Tuesday, March 31, 2009

Money Market Fund update - 31 Mar 09

In my previous article, I did a post on Money Market Fund (MMF). I explained what MMF is all about and what are some of the factors that you need to consider before putting your money in the fund.

With the current low interest rate environment, I believe these funds have lost its appeal. Nevertheless let me just compare two of the preferred MMFs available to local investors. They are Phillip and Lion Global MMF.

As usual I like to make use of Dollardex performance and charts features when comparing unit trusts. Attached below is a 1-year and 6-months performances of these two funds. You can see that Lion Global MMF performs better than its counterpart during both periods. But take note the former fund has a higher risk in terms on monthly volatility. All in all, Lion Global MMF has a slightly higher risk adjusted returns as denoted by its Sharpe ratio.

Lion Global and Phillip MMF returns comparison - 31 Mar 09
Table courtesy of Dollardex

In terms of volatility, the 1-year chart below will give you a better picture. You can see that Phillip MMF has a much smoother and upward sloping line. But Lion Global MMF may suffer momentary dipping in fund prices. In other words, you may suffer a slight loss when redeeming money from the fund.

Lion Global and Phillip MMF chart - 31 Mar 09
Chart courtesy of Dollardex

Attached below is a risk return chart comparison of these two funds. I intentionally put the other MMFs in the comparison so as to give a more meaningful impression of how Lion Global and Phillip MMF perform in contrast with the other funds. You can clearly see that these two funds are the better MMFs.

MMFs return vs risk chart - 31 Mar 09
Chart courtesy of Dollardex

In terms of the funds holdings, both MMFs have almost similar investments in them. I believe Lion Global MMF is able to provide a slightly higher return because of the lower management fees which is at 0.25% pa as compared to Phillip MMF which is at 0.5% pa.

In conclusion, I would say Lion Global MMF is a better choice if you are looking for a slightly longer period of investment. For a shorter period of cash movement and in terms of liquidity, Phillip MMF is a better choice.

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