International investors poured over $1 trillion into money market funds in 2023

Since the beginning of the year, international investors have poured more than $1 trillion into money market funds, according to data from Emerging Portfolio Fund Research. Russian private investors are also following the general trend: their net investments in domestic analogues since the beginning of the year have exceeded 91 billion rubles. Investors are attracted by the protective properties of such investments against the backdrop of rising key rates. However, such investments should have a short investment horizon, since in the long term they lose to riskier strategies.

Risk avoidance

Russian investors are actively increasing their investments in money market mutual funds. According to Kommersant’s estimates, based on Investfunds data, in October the net inflow of funds into such mutual funds amounted to almost 39 billion rubles, which is 16 billion rubles. more attractions a month earlier. In total, since the beginning of the year, shareholders have invested over 91 billion rubles in them, or 88% of the total amount of funds invested in all retail funds (open-ended and exchange-traded). Moreover, three quarters of the total volume entered such mutual funds in the last three months.

The popularity of such investments began to grow against the backdrop of a sharp increase in the key rate. In August, the Central Bank immediately raised it by 350 basis points, to 12%. And in the following months raised it three more times – up to 15%. Last Thursday, November 9, at a joint meeting of State Duma committees to consider the main directions of monetary policy in 2024–2026, the head of the regulator Elvira Nabiullina didn’t rule it out another increase before the end of the year. “The rate may remain at this level this year, but there may be another increase. But then, as inflation declines, we say that next year we will begin to reduce the rate,” she noted.

Shortcut

The growing interest in these most conservative stock market instruments is associated with the goal of waiting out the volatility in the debt market caused by the rise in the key rate. A large share of the assets of such mutual funds is invested in short-term money market instruments, in particular reverse repo transactions with a central counterparty secured by clearing participation certificates. Rates on such instruments move following the key rate. According to the Moscow Exchange, last week reverse one-day repo rates were at the level of 14.2–14.3% per annum. Four months ago, before the first key rate increase this year, the yield on repo transactions was 7.0–7.7% per annum.

“Money market rates are formed under the influence of the key rate, but may deviate from it under the influence of the level of liquidity in the banking sector and the features of averaging the required reserves of commercial banks in the Central Bank,” notes Vladislav Danilov, senior analyst at Pervaya Management Company.

There is a small group of funds that invest in deposits and short government and corporate bonds. “Funds that contain short-term bonds have shown somewhat weaker dynamics in recent months than investments in reverse repo, amid rising yields on short-term bonds,” notes Vladislav Danilov. When making such investments, it is important to pay attention to structural funds: the more reliable the issuers, the lower the risk of price drawdown in the event of unfavorable market conditions.

Cost control

When choosing funds, you should carefully look not only at the fund’s investment declaration, but also at the amount of associated expenses, which can have a significant impact on the final result. The total commission (remuneration of the management company, infrastructure and other expenses) for exchange-traded funds is 0.34–0.50%, for open-end funds it can reach 1.8%. It is worth considering that when redeeming shares of open-end funds, a discount is possible, which, depending on the holding period, can reach up to 2%. This commission is not charged when trading BPIFs, but in this case a brokerage commission arises.

When purchasing BPIFs, Ivan Lavrinenko, Investment Director of Management Company “Era of Investments,” advises looking at the spread between purchase and sale. “For some funds it may be significant enough to influence the decision to use this instrument,” he notes.

Respite Funds

However, such funds are intended for temporary placement of funds and are not suitable for long-term investments, since due to lower volatility they can lose not only to stock funds, but also to bond funds. According to Investfunds, over the past three months, money market funds have brought shareholders returns of 1.4-3.2%, and since the beginning of the year – 5.5-7.3%. Over three months, the value of the shares of most ruble bond funds fell by 2–4%, but over the annual horizon, some of them showed an increase of 8–11%. At the same time, investments in Russian stock funds increased by 3–15% and 35–100%, respectively. According to Viktor Bark, director of the asset management department at Alfa Capital Management Company, interest from money market funds will shift to bond funds as inflation slows and the Central Bank’s rhetoric softens.

Vitaly Gaidaev