Fed rates unchanged: What to do with your cash? — Endowus cash management solutions (February 2024)

Hopes of an imminent interest rate cut from central banks in US and Europe were dashed. In the US, for instance, Jerome Powell, chair of the Federal Reserve, indicated that a rate cut in the next meeting (on 20 March) is unlikely. Meanwhile, as expected, the Fed kept interest rates unchanged at the range of 5.25% to 5.50% at the first Federal Open Market Committee (FOMC) meeting of the year.

The Fed’s mission to tamp down inflation proves to be a long journey. Data show that the US consumer price growth in January remains sticky. Inflation is standing at above 3%, ahead of economist expectations. Worrying markets the most is that shelter costs remain the single largest contributor to January inflation, a category that economists and markets were expecting would start to ease. Given these, concerns continue to loom as the widely anticipated rate cut may even be further delayed until after the meeting in May.

With that as a backdrop, what should investors do with their cash now as interest rates have touched their peak? What are yields for liquid and near-liquid instruments looking like? But before we explore that, let’s consider what we offer you on our platform to grow your hard-earned cash.

At Endowus it is our mission to continuously improve and optimise our investment offerings as they serve as the building blocks to help our clients achieve their long-term wealth goals.

Alternatively, you can also consider other cash management and liquidity funds available on our Fund Smart platform, or consider our CashUp portfolios that may allow you to earn higher yields with no penalties on redemptions. 

More importantly, enjoy daily liquidity for full flexibility. These liquidity funds on the Endowus platform are well diversified and enable you to take advantage of high yields in the current environment, while minimising concentration risks to single issuers.

We have these solutions available in HKD and USD.

With higher interest rates, net yields as of 31 January 2024 now range from 4.5% to 5.5% p.a. for cash management funds available on the Endowus platform.

Cash management solutions on the Endowus platform

Here are the key money market, liquidity, and fixed income funds available on the Endowus platform for Hong Kong investors to consider:

For HKD:

• E Fund HKD Money Market Fund
• GaoTeng WeInvest HKD Money Market Fund
• HSBC Global Money Hong Kong Dollar

For USD:

• E Fund USD Money Market Fund
• GaoTeng WeValue USD Money Market Fund
• Abrdn Liquidity Fund USD
• Ping An USD Money Market Fund
• Amundi Cash USD Fund
• HSBC Global Money US Dollar

Why do people invest in money market funds?

1. Maintaining an emergency fund: Life is full of uncertainties, and having a liquidity fund can be a personal safety net to get through any unforeseen emergencies, such as a period of unemployment or an unbudgeted large expense. The general rule of an emergency liquidity reserve is about 3 to 6 months of monthly expenses. The accessibility and flexibility of money market funds make them a good option while not having to sacrifice yields.
2. Short-term investment/life goals: Money market funds could be useful for short-term goals such as saving for a vacation or wedding. It is important to ensure the investment holds its value over a shorter time period. 
3. Parking of assets: Money market funds are also good vehicles to park or transfer assets when you are deciding on how to deploy your funds for the longer term. We do not recommend money market funds as the investment vehicle for your long-term wealth goals. Although their stability might be appealing in the short run, over the long-term their returns would be much lower than stocks and bonds.

The smart and flexible way to earn more on your cash

Looking to supercharge your cash savings? The HSBC Global Money US Dollar, with a net yield of 5.3% p.a.*, could be a great addition depending on your needs and objectives. You can add it to your portfolio by following these steps. 

If you’re interested in model portfolios, CashUp - Simple is another good option, with a current net yield of 5.4 - 5.7% p.a.*, CashUp - Plus is available as well for investors who are willing to take more risk relative to the CashUp - Simple solution. Critically, Endowus offers our cash management solutions at fees of just 0.10% p.a., making our offerings highly competitive for your low-risk investments. This is on top of our longstanding practice to rebate any trailer fees back to our clients. Learn more about our Endowus CashUp Portfolios here.

Make your cash work smarter for you. If you have money set aside for an upcoming expense, earn higher returns on it instead of letting it sit idle in your current or savings account. To get started with Endowus, click here. 

*As of 31 Jan 2024. Net yield after deducting fund-level fees and Endowus access fee, and adding back rebates. Source: Endowus Research and HSBC Asset Management.

Read more:

• How to choose between money market funds
• Endowus Fund Smart — Most Popular and Best Performing Funds of 2023
• Webinar: Supercharge your cash in a 5% interest rate environment

An overview of cash management options in Hong Kong

The world of cash management spans a wide variety of yield enhancement products. 

However, it is important for investors to clearly understand the pros and cons of each — they often come with trade-offs involving yield, lock-ups, duration, minimum or maximum investment amounts, level of risk and transaction fees. 

The table below shows different options available to short-term cash management, including unit trusts on the Endowus platform and their latest available yield information (as of the time of writing). For time deposits, the range of current yields shown in the table below  should be taken as a guide only, given that time deposit interest rates in Hong Kong change frequently. 

Please note that iBond and money market funds are investment products, albeit categorised as low risk products, they are not capital protected.

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General risk warnings relating to collective investment schemes 

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Funds are not a bank deposit and not capital guaranteed, and is subject to investment risks, including the possible loss of the principal amount invested.  

Some of the funds also involve derivatives. Do not invest in them unless you fully understand and are willing to assume the risks associated with them.

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Complex Products

Some of the funds contained in this article are complex products and investors should exercise caution when investing in these products. Though these products have been authorised by the SFC, authorization does not imply official recommendation. SFC authorization is not a recommendation or endorsement of a product nor does it guarantee the commercial merits of a product or its performance.

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