An increased focus on security and liquidity
Until the credit crunch of late summer 2007, markets were awash with cheap money. The resulting yield compression led risk to be significantly undervalued. Now as the fallout of the recent credit crisis continues to affect the markets and the financial system, investors have rediscovered the importance of security and liquidity and are now seeking a safe haven for their cash.
Choosing the right money market fund
Triple-A rated money market funds (MMFs) that are members of the Institutional Money Market Fund Association (IMMFA) are a convenient, secure and highly liquid safe-house for corporate cash, and many more companies are recognising the advantages of these investments, evidenced by the significant asset growth of these funds (fig 1). IMMFA provides the ‘gold standard’ for MMFs in Europe, but a difficulty for investors is that the term ‘money market fund’ covers a wide range of funds which are not equivalent in their asset security, diversification and the investment process employed by the fund manager.
When considering possible money market fund investments, it is vital that investors apply a series of key criteria to selecting a provider. These include: