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Money market funds feel the squeeze

What are we looking for?

The Canadian money market funds that produced the strongest returns in the last six months.

These funds are sought out as short-term cash investments, but low-interest rate environments can squeeze their already slim returns.

The screen

We searched for the 15 top performers over three years ended June 30. U.S. dollar, segregated and duplicate version of the funds were excluded. Also left out were funds restricted to professional groups, and those with a minimum investment of $25,000 or more.

Canadian money market funds need to be weighted at least 95 per cent toward Canadian dollar-denominated investments.

What did we find?

There were no blockbuster returns, with the top performers barely breaking through gains of half of 1 per cent.

The corporate class Matrix Short Term Income Fund led the pack for the six-month period with returns of 0.53 per cent.

Money market funds are meant to be highly liquid investments, because they are often short-term parking lots for cash. The Matrix fund has 15.5 per cent of its holdings in Canadian treasury bills, and 12.2 per cent of holdings in Ontario treasury bills, but 66.9 per cent of the investments are held in corporate bonds.

Of the corporate bonds, the fund is invested in several banks and in the finance arms of two major auto makers: Volkswagen's VW Credit Canada Inc. and Honda Canada Finance Inc.

Money market fund returns have been low for the past few years, but while net sales are still suffering, there were signs of some recovery in June. Sales totalled $85-million last month, compared to net redemptions of $207.2-million in May, according to the Investment Funds Institute of Canada.

But those gains cannot erase months of suffering: Money market fund assets have dropped 13 per cent in the last year, and totalled $28.5-billion in assets as of June's end.

And money market returns aren't expected to improve dramatically in the near term. The Bank of Canada said on July 17 that it would keep the country's key interest rate unchanged at 1 per cent. Stephen Poloz, the central bank's new Governor, said only that they will rise at "some point."



% return (June 30)% returnAssets
Matrix Short Term Income-Corp Class0.53%0.89%0.74%0.63%0.71%0.81%0.45%0.82%0.441.4
Steadyhand Savings0.49%0.98%0.93%0.87%0.96%0.98%0.48%0.52%0.307.7
Beutel Goodman Money Market-D0.46%0.96%0.94%0.92%1.86%0.98%0.99%0.47%0.81%0.2339.2
Front Street Money Market Cl-A0.41%0.82%0.76%0.47%0.82%0.75%0.29%-0.41%0.2515.5
Manulife Money Fund0.40%0.86%0.84%0.86%1.75%0.89%0.90%0.42%0.33%0.44817.5
iShares Premium Money Market ComCMR-T0.39%0.81%0.78%0.82%0.82%0.81%0.40%0.37%0.28107.5
Manulife Short Term Yield Class0.33%0.28%-0.06%0.00%1.1720.7
CIBC Money Market0.33%0.69%0.68%0.69%1.51%0.67%0.73%0.37%0.36%0.511,055.8
Counsel Money Market-A0.32%0.53%0.39%0.45%1.31%0.39%0.38%0.09%0.20%0.7025.7
RBC Short Term Income Class0.32%0.63%0.53%0.6148.0
CI Money Market0.32%0.69%0.73%0.66%1.50%0.85%0.69%0.45%0.19%0.78625.4
Investors Premium Money Market0.27%0.55%0.52%0.57%1.66%0.54%0.54%0.23%0.21%0.52676.9
CIBC Canadian T-Bill0.27%0.55%0.54%0.53%0.58%0.31%0.22%0.46115.4
Sentry Money Market0.24%0.46%0.48%0.49%0.51%0.48%0.20%0.08%0.6132.1
Manulife Investment Savings Fund0.21%0.42%0.42%0.42%0.43%0.45%0.722.9
DEX Universe Bond Total Return Index-1.68%-0.17%4.59%5.53%5.34%3.60%9.67%6.74%5.41%
Source: Lipper

© 2007 The Globe and Mail. All rights reserved.

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