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ABSA closes Absa Money Market Fund: What are my options?

ABSA Asset Management surprised us when it said in a letter dated 7 April, and posted on its website, that its ABSA Money Market Fund (AMMF), will be closed. The last day to trade out of the fund is 1 July 2021. Investors who remain in the fund after this date will see their investments converted into a bank deposit at ABSA.

The move by ABSA represents the closure of a money market fund worth approximately R80bn. We expect that the removal of such a large participant in the short-term interbank funding market will have an impact and banks’ negotiable certificate of deposit (NCD) rates might drift higher as the competition to attract a smaller funding pool intensifies. That said, we do not think that the AMMF’s closure creates systemic risks, and we expect that the remaining money market funds and fixed income portfolios in the country will continue to function effectively.

There is no one-size-fits-all solution to investments. Undoubtedly, the option of an investment bank account at ABSA, or a new money market fund, will not work for all investors. Therefore, we expect that many investors will have to take action to avoid a sub-optimal outcome.

Short-term interest rates are currently at all-time lows in South Africa and therefore we would advise investors to be strategic in terms of understanding the yield-, risk-, and liquidity profiles of the available options as well as the diversification of exposure and the tax consequences for their investments. Certainly, it is not as simple as saying here is an alternate fund that yields say 8%, let us invest in it.

Investors in the AMMF have two and a half months to consider their options and to withdraw their funds from the AMMF and place the proceeds into their bank account or, alternatively, switch their investments into alternative financial products.

We would suggest that investors reach out to a financial advisor that is well versed in fixed-income products to evaluate their options. At Anchor, we have a team of investment advisors who can easily assist with this analysis.

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WEBINAR | The Navigator – Anchor’s Strategy and Asset Allocation, 2Q24

Anchor CEO and Co-CIO Peter Armitage will host the webinar, provide an introduction to current global and local market conditions and give his thoughts on offshore equities. Together with Head of Fixed Income and Co-CIO Nolan Wapenaar, Pete will also discuss Anchor’s strategy and asset allocation for 2Q24, focusing on global equities and bonds. In addition, Fund Manager Liam Hechter will provide insights into local equities, highlighting some investment ideas; Global Equities Analyst James Bennet will discuss Ferrari and give an update on Tesla, and finally, Analyst Thomas Hendricks will participate in a Q&A with Peter, explaining the 10-year US Treasury to attendees.