Is Cash Performance Overlooked by Fund Managers?

Guest Post by Linley Scorgie, Likwidity

Could it be true that several funds (including super funds) are all about appearing to beat the benchmark but not necessarily about achieving the best outcome?

With regulators starting to examine practices in the various regulated sectors and asking questions about performance versus reality, is this another itch waiting to be scratched?

The following is an excerpt from an article by State Street (Benchmarking Your Cash) 

"The overarching goal of a traditional cash product is to preserve principal and provide liquidity. As such, they do not tend to have benchmarks in the more conventional sense, where a portfolio’s aim may be to match or exceed the performance of its benchmark index. The benchmark rate or index chosen for a cash product is more indicative,.....and it would seem that various benchmarks are used, including:

• SOFR (Secured Overnight Financing Rate),

• T-Bill Rates (U.S. Treasury Bills),

• Fed Funds Rate, BSBY (Bloomberg Short-Term Bank Yield Index), Money Market Funds

• and Money Market Fund Indices, BBSW 

So, a very simplistic example. With current BBSW rates of around 4.38%, it is relatively easy to source a cash or time deposit rate well above the BBSW.

However, using the fund manager performance benchmarking, if they achieve above BBSW, they would be "beating the benchmark." However, they are underperforming relative to the actual rates available in the market.

The potential range of the yield left in the table can exceed 1% (depending on factors such as risk).

So, the question must be asked whether beating the "benchmark" is in the best interest of investors.

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