Because of negative interest rates, most euro-denominated money market funds have negative yields at the moment. This means these funds now are a guaranteed loss-making investment.
Euro-denominated short-duration bonds, the logical next step for investors from a money market fund, do not address this problem, says Fessas. “They also yield negative if you take management fees into account.”
Fixed income absolute return funds are not a solution either, says Fessas. “They performed negatively in the first months of this year. It’s difficult for a fund to have a negative carry over a significant time period.”
Dollar to the rescue
Because interest rates in the US are higher, it makes sense to invest in US short-duration funds with a euro-hedged share class, says Fessas. “Short-duration euro-denominated high yield is also an option,” he adds.
“We have also identified one or two low-volatility multi-asset strategies. They have a larger drawdown than fixed income, but one can exploit this negative period in the markets by buying cheaper,” he adds. “But all these options should make up only small portions of the portfolio to limit volatility.” The only goal of these satellite funds would be to compensate for the negative performance of the money market fund, Fessas asserts.
In an optimal scenario which would benefit both Greek money market investors and the Greek economy, a client would invest 30 to 50% of his assets in funds with market exposure, and bring the rest of it back to Greece as a deposit, says Fessas.
“This would increase the liquidity of the Greek banking system and would benefit the Greek economy.”