Syfe Cash+: Stability Amid Volatility. 2022 Performance vs Others

Cash management solutions, a safe haven? 

So far in 2022, most asset classes have had a tough time. With S&P 500 in correction territory (falling more than 10% from peak), tech heavy Nasdaq in a bear market (falling more than 20% from peak) and one of the largest stablecoins losing its peg to the dollar, many investors have turned to cash management solutions as a safe haven to ride out the volatility.

Comparing Syfe Cash+ with other cash management solutions

Source: Bloomberg, from Jan 4, 2021 to April 29, 2022. Returns net of fees, assuming 100% trailer fee rebates and 0.05% management fee for Endowus Cash Smart. 
Projected Yields as of May 13, 2022. 

Syfe Cash+ is on track to deliver stable returns over time and achieve the projected yield target of 1.2%. Besides offering quick withdrawals with no fees and no lock-ups, Syfe Cash+ has never had a week of negative returns.

On the other hand, cash management solutions such as Endowus Cash Smart Ultra have experienced drawdowns of more than 2%. Investors would have noticed the disconnect between projected yields and realised returns too. 

Our first instinct when comparing products is to look at their advertised projected yields. While that’s important, we also need to look under the hood to understand how these solutions are built. This is important as cash management solutions should be a port in the storm. Investors who park their assets in such a product would reasonably expect reduced volatility. We have found that the majority of our clients have short-term cash management needs, and most prefer stable returns with almost no volatility.

If advertised projected yields should not be the only basis for assessing a cash solution, how should investors decide then? 

How to evaluate a cash management product? 

Typically, the most common fund types used in cash management offerings are:

The duration and credit risk of each fund type influences the overall riskiness and expected returns of the cash management offering. 

Here’s what we mean:

A short duration fund can provide a higher return as compared to an enhanced liquidity fund, but investors should be prepared to see more ups and downs in their portfolio value. As shown above, short duration funds (despite what their name suggests) have higher duration (sensitivity to interest rates) and credit risk as compared to enhanced liquidity funds. 

They typically hold short-term government and corporate bonds (relatively higher default risk) while enhanced liquidity funds hold mostly high quality debt instruments (relatively lower default risk). 

In the current environment of rising interest rates and falling bond prices, funds with reduced sensitivity to rates and shorter time to maturity are more defensive than those with a longer maturity and higher credit risk. 

Why is this the case? 

As interest rates increase, the coupon of recently issued bonds will trend higher over time. This means that a bond with more than 2 years left to maturity will be less attractive than a similar bond that was just issued. 

Looking at the underlying funds of peers that also offer cash management solutions: 

As a short duration fund carries more risk than an enhanced liquidity fund, cash management products like Endowus Cash Smart Enhanced and Endowus Cash Smart Ultra that hold a significant allocation to short duration funds (in grey) will be riskier than others that hold enhanced liquidity and money market funds.

How does Syfe Cash+ work?

Syfe Cash+ is made up of two fund types: a money market fund and an enhanced liquidity fund. This re-optimised allocation prioritises stability of returns, with lower duration and credit risk, while still earning a projected yield of 1.2% per year. 

Syfe Cash+ has gained consistently on a monthly basis, on track to achieve the projected yield of 1.2%. These steady monthly gains have continued even as other major asset classes have been impacted by rising interest rates and geopolitical turmoil. 

Source: Bloomberg, Syfe, as of April 29, 2022. 

Fed rate hikes and cash management solutions

Cash management solutions with a higher allocation to short duration funds like Endowus Cash Smart Enhanced and Endowus Cash Smart Ultra may continue to experience more volatility as markets navigate higher interest rates. 

Syfe Cash+ is well positioned going into a higher-rate environment. Returns have been stable even as equity and bond markets sold off recently as the Fed embarks on quantitative tightening to rein in inflation. The duration of the Syfe Cash+ is around 6 months. As these underlying bonds mature, proceeds will be reinvested into higher yielding bonds relatively quickly. Gains will be passed onto the investor in time to come.

Syfe Cash+ will be revising the projected yield upwards as the fed funds rate increases over the rest of the year. We will share the updated projected yield when that is ready. 

Is Syfe Cash+ right for you?

Syfe Cash+ is a very low risk investment that gives you higher yield than what you can get from traditional bank deposits. Whether you’re building up your emergency fund, saving for an upcoming big purchase, or setting aside funds for a dollar-cost averaging strategy into Syfe’s investment portfolios, Cash+ is the smarter home for your hard-earned money.

You can easily make a deposit or a same-day withdrawal through Syfe’s platform as many times as you prefer. Transfers are free and unlimited and there are no lock-up periods to worry about. What’s more, you’ll earn the projected return of 1.2% per annum on any amount of cash you deposit.

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