulator’s requirements, all customer funds are kept separate from the companies’ own assets in separate accounts with custodian institutions.
This means that investors “will always have full access and claim to (their) assets no matter what happens”, said StashAway’s co-founder and chief executive Michele Ferrario.
Likewise, Ms Yong said: “In the unlikely event that Tiger Brokers faces unfortunate circumstances, the assets will either be returned to the investors or transferred to another agent of the customer's choice.”
