Jovi Ho Tue, Jun 21, 2022
Digital wealth manager Syfe is raising the projected return rate of its cash management portfolio to 1.5% p.a. from 1.2% p.a. previously.
Amid the current market selloff, many investors have turned to cash management solutions as a safe haven to ride out the volatility, says Syfe.
In a June 20 email to clients, Syfe’s management says the projected yield will “gradually move higher as interest rates continue to rise”.
“Last Wednesday, the Federal Reserve announced a 0.75% interest rate hike and indicated that another 0.75% increase could be possible in July. US inflation is currently at decades-high. The Fed is widely expected to implement additional rate hikes in the coming months to bring down soaring prices. On average, Fed policymakers now expect interest rates to rise to around 3.4% by the end of the year,” reads Syfe’s email.
Syfe claims its Cash+ portfolio has never had a week of negative returns in the 2022 year to date.
However, the latest revision is still below the cash management portfolio’s original rate. Syfe launched Cash+ in January 2021 with projected returns of 1.75% p.a.
Syfe’s revision comes after competitor Stashaway raised the projected rate of its Stashaway Simple portfolio in May to 1.1% p.a. from 1.0% p.a. previously. Stashaway has since raised the rate further to 1.3%, though this is still below its launch rate of 1.4% in November 2019.
“Central banks around the world are starting to increase their interest rates to counter inflation. Simple’s returns are closely tied to the interest rates, so when the rates go up, so does Simple’s ability to earn more on cash,” says Stashaway co-founder and chief investment officer Freddy Lim in an email to account holders on May 13.
Meanwhile, Endowus offers three cash management portfolios, with the highest boasting a projected return of 2.5% to 2.9% p.a. after fees.
Cash Smart Ultra, the highest-returning tier among Endowus’ three Cash Smart portfolios, launched with a 1.7% to 2.0% p.a. target in April 2021.
The return rates of its Cash Smart suite, which also includes Cash Smart Secure (1.1% to 1.3% p.a.) and Cash Smart Enhanced (1.9% to 2.3% p.a.), were updated on May 31.
“The Secure Portfolio continued to provide stable and positive returns as expected despite volatile market conditions. Its ultra short duration means the portfolio is relatively more liquid than other higher duration portfolios. It is also less sensitive to changes in interest rates,” says Endowus in a June 17 note.
“Both the Enhanced and Ultra Portfolios saw a rebound after the lows in late-April and mid-May respectively with decent positive returns for the month,” they add.
The rising rate environment provides an opportunity for the underlying funds to reinvest and allocate the coupon payments and cash from maturing bonds to higher yielding bonds,” says Endowus.
“The fall in bond prices has a negative mark-to-market impact but it results in a higher yield to maturity of the bonds that are in the portfolio. Hence, while Cash Smart is still showing negative returns for the year and are sensitive to interest rate movements still, the projected yield will continue to go up as long as the market interest rates continue to go up and interest rate hikes by the Fed and central banks continue,” they add.