Healthy performance for cash funds in 2008

Cash fund managers performed well in 2008 despite operating in difficult market conditions and a disappointing year for the broader enhanced cash class, according to a report from Standard & Poor’s (S&P).

Results from the S&P Fund Services cash and enhanced cash subsector review included ratings of seven cash products and three enhanced cash products, with the UBS Bank Bill Index positioned as the “peer group benchmark”.

Pure cash funds did well against the UBS index, which delivered a return of 7.6 per cent in 2008, while S&P said three of the rated enhanced cash funds performed better than the broader enhanced cash category “due to maintenance of high credit quality assets and enhancement through duration strategies”.

“Fund managers have performed well while battling severe dislocation in the financial system,” said S&P Fund Services analyst David Erdonmez. “In particular, coping with liquidity and liquidity premiums, increased redemptions due to investor sentiment, the Federal Government’s deposit and wholesale funding guarantee, plus the significant and sudden round of interest rate cuts.”

Erdonmez added that these problems led fund managers “to take a ‘steady as she goes’ approach, with a number holding larger than usual cash balances (on overnight deposit) and short duration profiles – in effect ensuring ‘liquidity’ in the ‘liquid’ asset class”.

The cash fund ratings feature in S&P’s ongoing review of the Australian fixed interest sector, which is expected to be released in March.