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Difficulty: Easy
1) What are Money Market Instruments?
2) Positives of the Phillip SGD Money Market ETF
3) Negatives of the Phillip SGD Money Market ETF
SGX’s first Money Market ETF was launched by Phillip Capital Management for trading on 5 October 2020. The ETF aims to track the performance of the FTSE SGD 3-month SOR Index, with the intention to provide a better yield for investors keen on a cash management solution.
Our comments on this product had been quoted by The Business Times (on 6 October 2020) and we thought it would be apt to provide more details here.
The InvestQuest View:
For retail investors, we think that the Phillip SGD Money Market ETF is less attractive than some of the alternatives in the market currently, which offer a similar liquidity profile, higher returns with lower risk.
For now, we believe that the Phillip SGD Money Market ETF is best suited for institutional investors with low brokerage fees and looking for a cash sweep solution. These institutional investors might need the cash available on hand (which rules out the use of fixed deposits) and may not be able to access Insurance Savings Plans or Singapore Savings Bonds (SSB) that are only open for retail investors.
1) What are Money Market Instruments?
Money Market instruments refer to very short-term debt instruments, with a maturity date of less than a year. They are categorized by a very high degree of safety, with relatively low rates of returns. Examples include Government Treasury Bills, Certificate of Deposits from high quality issuers and Commercial Paper.
Investors typically use Money Market Funds or Money Market ETFs to hold excess cash, with the intention to generate a yield that is higher than bank interest rates.
2) Positives of the Phillip SGD Money Market ETF
The definition of what the ETF considers high quality debt and deposit instruments include:
- Deposit investments with eligible financial institutions with a minimum short-term rating of F-2 by Fitch, P-2 by Moody’s or A-2 by S&P
- Debt securities and money market instruments with minimum short-term rating of F-2 by Fitch, P-2 by Moody’s or A-2 by Standard and Poor’s, or where it only has a long-term rating, a rating of A by Fitch, A by Moody’s or A by Standard and Poor’s.
- For context, Singtel has a credit rating of A by S&P, which is the “riskiest” credit rating that the ETF can invest into.
3) Negatives of the Phillip SGD Money Market ETF
In the below image, we compare the Phillip SGD Money Market ETF against other yield enhancement alternatives that are available to retail investors. As you can see, the Money Market ETF does not particularly stand out, as it does not offer the highest yields, nor does it offer the best liquidity terms and it is not guaranteed by the SDIC.
Separately, the net projected yield on the Phillip Money Market ETF is relatively low at 0.276% p.a now. If we assume that a retail investor is charged a 0.25% brokerage fee on the ETF purchase, the investor would likely take a year to breakeven.
On a side note, we do keep track of the best savings and fixed deposits alternatives on a monthly basis. You may view our latest October publication here.
The InvestQuest View:
For retail investors, we think that the Phillip SGD Money Market ETF is less attractive than some of the alternatives in the market currently, which offer a similar liquidity profile, higher returns with lower risk.
For now, we believe that the Phillip SGD Money Market ETF is best suited for institutional investors with low brokerage fees and looking for a cash sweep solution. These institutional investors might need the cash available on hand (which rules out the use of fixed deposits) and may not be able to access Insurance Savings Plans or Singapore Savings Bonds (SSB) that are only open for retail investors.
Appendix 1: Further Details of Money Market ETF Alternatives
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