Money Market Fund

Investors typically allocate their monies to a portfolio of equities, bond and even real estate exposure (e.g. through REITs). Spare monies are usually parked in the savings account and/or fixed deposits. Noticeably, more people are looking to better the returns of these monies sitting in the bank earning miserable rates from as low as 0.10%pa (DBS Savings).

Hence, money market funds are typically a safe option for this need. Some examples are LionGlobal SGD Money Market fund & Philips Money Market fund. The SGD denominated money market unit trusts invest in assets generating returns similar to short term SGD interest bearing deposits. Credit risk is minimised as underlying assets are predominantly SGS T-bills and investment grade commercial papers. The short duration (on average <1yr maturity) reduces interest rate re-investment risk and keeps the NAV stable. Currency risk is also not an issue since returns from assets are in SGD.

Yet, I find the recently SGX listed Deutsche Bank db x-trackers Australia Money Market ETF an interesting choice to consider. It is pegged to the money market rate of interbank overnight cash funding published by the Reserve Bank of Australia (currently 4.50%). Fiscal tightening is expected to continue and the bias is towards further increase in future (refer Bloomberg story and historical interbank overnight cash rate). Also, in terms of currency, the AUD-SGD has corrected to as low as 1.14 (from 1.30). Unless one holds the view that the recent correction will lead to a near term crash, the resumption of appetitie for risky assets and trade recovery makes a boost for commodities, likely lending strength to the AUD.

Caveat: Brokerage cost and bid-ask spreads to be considered when deciding on the worthiness of the above ETF in one's portfolio.