After a dozen consecutive interest rate rises in what has been the most aggressive rate-hiking cycle from the Bank of England since the 1980s, taking base rates to 4.5%, borrowers have felt the pain.
Whether it’s corporates trying to manage term debt they are relying on for growth and investments, or families faced with mounting mortgage costs when they are forced to remortgage their home loans, across the spectrum borrowers are having to reassess their finance and manage their expectations.
Despite the BoE’s appetite for a rate rise, however, the embers of inflation will just not fizzle out, especially with the price of food continuing its inexorable rise. The Bank is targeting 2% inflation; at the moment it’s running at 10% and its Monetary Policy Committee offered cold comfort for those facing the pinch, saying: “[…] we know that [we] will make things harder for many people, coming on top of higher energy and food bills. But we need to act to lower inflation. Low and stable inflation is vital so that money keeps its value and people can plan for the future with confidence. It’s fundamental for a healthy economy,” last week.
The base rate could go higher from here, as although the BoE “expect[s] inflation to fall quickly this year and then meet [the] 2% target by late 2024,” it has left open the possibility of yet another rate hike when it next meets on 22nd June.
Sunshine for savers
Although higher rates are bad for borrowers, they should be good for savers, right? Currently, with some products – generally the regular saver, restricted-access accounts – savers can get up to 7% interest on their money. More easy-access accounts are offering about half that rate.
Another way that investors can take advantage of the current interest rate cycle is through a money market fund. Money market funds are a viable in-between option, offering the income of gilts, but without the complexity, while also mitigating the risk of bond price fluctuations. They can be held inside ISAs and SIPPS. They own a diversified basket of safe bonds that are due to mature soon, normally within a year, meaning that investors can earn an income on their cash with minimal risk.
Over the last year, platform providers have seen a significant increase in uptake for funds from this asset class, with Interactive Investor reporting 400% increase in applications for money market funds.
One such fund is the Premier Miton UK Money Market Fund. Not the most exciting fund, if your idea of excitement is riding the pits and troughs of the stock market with white knuckles and an increasing amount of bile collecting in your craw. However, if you are looking for income and security, this might be the fund for you.
Income generating
The Premier Miton UK Money Market Fund’s objective is to generate an income. The fund’s management claim that the recommended holding period for the fund is up to one year. Paying out four times a year as interest payments, the investment manager aims to achieve its objective by investing in an actively managed portfolio of investments available in money markets.
Launched in 1989 and available in both income and accumulator classes from most fund platforms, the GBP256.6m fund managed by Hoy Wan and Lloyd Harris is diversified across a range of deposits and short-term money market investments, in sterling, issued by governments, financial institutions such as commercial banks, other corporate entities and supranational institutions, or organisations that relate to more than one country, such as the World Bank.
Wan has been with Premier Miton since 2014 and managing the fund since 2016. Harris joined the firm in 2020 and came to assist Wan since 2021.
As at end of April the fund’s distribution yield was 3.42% with a weighted average maturity of 86 days. On a calendar year basis (as at end-March) the fund has underperformed the sector four times over five years, returning 1.38% in 2022 against a sector return of 1.28%
On an asset allocation basis, the fund has around 40% of its Net Asset Value (NAV) invested in international bonds, with just shy of 31% in UK Corporate Bonds and close to 11% in cash and cash equivalents.
Premier Miton UK Money Market Fund: Top Five Holdings
| Company | Weighting | Maturity | Asset Class |
| Landesbank Baden-Wuerttemberg cash deposit | 7.79% | 1 day | cash |
| Norddeutsche Landesbank cash deposit | 7.79% | 1 day | cash |
| Banco Bilbao Vizcaya Argentaria cash deposit | 7.79% | 1 day | cash |
| Principality Building Society 2.375% 23/11/2023 | 4.89% | 197 days | bond |
| Deutsche Bank 3.875% 12/02/2024 | 4.71% | 278 days | bond |
Data as of 17th May
The fund has a minimum direct investment of GBP1,000, or GBP50 per month as a regular savings option, although this investment figure would be lower as a direct or regular savings option from platform providers. The fund charges between 0.16% and 0.56% dependent on level of investment, although platform providers have different fee structures.
Overall, the Premier Miton UK Money Market Fund is a good option for people who are looking for a safe and liquid investment with the potential to generate income. It’s never going to be a high octane ride, but you might as well use a fund like this to make money whilst its raining and pouring.
