Vanguard ‘missed a trick’ with first UK money market fund

Passives giant barely beats Blackrock out of the blocks with cash product

Vanguard could have “missed a trick” by failing to incorporate an environmental, social and governance overlay on its first money market fund domiciled in the UK.

The announcement comes as rival passives giant Blackrock prepares to unveil an ESG money market fund this month.

The Vanguard Sterling Short-Term Money Market Fund will be targeted at retail, intermediary and institutional clients with the initial yield estimated to be 0.55%-0.6%. There is an ongoing charges figures of 0.15% plus a cheaper 0.10% share class for institutions.

Vanguard already looks after £240bn in money market strategies via its team with fixed income; however, this is the first UK product it has launched. It has managed money market products for over 40 years.

In June 2018, JP Morgan launched the Ultra Short Income Ucits ETF with sterling, euro and US dollar versions of the fund and a TER of 0.18%. It is not a money market fund but has been touted as a cash alternative.

Within money markets, Commerzbank offers three UK-domiciled ETFs, while Lyxor offers the largest product in the space with the £1.2bn Smart Cash ETF.

ESG missing from Vanguard fund

7IM senior investment manager Peter Sleep said a sterling money market fund closes a gap in Vanguard’s broad product line up. However, Sleep added: “I wonder if Vanguard missed a trick by not giving this fund an ESG overlay.”

Blackrock has confirmed an ESG money market product will be unveiled this month but said they were not yet ready to reveal details.

Vanguard is currently looking at its ESG line-up, a spokesperson said. “We expect this product to meet the needs of retail and retail-orientated investors who value capital stability, liquidity, and diversification while maximising current income. We do appreciate investors are increasingly thinking about ESG. Vanguard continually studies new products and markets across the globe.”

‘Keep the large incumbents honest’

Vanguard had the infrastructure to launch a sterling fund due to its history running money marketing products in other currencies, Sleep said.

“More competition is welcome as it will keep the large incumbents honest and keep their prices low.”

Vanguard head of product, Europe, Matthew Piro said the fund will invest in short-dated  investments with capital stability, high credit quality and liquidity.

“This can, potentially, make it a good place to invest cash with short-term requirements; whether that’s managing income, purchasing a car, or paying out a deposit,” Piro said.

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