What are we looking for?
A plethora of options to avoid sitting in cash.
The screen
In a move that was largely expected, Canada’s central bank lowered its key policy rate to 4.25 per cent from 4.5 per cent Wednesday morning as part of a broader plan to ease interest rates in light of cooling inflation across the economy. For the Canadian investor, this might mean that the era of the 5 per cent GIC might be behind us. This said, the short-term change in rates should not dissuade long-term investors from appropriately managing cash positions within portfolios, despite the lower yields that are expected to come. Holding Canadian dollars in your portfolio does nothing to help returns over the long run. In fact, so long as inflation continues to pound the economy, each dollar you hold will provide less buying power in the future. As such, it is worthwhile considering parking your cash into a money market ETF, which provide both liquidity and yields that are reflective of current interest rates.
As part of the surge in interest rates after the pandemic, many ETF manufacturers launched versions of high-interest savings ETFs, which in essence are pooled investments spread across deposit-taking financial institutions. Though the underlying securities are different, the utility for an investor is the same as money market instruments, which share very similar risk characteristics as cash. The ETF wrapper gives an investor the additional advantage of having intraday liquidity. Today, we use Morningstar Direct to screen Canadian-listed money market ETFs to provide options for those that are sitting on a bit of cash in their investment accounts. To find these investments, we simply screened on the Canadian Money Market category. Given the largely cash-like returns of this category of ETFs, Morningstar does not rank or rate them, and hence no additional screens were used.
What we found
The mutual funds and ETFs that qualified in the screen are listed in the table accompanying this article, alongside their trailing performance, MERs, inception dates and 12-month yields (the amount paid out in pretax distributions by the investment in the past 12 months expressed as a percentage of the previous month end price, and includes capital gains, and dividend and interest payments but does not include any return of capital payments). The list is sorted by MER.
This article does not constitute financial advice, it is always recommended to conduct one’s own independent research before buying or selling any of the funds or ETFs mentioned in this article.
Ian Tam, CFA, is director of investment research for Morningstar Canada.
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