Elevate your returns with these high-yielding cash-like options

Short-end rates and short-duration bonds still look very attractive particularly in the SGD and USD spaces, helped by the inverted yield curve (for an in-depth explanation, consider reading our recent article below!). Investors looking to benefit from attractive short-end rates can consider selecting our easy-to-invest Auto-Sweep facilities or customising your cash management portfolio.

Related article: 10y UST yields are back above 4.5%. Is it time to add duration?

Auto-Sweep: Three benefits of this easy-to-use facility

(Note: All yield figures in this article are annualised unless otherwise stated. Data as of latest factsheet available, usually 31 Mar 2024.)

Our Auto-Sweep facilities are discretionary cash management accounts managed by iFAST, available in three currencies: SGD, USD, and CNH. Liquidity is a key benefit of our Auto-Sweep facilities as investors can purchase various investments on iFAST platforms with no delays. Redemption into cash is also very quick with T+1 for SGD and T+0 for USD / CNH.

(Note: The number in T+0 or T+1 refers to the days required for redemption. For T+0 redemption, if you submit a cash redemption request today, you can expect to see the monies credited to your Cash Account today. For T+1 redemption, if you submit a cash redemption request today, you can expect to see the monies credited to your Cash Account tomorrow.)

Currently, each Auto-Sweep is 90% invested into an iFAST-linked liquidity fund, and 10% invested into cash. These underlying iFAST funds have very similar objectives of (i) preserving capital; (ii) enhancing income; and (iii) maintaining a high level of liquidity. All three funds also have a mandate to keep an average credit quality of at least A-, and a weighted duration of at most 1 year. We think these help to keep broader risk levels fairly low.

Finally, our various Auto-Sweep facilities offer attractive yields, especially considering the low levels of risk. Indicative net yields for our Auto-Sweeps are currently at 3.186% (SGD), 4.693% (USD), and 2.002% (CNH).

Create your own portfolio with a mix of Anchors and Yield Enhancers

As with our previous cash-management articles, we recommend investors customise their cash management portfolio using their desired mix of Anchors and Yield Enhancers. Anchors provide decent yields with low levels of volatility, while Yield Enhancers typically offer a slight yield pickup over Anchors with slightly higher levels of volatility too.

Our objective of a customised portfolio is to earn higher yields on your cash without undertaking significant investment risks. Consequently, our fund recommendations for both Anchors and Yield Enhancers will all be low-risk funds. We provide a list of Anchors and Yield Enhancers below for investors looking to manage their SGD and USD cash which can serve as a viable alternative to our Auto-Sweep facilities.

As for CNH, our primary recommendation is to simply invest in our CNH Auto-Sweep given the lack of available Unit Trusts in the market.

1. Anchors

We provide our list of suggested anchors below (Table 1). These funds are all exposed to little duration risk (generally under 0.3y) with high average credit ratings where available.

Table 1: Suggested anchors

(a) Selecting SGD Anchors

Within the SGD space, we provide three anchors for investors to consider. Our primary recommendation is the Fullerton SGD Cash Fund for its decent indicative yields as well as its longer-term track record. This fund is in our Recommended Funds list and primarily invests in SGD deposits with minimum short-term ratings of F-2 (Fitch), P-2 (Moody’s) or A-2 (S&P).

Other great alternatives include the LionGlobal SGD Enhanced Liquidity Fund and the LionGlobal SGD Money Market Fund. Unlike the Fullerton SGD Cash Fund which focuses on deposits, these two LionGlobal funds have significant exposures to Singapore government-related securities instead (rated AAA), with some exposure in corporate bonds too.

The Enhanced Liquidity Fund has a slightly higher quality (AA- average) with a larger allocation into Singapore government-related securities compared to the Money Market Fund, though it also has lower indicative net yields. The ultimate choice between these funds will depend on each investor’s preferred exposures (deposits versus bonds), net yields, and credit quality.

(b) Selecting USD Anchors

Within the USD space, we provide another three anchors for investors to consider. Our primary recommendation is the Amundi Funds Cash USD A2 (C) USD, once again for its decent indicative yields and strong track record. This fund primarily invests in money market instruments, though it also has a bond listed in its top 10 holdings (as of Mar 2024).

Some alternatives include BNP Paribas USD Money Market Classic Cap USD and Fullerton USD Cash Fund. The former BNP Paribas fund currently primarily invests in commercial papers and certificates of deposits, while the latter Fullerton fund primarily invests in deposits. As a whole, these all provide attractive indicative net yields of over 5% for very low risk levels.

Once again, the choice between these funds depends on investor preferences. We highlight in particular the Amundi and BNP Paribas funds: the key consideration here is the slight trade-off between indicative yields and credit quality, with Amundi having lower indicative yields but a slightly higher average credit rating. Apart from that, Fullerton USD Cash Fund also stands out for its T+1 settlement (for redemptions) compared to T+4 for the other two funds.

