Fidelity is urging investors to choose their cash funds carefully as many are not as low risk as they appear and some could have exposure to sub-prime debt.
Many investors have been switching from equities and bonds into cash in a bid to escape recent market volatility brought about by the sub-prime mortgage crisis.
However, Fidelity is urging investors to look before they leap into cash funds as the two main types, investment and treasury, have different risk profiles.
It says investment style money market funds (also known as enhanced yield funds) take a level of risk to get returns while treasury funds predominantly seek capital preservation.
Fidelity says its funds are treasury style and warns investors could be pouring cash into investment style funds without realising the consequences on the overall risk of their portfolios.
“Investment style funds can invest in instruments with a generally lower level of overall credit quality and higher levels of risk, such as US sub prime and collateralised debt obligations,” it says.
“Treasury style money market funds tend to be AAA rated products that invest in high-quality short-term money market instruments, structured so that they are well insulated from market volatility and with a stable net asset value.”
Fidelity International’s Marc Wait, group leader for short term bond funds, says investors need to decide how much risk they are willing to be exposed to when choosing cash funds.
“Treasury style money market funds have gained wider acceptance from corporate treasurers, pension funds, local authorities, charities, insurance companies and other financial institutions, and during times of market volatility are often used as a low risk alternative to other investment types,” he says.
To comment on this story, contact:
0207 034 2681
Cautious, Balanced & Dynamic Growth
Cowardly, boring or sensible
Latest news and analysis
‘Most significant’ upgrade since launch
Changes happening over coming months