On the 7th of April 2021, Absa announced that it will be winding up the Absa Money Market Fund (AMMF) as the fund will be closed on the 6th of July, in line with Section 102 of the Collective Investment Schemes Control Act (CIS).
Absa have not been clear to their reasoning as to why the fund is being closed but alluded to the fact that clients have been using this fund as a bank account, amongst other media mentioned reasons.
We have gained information that the Fund was perceived by clients as being guaranteed by the bank. A Money Market Fund, such as this one, sits outside the bank's assets and is governed by the Collective Investment Scheme Act (CIS), and in our view was safer than any Money Market that sits on a bank's balance sheet.
Our reasoning for this is that a CIS Money Market Fund is held in Trust for its investors and contains many underlying money instruments from many institutions, thereby reducing any one particular risk and allowing the fund manager to seek higher yielding money rates. Whereas a banks Money Market sits on the balance sheet and is at the mercy of the bank's assets. Whilst we think it is highly unlikely that ABSA will default, it has happened in the past in SA.
Clients have 90 days from the date Absa announced their decision to either:
- Withdraw the funds from the AMMF and into their own personal bank accounts;
- Speak to a financial adviser and switch to another financial product;
- After 90 days, be transferred to an Absa Investment Bank Account in the clients' name.
For those who are affected and are seeking to switch their funds from the AMMF, we have come up with a list of alternatives that have a similar asset allocation to the Absa Money Market Fund. These are:
Allan Gray Money Market Fund - The Fund invests in selected money market instruments providing an income yield and a high degree of capital stability. Allan Gray formulate an interest rate outlook, which is influenced by their inflation outlook and expectations of the resulting Reserve Bank policy response.
Based on this analysis, Allan Gray select investments for the Fund. These assets are typically held to maturity.
The Fund is suitable for those who:
- Require monthly income distributions
- Are highly risk-averse but seek returns higher than bank deposits
- Need a short-term investment account
Read more about this fund on the Allan Gray Website.
Allan Gray Stable Fund – we recommend the Allan Gray Stable Fund as a suitable fund to replace the ABSA Money Market. With interest rates at all-time lows, inflation is eroding the real value of any money invested in fixed deposits, call accounts and money market funds.
The Allan Gray Stable Fund is conservatively managed, using a wide range of assets classes including allocation to offshore assets, equities, cash and bonds. It is a low risk fund that has a better chance than the money market funds of out performing inflation. The Allan Gray Website has more about this fund.
Ninety-One Money Market Fund – The Fund aims primarily to provide a high level of current income whilst maintaining capital preservation and liquidity (ability to convert investments to cash easily). A secondary aim is to provide capital growth The Fund invests in a varied range of money market instruments The Fund is a short-term money market fund and while it aims to preserve capital, this is not guaranteed. To read more about this fund, visit the Ninety-One Website.
If you are looking to switch your investment from the Absa Money Market or wish to discuss some alternatives, please do not hesitate to email Mark on email@example.com.
The cut off date for any switches from the AMMF is 1 July 2021