With a new ETF portfolio from quirion, investors can invest in the money market. The offering is aimed at those who want to keep money available at short notice while at the same time benefiting from current interest rates.
Interest rate products are in demand. In fact, they always have been. But since the turn in interest rates, that's been especially true. Yet by no means all products really reflect the current interest rate level. With the passbook savings account, for instance – which, astonishingly, many people still use – the interest rate often still starts with a zero before the decimal point. And that's despite the fact that the ECB's key interest rate for deposits with the central bank currently stands at 3.75 percent. (Note: the ECB's current deposit rate is 4 percent, as of 21 September 2023.)
Things already look better with instant-access and fixed-term deposits. Plenty of offers compete for savers' favour. But even with these, ultimately it's a bank rather than the market that decides how high the interest rate turns out to be. It's different with „Cash-Invest“ from quirion: „The portfolio focuses on the money market,“ explains Philipp Dobbert, head of wealth management at quirion. „That means the return reflects the movement of interest rates pretty precisely.“
Close to interest rate movements
The yield to maturity of the Cash-Invest portfolio – that is, the average return at maturity of the underlying money market transactions – stood at 3.9 percent per year at launch. (Note: the current yield to maturity is 4.11 percent, as of 21 September 2023.)
This metric changes continuously. Because the money market is about short-term financing – with terms ranging from a few hours up to one year. One important segment, for example, is „overnight“ transactions between banks. For these, borrowing or lending money overnight is part of everyday business. It's how financing balances are settled at short notice. „The interest rates for such transactions in particular usually lie quite close to the respective key interest rates,“ Dobbert explains.
The Cash-Invest portfolio is a special combination of ETFs covering various segments of the money market. In constructing the portfolio, quirion's investment strategists paid attention to a great many details. Where do the costs lie? What kind of financial transaction does the ETF cover? What about the security of the issuers and the credit quality of the respective portfolio? Criteria like these were decisive for the selection.
Fine-tuning the portfolio
One metric played a special role in constructing the portfolio, namely „duration“. It says something about how long, on average, capital is tied up in the portfolio. „We took a close look at the point from which a longer interest rate lock-in offers hardly any return advantages for the rising risk it brings,“ Dobbert explains. That threshold, he says, lay at 30 days. Through the deliberate weighting of the five ETFs combined in the portfolio, we then managed to achieve this duration for the Cash-Invest portfolio.
The return of the Cash-Invest portfolio moves with the underlying markets, upwards as well as downwards. But the daily fluctuations on the money market are usually extremely small. To put it in perspective: with a stock market index like the DAX, up or down movements of one percent are nothing unusual. A value fluctuation of a tenth of a percent within a day, by contrast, is already something special for a money market portfolio. And it is, of course, above all changes in key interest rates that shape the money market.
For money that should stay available
The Cash-Invest portfolio is aimed at investors who want to keep money available at short notice while participating in the currently rising interest rate level. „For building wealth over the long term, our global and our sustainable ETF portfolio are better suited,“ Dobbert stresses. „Because with those, investors make use of the return prospects of the stock markets.“
Nevertheless, he says, they wanted to create an option to invest in a money-market-oriented portfolio as well, within the framework of digital wealth management. „Diversification and a deliberate blend of ETFs with an eye to the ratio of return and risk make sense with every kind of investment.“
