Wellington-based manager, Booster, is set to launch a new cash portfolio investment entity (PIE) fund to compete with on-call bank accounts as the higher-rate environment prompts a surge of interest in the asset class.
According to scheme documents published last week, the Booster Savvy Fund “aims to provide customers with a competitive everyday on-call transactional account providing customers easy access to withdraw money from their account”.
The fund will offer fixed monthly returns that may be jazzed-up by quarterly bonus payments under terms to be defined in an imminent product disclosure statement.
However, the Booster statement of investment policy and objectives says the fixed and bonus payments will be underpinned “by way of a Swap Agreement between the Manager and the Supervisor to the Fund, Public Trust”.
“Because the Manager’s fee is capped, and the Manager also pays the Set Return (bearing any shortfall relative to the earnings of the Fund), there is a natural alignment of incentives to maintain a low risk profile,” the SIPO says.
Permitted assets in the Booster Savvy fund span domestic bank securities and deposits, NZ government bonds or any “security bond required by a provider of transactional card payment services” – via direct investments or through other managed funds (including in-house vehicles).
“Notwithstanding these limits, 100% of the assets of the Fund will be held on call in bank deposits for the first six months of the Fund’s existence as a retail offer,” the SIPO says. “Any subsequent change in this position will be subject to engagement with the Supervisor.”
Rising short-term interest rates have seen nominal returns on both on-call bank accounts and term deposits spike higher, attracting flows and new product offers.
For example, NZ resident bank term deposits jumped from about $142 billion in April last year to over $175 billion 12 months later.
While banks have been the major beneficiaries of the trend, PIE-baked cash managed funds are back in vogue while online trading platform, Sharesies, also entered the market this year with an on-call savings account (feeding into a NZ bank) product now paying 4.6 per cent.