Sterling and euro funds benefit from geopolitical uncertainty

Uncertainty related to Brexit and European elections fuelled inflows into sterling and euro money market funds (MMFs) over the first quarter of 2017, according to new research.

In a report for its clients, ratings agency Moody's found that sterling prime money market funds' (MMF) assets under management (AUM) reached a 12 month-high of £148.2bn, up £6.3bn or 4.4%. Additionally, AUM for euro prime MMFs also increased in the first quarter up €3.1bn or 4.6% to a 12 month-high of €70.7bn, despite declining yields.

Vanessa Robert, vice president and senior credit officer at Moody's, said: "Inflows into euro and sterling money market funds in the first quarter 2017 are likely a result of few comparably secure alternatives amid heightened uncertainty from elections in the Netherlands and France, and the UK initiating the process of leaving the European Union."

Sterling MMFs' credit profiles also improved in the first quarter, with investments in securities rated Aa3 or above by Moody's rising to 65% of total assets at the end of March 2017 from 63% three months earlier.

However, Moody's said this was outweighed by a deterioration in their stability profiles, with weighted-average maturities rising to a 12-month high of 49.1 days from 46.2 days, and liquidity falling to a 12-month low of 24.8% from 26.5%.

As a result, the funds' stressed net asset values (NAVs) fell to a 12-month low of 0.9912 at the end of first quarter from 0.9921 at the end of December 2016.

The weighted-average maturity for euro funds also increased; by 4.9 days to 46 days in Q1 2017, the second highest level in a year.