However, there is another angle to the changes investors should be aware of; experts in money market funds argue that the definition of the new sector and the types of instruments that funds within it are allowed to hold could change again, undermining the ABI’s lauded attempt to bring further transparency and simplicity for investors and their advisers to compare like-with-like.
For there are a number of key differences in the way funds operate in the existing Money Market sector to achieve their objectives.
The new sector was an attempt to address concerns retail investors in particular were buying portfolios that had a risk profile different from cash – which is what they may have thought they were buying the equivalent of.
Source: Financial Express Analytics
While overall positive to the ABI's moves, Jonathan Cocks, head of cash/money markets at Aberdeen Asset Management, which runs IMA Money Market sectorised funds, and Kevin Thompson, head of business development at Institutional Cash Distributors, see a major European hurdle to clear.
The European challenge comes after the Securities and Exchange Commission (SEC) consulted earlier this year and posted new guidelines in July via its so-called rule 2a-7 , which defines money market funds in the US.
The ABI had said back in February that it was going to review all its sectors, but since that SEC move, and the guidelines adopted by the IMA - as published initially by the European Fund and Asset Management Association (EFAMA) and the Institutional Money Market Funds Association (IMMFA) – the ABI has subsequently said it is awaiting further confirmation of rules for money market funds via the Committee of European Securities Regulators (CESR) consultation, which closes 31 December 2009.
Jonathan Cocks freely notes his own confusion about these conflicting regulatory draws: "How do you meet all these regulations over time?"
And herein lies the technical criticism of the ABI's move to implement the Deposit & Treasury sector.
Cocks says: "I am a bit surprised ABI have such a restricted list of instruments especially with the exclusion of Liquidity AAAm MMF’s (ie IMMFA funds). Many of the GBP funds do not hold floating rate notes.I am not convinced the investor needs so many variations in guidelines for a product which is basically cash with credit diversifications."
Thompson, former managing director for money market funds at Standard Life Investments and managing director of Fidelity International’s cash management business, says it is correct that CESR took on the task of redefining the rules for money market funds, but in its construction of the Deposit & Treasury sector the ABI should have been even more focused.
"Keeping it worth £1 [for every £1 put in] should have been its objective," Thompson says. And he argues the IMMFA definition is better, something that that organisation should have made more of in working with CESR.
Even the ABI recognises the challenge of having to re-order its sectors in light of the ongoing consultation: "That's precisely the sort of thing we’ll look at once the CESR consultation is over and it has published formal proposals, " a spokesperson stated.
"We took action when we did in order to reassure consumers and advisers – the beauty of the ABI sectors is that we are able to respond to events relatively quickly and make changes as appropriate."
"We keep all the sectors under regular review anyway so yes, there is that possibility [that sector definitions could change again," the spokesperson added.
According to Trustnet data, the pensions fund Deposit & Treasury sector, as currently defined, ranks in the top 10 of all ABI sectors over three years, returning 10.4 per cent as of 6 November.
The IMA Money Market sector returned 7.8 per cent over the same period.