Note: The projected return for Syfe Cash+ has been revised to 1.2% p.a. in 2022.
Cash+ was launched on 7 January 2021 as a way for Singaporeans to earn more on their savings. As a cash management portfolio, it is invested in a combination of money market, enhanced liquidity and short-term bond funds managed by Lion Global Investors.
Amidst the continued low interest rate environment and constant downward revisions of bank interest rates on savings accounts, Syfe Cash+ has provided investors an alternative to get a better return on their savings. Amongst its peers, Syfe Cash+ continues to be one of the highest yielding cash management offerings with an optimal mix of high quality bonds geared to maximize projected returns without taking excessive risks.
In the first half of 2021, Syfe Cash+ performed better than its projected return of 1.5%, delivering an actual annualised return of 1.65% as of 30 June 2021.
While several cash management solutions have recently revised the projected returns of their offerings, we are maintaining the projected returns of Syfe Cash+ at 1.5% p.a. for Q3 2021.
Syfe Cash+ performance (as of 30 June 2021)
The Cash+ portfolio has grown steadily in value since launch – giving investors the confidence and peace of mind that their spare cash is generating better returns for them while they sleep.
In April, the portfolio experienced a small drawdown of 0.18% due to corporate bond exposures within the Short Duration Bond Fund. This was linked to a credit situation involving China Huarong after the company failed to release its 2020 financial results at the end of March. Investors worried about a potential default, precipitating a selloff in China Huarong’s bonds.
China Huarong has since successfully repaid its debt obligations. The Short Duration Bond Fund, which experienced a slight drawdown in April, recovered in May and June.
As we highlighted in our April note, although there may be modest drawdowns from time to time, historical returns show that as long as investors have a slightly longer time horizon (3 – 6 months or longer), any negative returns should be offset by positive returns.
This is also evident in the graph above showing how the Cash+ portfolio, even after going through a small dip in April, has generated a year-to-date return of 1.65% – much higher than the projected return of 1.5%.
The interest rate outlook
The US Federal Reserve has kept its benchmark interest rates unchanged near zero even as inflation has been on the uptick. Central banks globally, including the Monetary Authority of Singapore, typically anchor their short-term interest rates to the US.
Given that the Fed has projected near-zero interest rates at least through 2023, we expect the current low interest rate environment to remain for the foreseeable future.
While short-term rates are still at record-lows, US long-term interest rates have increased in recent months. The strong US economic recovery has led to expectations of rising inflation, which pushed up long-term interest rates. Notwithstanding this, long-term rates remain low. The US 10-year Treasury yield currently sits around 1.5%, down from a high of nearly 1.8% in March.
Will Cash+ be affected by rising interest rates?
Since Cash+ invests in bonds with short maturities, the recent increases in long-term rates have had only a minor impact on returns.
In general, the bonds within the Money Market Fund mature every 3 months or so. The bonds within the Enhanced Liquidity Fund do so every 9 months, and the bonds within the Short Duration Bond Fund mature every 2 years. Taken together, the weighted duration of Syfe Cash+ is only 1.15 years or about 14 months.
If interest rates spike, the majority of your underlying bond holdings will mature in the next six to 12 months. Once that happens, your funds get deployed to higher yielding bonds.
For the Short Duration Bond Fund, rising interest rates may affect the price of the bonds in the near term and temporarily reduce returns. However, you can hold the bonds to maturity whereby you will then recover your principal or par amount. This in essence negates any interest rate or price impact.
Cash+ provides an alternative to traditional bank savings accounts. With projected returns of 1.5% p.a., no lock-in, zero fees, and free withdrawals any time, it has quickly become a favourite among our clients.
That said, Cash+ may not be the most ideal solution if you’re looking to boost your portfolio returns. $100,000 parked in Cash+ for five years grows to $107,728. But if you had invested that $100,000 in Syfe Core Growth portfolio, you would have $171,564 after five years.
Because equities tend to outperform cash over the long term, not investing your excess cash can result in an opportunity cost of $63,836.
If you’re ready to make your money work harder for you, you can now set up automatic monthly transfers from your Cash+ portfolio to any Syfe investment portfolio.