Investors have increasingly flocked to money market funds to take advantage of the current high interest rates environment, according to platform Interactive Investor.
Since the end of 2021, assets under administration (AUA) in money market strategies on the platform has grown a mammoth 306%.
The asset class makes use of bonds that are due to mature soon so that investors can earn income on cash with less sensitivity to interest rate rises than conventional bond funds.
Sam Benstead, Interactive Investor deputy collectives editor, said: “Money market funds have come back into vogue in recent months, as, again, investors can achieve better returns on their cash now that interest rates have risen.”
The Abrdn Sterling Money Market and Royal London Short Term Money Market Fund were two of the most bought strategies within the asset class on the platform in the first three months of 2023. The two funds also appear among Hargreaves Lansdown’s most bought strategies for April.
Dzmitry Lipski, Interactive Investor head of funds research, said the Royal London strategy, which currently yields 4%, has an ‘excellent’ long-term track record, while it charges a ‘competitive’ 0.10% yearly ongoing charge.
He said: “The fund seeks to maximise income by investing in high quality, short-dated cash instruments. The managers place particular emphasis on the security of the counterparties it lends to, while ensuring daily liquidity.
“As interest rates are expected to continue rising and given the short-dated nature of the holdings in money market funds, this would soon result in an equivalent increase in the returns of the funds.”