The most popular money market funds

One of the most unusual aspects of the ten best-selling SIPP funds on Fidelity Personal Investing so far this year is that three of them come from the money market sector. These low-risk vehicles have grown in popularity as interest rates have risen and typically now offer an attractive yield of around 5%. Please note this is not guaranteed.

Leading the way is the Fidelity Cash Fund, which aims to deliver capital preservation and liquidity, while also providing a competitive level of income. It holds at least 70% of its assets in a range of sterling denominated money market instruments, other short-term investments and transferable securities.

Managers Christopher Ellinger and Tim Foster have a conservative strategy that focuses on securities with high credit quality that currently has a distribution yield of 5.24% (net of fees) at the end of October. The portfolio is well-diversified across the different regions and has a significant level of liquidity with 61% of net assets maturing in 30 days or less.¹

In third place on the list of best sellers is the Royal London Short Term Money Market Fund that aims to preserve capital and provide an income by investing at least 80% in cash and cash equivalents. Like many of its peers, the target is to outperform the Bank of England Sterling Overnight Interbank Average (SONIA) over rolling 12-month periods, which is the average overnight interest rate that UK banks pay for unsecured transactions in sterling.

Writing in the annual accounts at the end of April, managers Tony Cole and Craig Inches expressed the view that inflation will remain stickier than expected and that rates may need to spend some time at or near the eventual peak. Because of this they see no reason to extend the maturities of the securities across the portfolio – a move that could work in their favour if rates were cut – and have maintained a relatively short duration of 27.9 days².

Royal London’s distribution yield is currently 5.19%, a figure that reflects the amount that may be expected to be distributed over the next 12 months. It has a management fee of 0.1%².

The other best-selling vehicle from the sector is the Legal & General Cash Trust, which is a recent addition to Fidelity’s Select 50 list of handpicked funds. One of its main attractions is that L&G has a portfolio management team that’s experienced in money market investing, with a good track record during periods of market stress.

It is run in a conservative manner, with the managers prepared to forego income to ensure protection on the downside, an approach that enabled the fund to hold its value during the global financial crisis and the Covid pandemic. The distribution yield is currently 5.3% with ongoing charges of 0.15%.

One important point to bear in mind is that although these funds are considered to be low risk, they are not guaranteed and the value can fluctuate. They are investments and offer a different risk-reward to cash.

More on Fidelity Cash Fund 

More on Royal London Short Term Money Market Fund 

More on Legal & General Cash Trust
 

Source: 

¹ Annual accounts, 28 February 2023 

² As at 31 August 2023, source: Royal London Asset Management

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. The value of shares may be adversely affected by insolvency or other financial difficulties affecting any institution in which the Fund's cash has been deposited. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). Select 50 is not a personal recommendation to buy or sell a fund. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.