UK Adviser talks to James Penny, chief investment officer for TAM Asset Management
Penny, who joined TAM Asset Management in 2014 and previously worked at UBS AG, explains why the firm has launched its own money market portfolio, how such products can strengthen the adviser-client relationships and how interest rates could move over the coming year.
Why should financial advisers be interested in money market funds?
A money market fund is what it says on the tin really – an investment portfolio that does very well when interest rates are high. The one thing all such funds have in common is they have very little risk. It is about the same risk as owning cash in the bank.
TAM released our own money market fund because a lot of banks were being very slow to match the interest rates set by the Bank of England. So what we did was create a portfolio that could immediately give investors that same style of savings account, but through a portfolio.
Advisers are keen to use money market funds because it means their clients do not have to take their money out of investments and put it into a bank account. So, rather than losing those clients to a savings account, these funds enable advisers to maintain a relationship with their clients.
Do the benefits outweigh the risks of money market portfolios?
I would like to think so. The risks are as low as we can possibly make them. The alternative to using this portfolio is investing into a savings account, where the only risk is if the bank you have deposited your money with goes bust – and even then you are still covered by the government.
So, we have tried to make this portfolio as low-risk as possible. The difference between a money market fund and a savings account, however, is you are tracking the Bank of England rate. Although some banks are starting to offer 5% as an interest rate, many are still offering below that. So, money market funds remain an attractive portfolio.
Ultimately, though, this portfolio will be most attractive to clients when interest rates are high. When interest rates are not as high, obviously it will be less so.
What type of client would be interested in this portfolio?
There is definitely a type of client who should be investing into this if they want to put their money to work without any risk. The most interested clients should be those with a very low level of risk tolerance.
You will also find, however, that a subset of clients are happy to take extra risk, then sell out of an equity portfolio, say, and move temporarily into a money market fund. This would be done with the intention of timing the market so that as and when riskier assets do start to bounce back, they quickly move out again.
Looking ahead, what trends do you expect to see in the market?
Over the last 15 to 20 years, we have not needed money market funds because interest rates have been at 1% or 2% or even lower. As a result, there has been no impetus to own these funds.
So 2020 to 2023 has been the first time for a while that we have seen this as an attractive asset class. What people have historically done is just invested normally – so how long money market funds remain attractive depends on people’s anticipation of rate cuts.
In a recession, you start to see central banks attempting to stimulate the economy with a drop in rates. So, a recession could be something that makes the bond market rally. Still, people could do very well if they put their money in a money market fund through a recession, given equity market tends to set off quite a bit.
All things being equal, though, you should start to see interest rates coming down over the coming year and this would naturally affect people’s interest in this product.
