Money Market Fund Investment Process
Since money market rates are closely correlated with the SA Reserve Bank’s policy rate (the Repo rate), the money market investment process focuses on forecasting the direction of monetary policy. To this end, we draw on the experience of the Economists within the OMIGSA Investment Research Unit to assist in assessing the prevailing economic conditions and the likely monetary policy responses.
Once a view is taken on the direction of interest rates, a detailed forecast of the monthly call rates is made, incorporating a view on the timing of further interest rate moves. Market expectation of interest rate moves are factored into the process by analysing the forward rates implied in the money market yield curve, the level of the Forward Rate Agreements (FRAs) and the interest rates implied in the forward exchange rates. Money market rates are compared to the forecasted call rates for the year ahead and investments are made based on the relative value of these assets.
Overlaying the investment decision is a clear commitment to strict credit risk control. The Old Mutual Credit Committee determines exposure limits for all issuers in which the portfolio might invest. These limits are monitored on a daily basis by the trading desk with the use of the RiskWatch system as well as by the Compliance Unit within Support Services.
