In a world of negative interest rates and flat inflation, managing your treasury is an increasingly complex exercise. Although today investing in the money market is almost equivalent to leaving money under the famous mattress, risk aversion pushes investors towards these instruments, which raised 65,4 billion euros in the first seven months of the year. Just for comparison, equity funds saw $68,7 billion in net outflows over the same period.
Until 2008, the main monetary rate of the Eurozone, the EONIA, monitored the refinancing rate of the European Central Bank. Since the crisis, however, the EONIA indicates the rate on deposits, traditionally much lower and now in negative territory (-0,4%), which has had consequences for the instruments that track it.
The trigger that led to this shift was the freeze on interbank lending, particularly acute at the height of the eurozone debt crisis. That led commercial banks to park their money en masse at the ECB. Despite the easing of tensions on the Eurozone debt market since mid-2012, the EONIA continued to monitor the ECB's deposit rate due to the lack of dynamism and demand for bank credit in the real economy.
The ECB's ultra-accommodative policy is expected to remain in place for an extended period of time, during which the Eonia rate should remain stuck in negative ground.
A quick and easy way to enter and exit the money market is represented by Exchange traded funds (ETFs). Italian investors interested in managing their liquidity through a replicant can count on a good range of choices available: in fact, 14 passive funds are currently listed on the ETFPlus segment of Borsa Italiana, which track the money market in various currencies, as well as three ETFs dedicated to very short-term bond indices, under the year, similar to monetary instruments.
Of these 17 tools, three are currently covered by Morningstar's qualitative research:
The bottom db x-trackers II EONIA UCITS ETF 1C (EUR) uses synthetic replication to track the Deutsche Bank EONIA Index. Class C reinvests the dividends, while Class D distributes them. With regards to fixed income ETFs, db x-trackers has a policy of resetting the swap to zero when the counterparty exposure reaches 5% of the net asset value and the same thing happens every time there is creation or the repayment of shares. Commissions are 0,15%.
The bottom Lyxor UCITS ETF Euro Cash (EUR) use synthetic replication to track the FTSE MTS EONIA Investable Index. In practice, the ETF owns a substitute basket of securities which in this case is made up of investment grade bonds denominated in euros. Subsequently, Lyxor enters into an OTC (Over the counter) swap contract with a counterparty which is almost always Société Générale, Lyxor's parent company. The ETF pays no dividends and does not engage in securities lending. The annual commissions amount to 0,15%.
The bottom PIMCO Euro Short Maturity Source UCITS ETF (EUR) has the FTSE MTS EONIA as its benchmark, although it is actively managed by Andrew Bosomworth. The ETF invests primarily in a mix of euro-denominated investment grade corporate and government issues with short maturities (mostly up to one year). However, at the discretion of the fund manager, the ETF may also invest in instruments such as mortgage-backed bonds or bonds issued in emerging markets, provided they are investment grade. The objective is to keep the average duration of the portfolio below one year. The fund distributes dividends and does not engage in securities lending transactions. Commissions are 35 basis points.
Below are listed all the monetary ETFs listed on Borsa Italiana divided into Morningstar categories (click above to view them).
[The information contained in this article is for educational and informational purposes only. They are not intended to, nor should they be considered an invitation or incentive to buy or sell a security or financial instrument. Furthermore, they cannot be seen as a communication that has the purpose of persuading or inciting the reader to buy or sell the securities mentioned. The comments provided are the opinion of the author and should not be considered personalized recommendations. The information contained in the article should not be used as the sole source for making investment decisions.]
Source: morningstar.it
