Anglo-Italian wealth manager Moneyfarm has announced the launch of a new service called Liquidity +. The new cash management service will allow customers to invest in Money Market Funds to generate positive returns on their excess liquidity.
Moneyfarm’s Liquidity + is a cash management service designed to generate positive returns on excess liquidity or uninvested cash. Liquidity + is currently targeting a gross annualised yield in GBP in excess of 5.0% per annum.
The new service will aim to achieve those targets through investment in MMFs or Money Market Funds. MMFs typically buy and hold very short-term bills and debt issued by governments, banks and other corporate entities.
Those short-term bills and debts often have yields in excess of cash deposit rates, allowing the money market funds to offer an attractive return on an investor’s cash.
The allocation of cash to MMFs by Liquidity+ will be overseen by Moneyfarm’s asset allocation team who are likely to spread their holdings amongst funds to diversify risk and maximise returns.
Effective cash management is increasingly important
Cash is increasingly seen as an asset class in its own right. As interest rates have risen so have yields, particularly at the short end of the curve.
The returns available from MMFs capture those changing interest rates, without the need to tie up cash for an extended period of time.
In fact, one of the attractions of MMFs is that they are super liquid, and are typically held on an overnight basis, with any re-investment of funds made on the following day.
The net upshot of this is that investors can effectively have their money back on demand.
That level of liquidity and the chance to offset the ravaging effects of inflation on cash are behind the increasing popularity of MMFs.
The growing use of Money Market Funds
Managing cash within a portfolio efficiently to ensure the highest possible return with the lowest possible risk, is an increasingly important part of an investor’s job, because inflation quickly erodes the purchasing power of cash, and does so on a compounding basis.
Money Market Funds, and the liquidity management services that invest in them, are extremely popular in the US. And as of the 31 of August, there were $5.58 trillion invested in these short-term funds.
Moneyfarm has gained a first-mover advantage over its competition with the launch of Liquidity +. Should higher rates of inflation, persist then the demand for effective liquidity management, from private investors, in both the UK and Europe, is only likely to increase.