In a time of rising interest rates and increasing volatility in equity markets, investors are seeking alternative strategies for their cash.

Cash alternative ETFs, money market and cash equivalent funds have emerged as increasingly popular investment options, offering a means to protect capital while including the potential for attractive returns.

As ongoing rate hikes continue, navigating the cash landscape can be more manageable with money market and cash alternative ETFs.

Rate hikes make cash alternative ETFs attractive

Over the past year, the combination of stubbornly high inflation and central banks that keep ratcheting up interest rates has reminded many investors that “cash is king.” Suddenly, cash is an appealing option and has the potential to generate significant earnings.

High-interest ETFs and other money market or cash equivalent funds, for example, offer the opportunity to profit from the return rates of the underlying accounts, which have been rising in conjunction with interest rates. As a result, these investments have witnessed a surge in popularity among individuals seeking innovative places to park their cash.1

With interest rates looking to stabilize or moderately climb in the near-term, volatility in equity markets, and the possibility of a recession still in the mix, cash alternative ETFs and other money market or cash equivalent funds offer a compelling solution for individuals seeking stability and potential growth despite an uncertain financial outlook.2 It’s little wonder then that these kinds of instruments have seen such robust growth in recent months.

Growing demand for money market and cash alternative ETFs in and the U.S.

According to National Bank of Canada, Canadian ETFs have had inflows of $15 billion so far this year, with fixed income (including money market and cash alternative ETFs) making up the largest share of that growth at $9.2 billion.3

In May alone, money market ETFs drew nearly $1 billion of the total $2.6 billion in ETF flows in Canada.4 Of that, $298 million came from cash alternatives like high-interest savings ETFs, meaning that these ETFs dominated the fixed income category for the month.5

“The craze for money market or ‘cash-like’ exposure seems unstoppable, especially now that these ETFs are yielding close to 5%,” said the National Bank of Canada report.6

Investors in the United States could also benefit from cash alternative ETFs, such as high-interest savings ETFs. Given the turmoil in the U.S. banking sector earlier this year, which showed the risk of a bank run, the stability offered by HISA ETFs makes them great alternatives to traditional savings accounts when you have cash to park while considering next steps or riding out uncertainty.7

This growing demand is no doubt thanks in large part to the advantages that money market and cash alternative ETFs present in a period of market uncertainty, such as we are experiencing now.

The appeal of money market and cash alternative ETFs

Money market and cash alternative ETFs offer some substantial advantages in our current market environment. These include:

  • Capital preservation: With the lower risk associated with holding cash and cash equivalents, these investment options offer a way to help preserve capital and the investment principal.
  • Attractive yields: Cash alternative ETFs and money market funds provide competitive yields, making them appealing choices for investors looking to maximize returns in a rising interest rate environment.
  • Monthly income: These funds offer the potential for monthly income, making them particularly attractive to income-oriented investors who rely on regular cash flows.
  • Flexibility and convenience: These investments allow for access to funds whenever needed, providing the ability to manage assets according to changing goals and circumstances.
  • Daily liquidity with no lock-up periods: Investors appreciate that, unlike certain other investments, cash alternative ETFs provide the freedom to enter or exit positions on a daily basis.

Navigating your cash with money market and cash alternative ETFs

Our current climate of ongoing rate hikes has made money market and cash alternative ETFs appealing options for individuals looking to secure capital, generate attractive returns, and manage their investments conveniently.

Evolve’s High Interest Savings Account (HISA ETF) and US High Interest Savings Account (HISU.U ETF) invest in high-interest deposit accounts with Canada’s “Big Six” Banks, while Evolve’s two new money market funds, Premium Cash Management Fund (MCAD ETF) US Premium Cash Management Fund (MUSD.U ETF) invest in Canadian and U.S. dollar-denominated money market instruments, respectively.

To learn more about our cash solutions suite, click here for our Cash Solutions brochure. Understand your options for navigating your cash.

Sources

  1. Dondo, J., “Cash alternative ETFs becoming increasingly popular,” Wealth Professional, June 7, 2023; https://www.wealthprofessional.ca/investments/etfs/cash-alternative-etfs-becoming-increasingly-popular/367240
  2. Zadikian, M., “Try high-interest ETFs as a cash alternative: CIBC,” BNN Bloomberg, June 2, 2023; https://www.bnnbloomberg.ca/try-high-interest-etfs-as-a-cash-alternative-cibc-1.1773866
  3. “May 2023: Japan, Emerging Market, and the Evergreen Money Market ETFs,” National Bank of Canada, June 2, 2023; https://cetfa.ca/wp-content/uploads/2023/06/May-2023-Canada-Flows.pdf
  4. Burgess, M., “Cash ETFs lead monthly gains again, drawing $4.8 billion this year,” Advisor’s Edge, June 2, 2023; https://www.advisor.ca/news/etfs/cash-etfs-lead-monthly-gains-again-drawing-4-8-billion-this-year/
  5. Dondo, J., “Cash alternative ETFs becoming increasingly popular,” Wealth Professional, June 7, 2023; https://www.wealthprofessional.ca/investments/etfs/cash-alternative-etfs-becoming-increasingly-popular/367240
  6. Burgess, M., “Cash ETFs lead monthly gains again, drawing $4.8 billion this year,” Advisor’s Edge, June 2, 2023; https://www.advisor.ca/news/etfs/cash-etfs-lead-monthly-gains-again-drawing-4-8-billion-this-year/
  7. Carrick, R., “High interest savings ETFs now pay 5 per cent, but that’s over if regulators step in,” The Globe and Mail, June 19, 2023; https://www.theglobeandmail.com/investing/investment-ideas/article-high-interest-savings-etfs-now-pay-5-per-cent-but-thats-over-if/

 

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