2. Selecting Yield Enhancers

We provide our list of suggested yield enhancers below (Table 2). These funds are also short-duration with average investment-grade ratings and come with low levels of risk. Nonetheless, they will have slightly higher risk levels compared to the anchors above. These funds generally have SGD and USD share classes available.

Table 2: Suggested yield enhancers

Our primary recommendations are Nikko AM Shenton Short Term Bond Fund and United SGD Fund. These are in our Recommended Funds list under the ‘SG-Centric’ category as they are managed against SGD cash benchmarks. 

We have done deeper analyses of these two funds in recent articles linked below. Both funds have manageable duration exposures of over 1y with decent average credit ratings. Broadly speaking, the Nikko fund will be a slightly ‘safer’ choice with its higher average credit quality and lower historical volatility, but the United fund has delivered stronger historical performances over the longer term.

Related article: Hunting for attractive yields? Here’s three fixed income funds to consider in 2024.

Related article: Consider these two best-in-class bond funds for a diversified short-duration exposure

Another fund for consideration is the HGIF – Ultra Short Duration Bond Fund. In its nearly 3 years since inception (in Jun 2021), it has delivered a commendable long-term performance while managing its volatility and drawdowns very well.

1. The HGIF fund’s base share class is USD, unlike the Nikko and United funds highlighted above. This makes it an interesting choice for investors customising a USD portfolio.
2. Its holdings are global with a large allocation to the US (57%), contrasting with the Nikko and United funds which primarily invest in Asian bonds despite having a global mandate.
3. Its official mandate is to generate capital growth and income, differing slightly from the Nikko / United funds which aim to preserve capital. We nonetheless reiterate that historical risk-management metrics nonetheless look fairly comparable for the HGIF fund.
4. Its duration is among the lowest in this list at 0.31y – this is also much lower than those of the Nikko and United funds.
5. Its credit rating is among the highest in this list of A.
6. One potential downside is that the two share classes available on our platform for HGIF are monthly-distributing with no accumulating options. This affects investors who wish to hold the fund for a long period of time – they should regularly re-invest their distributions to avoid significant cash drag.

Another alternative is the LionGlobal Short Duration Bond Fund. This is a higher-risk (especially higher-duration) option – its average quality is BBB+ (on the lower side among these peers). The fund’s historical volatility metrics are also a slight bit higher than its peers.

The choice among these four funds will be dependent on investor preferences. We think the Nikko and United funds are great funds to consider especially for an SGD cash-management portfolio, while the HGIF fund is an interesting alternative, especially for a USD cash-management portfolio, and the LionGlobal fund is likely most suitable for investors with higher risk tolerances.

3. Mix and match

Investors can then mix and match their desired anchors and yield enhancers, adjusting their allocations based on their risk tolerance. For instance, lower-risk portfolios should have a larger allocation to anchors. Higher-risk portfolios can have a larger allocation to yield enhancers, though we emphasise the need for diversification in such higher-risk portfolios.

Model DIY cash management portfolios

Investors can mix and match their desired anchors and yield enhancers depending on their appetites for risk. As a starting point, we have created three model portfolios in both SGD (Table 3) and USD (Table 4).

These model portfolios are named ‘Conservative’, ‘Moderate’, and ‘Aggressive’.  As we move from ‘Conservative’ to ‘Aggressive’, investors should expect generally (i) higher indicative net yields; (ii) higher duration risks; and (iii) higher levels of risk based on historical annualised volatilities and maximum drawdowns.

We highlight that the more aggressive portfolios may not necessarily have delivered better returns over a 3y horizon as their higher duration exposure may have hurt their performance in an environment of rising rates and/or inverted yield curves – higher indicative net yields do not guarantee higher future returns.

(Note: The indicative yield for the Nikko AM Fund available on factsheet is in local-currency terms, which may distort portfolio yield metrics which are more reflective of SGD or USD yields.)

Table 3: Model SGD cash management portfolios

Table 4: Model USD cash management portfolios

Final thoughts

Our Auto-Sweep facilities and model DIY cash management portfolios continue to provide competitive yields compared to bank fixed deposits (Charts 1 and 2). Our Auto-Sweep and model portfolios also come with no early withdrawal penalties (e.g. forfeiture of interest) unlike fixed deposits, and have a low minimum entry amount (some banks require a significant capital investment [e.g. $100k] to enjoy preferential rates).

Between the Auto-Sweep and DIY portfolios, the Auto-Sweep stands out for its highest levels of liquidity, while DIY portfolios are more suited for investors who (i) want to control their respective exposures; and (ii) are willing to trade off some liquidity for slightly higher yields.

Chart 1: SGD Auto-Sweep and model portfolios offer yield pickups over traditional alternatives

Chart 2: USD Auto-Sweep and model portfolios offer yield pickups over traditional alternatives

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.