Moo_Rich wrote a post · Jan 16 02:36

You asked, we answered: Q&A with CSOP Asset Management

Hi, mooers!

In the "Funds Talk 04: Why CSOP can be considered as a safe haven for investors?" session, Csop Asset Management provided mooers with an extensive discussion on their investment philosophy, offering insights into the current market trends and introducing their prominent Cash Plus product: $CSOP USD Money Market Fund(SGXZ96797238.MF)$

Under the post, a wealth of questions from mooers has come in. We've put CSOP back in the center stage to tackle your most pressing queries. Let's take a look at what CSOP has to say!

@mr_cashcow

What are some of the difficulties & challenges faced when managing such a complex & diverse fund?

$CSOP USD Money Market Fund (SGXZ96797238.MF)$ is a diversified and liquid fund domiciled in Singapore. When managing the Fund, we typically treat difficulties & challenges as “risks”, such as interest rate risk, liquidity risk, and credit risk.

Interest rate risk – A lower interest rate may erode the fund’s gross yield. One mitigation is to invest in fixed coupon deposits/securities to lock the yield. Also, the relatively short duration can help cushion the interest rate volatility.

Liquidity risk – Liquidity risk could impact the fund’s capability to handle daily flows. To mitigate this, at least 10% daily liquidity and 20% weekly liquidity should be in place as requested by the CIS Code and the Fund has even higher weights in daily and weekly liquid assets.

Credit risk – As the minimum required rating is A-2/P-2/F-2 for a Singapore-domiciled USD money market fund; the Fund is not facing any immediate credit/default risk. In addition, the diversified allocation (no single exposure > 10% in the Fund) can lower the overall credit risk.

@Dadacai

What kind of derivative financial instruments does CSOP use for this money market fund and does CSOP expose the fund to higher risks?

$CSOP USD Money Market Fund (SGXZ96797238.MF)$ didn’t use any derivatives and doesn’t have the intention to use any in the foreseeable future.

What is your view of the USD-SGD exchange rate in the next one year?

The recent 10-year yields’ movements indicated that both the US and Singapore see their yield decline from their previous peaks. It's worth noting that the US yield’s peak is around 1.5% higher than Singapore’s and the US growth stays healthy. Thus, even if the US interest rate declines further, the USD may be resilient vs. SGD given the positive carry and growth strength. Again, instead of speculating on the FX move, the $CSOP USD Money Market Fund (SGXZ96797238.MF)$ is mainly for investors with USD on hand or convert SGD to USD for a potentially higher yield.

@费北敬

When the Fed decides to lower interest rates, would CSOP USD Money Market Fund be able to buy T-bills and bonds from the EU if they have not lowered their interest rate yet? For example, if the US suddenly dropped interest rates overnight to 3% due to some sort of recession, and EU interest rates remain high due to increased inflation. Would CSOP buy EU T-bills instead?

$CSOP USD Money Market Fund (SGXZ96797238.MF)$ can buy any USD-denominated short-term money market instruments if they are in line with the CIS Code, including US T-bills. However, the Fund currently has no intention of buying any non-USD-denominated instruments and hedging them back to USD. The Fund has the intention to use any derivatives or conduct any FX hedging in the foreseeable future.

@101758077

What are the challenges CSOP faces in managing the CSOP USD Money Market Fund to earn a higher return for investors, especially in the current uncertain market?

As a money market fund typically holds fixed coupon instruments in addition to cash, cash equivalents, or floating notes, one potential challenge to earning a higher yield is the drastic change of interest rates (both directions) to prevent the fund from earning a decent yield with sustainability. However, the current “high for longer” expectation for interest rate is favorable to $CSOP USD Money Market Fund (SGXZ96797238.MF)$ which could help investors lock high yield for a relatively long period.

@cola1010

Can you provide more details on the CSOP USD Money Market Fund's 7-day annualized yield and how it's calculated? Are there any more performance metrics or key indicators that investors should keep an eye on?

In short, $CSOP USD Money Market Fund (SGXZ96797238.MF)$'s 7-day annualized yield on the Moomoo platform is calculated based on the following:

(T day’s NAV / T – 7 day’s NAV) * 365 / 7

And 7 days refers to common business days in Singapore and in the US. Please note the 7-day yield is already net of fees. In addition, investors could keep an eye on AUM, sector/liquidity/top counterparties breakdown together with average maturity and the Fund’s historical performance which are available in the monthly factsheet at the Fund’s website https://www.csopasset.com/sg/en/products/sg-mmf/etf.php

What specific measures does CSOP use to manage risk while aiming to generate competitive returns in its CSOP USD Money Market Fund, particularly in the current economic situation with shifting interest rates?

The question is partly answered in answers to question 1. We will balance safety, liquidity, and yield to ensure investors can access their funds on a daily basis with limited credit risk and then generate the highest possible yield through our deep counterparty network. If the interest rates are shifting lower quickly, the Fund could lock higher yields in advance to help investors smooth their cash flow.

@ZnWC

What are the risks involved in CSOP USD MMF under the US-China tension when the portfolio has exposure to US and Chinese banks?

$CSOP USD Money Market Fund (SGXZ96797238.MF)$ currently doesn’t have any exposure to US banks and its exposure to China banks is around 1/3 dominated by the largest Chinese banks domiciled in Singapore with A-1/A-2 ratings. The main impacts of the US-China tension are on macro growth (i.e., external trade), USDCNY FX, and stock/bond markets. USD money market fund is relatively immune as both US and Chinese banks are driven by their own growth and policy trajectory. More importantly, the largest Chinese banks are SOEs which are still resilient in terms of fundamental and policy support.

China banks are reducing interest rate to stimulate the economy slowdown. How will the China economy slowdown impact the performance of CSOP USD Money Market Fund and its return?

The impact is minimal. This is because, in addition to Chinese banks, the Fund has nearly 60% exposure diversified in APAC, Europe, and US money market instruments. Also, it's worth noting that the USD yield provided by Chinese banks is mainly impacted by USD liquidity and the Fed, not Chinese domestic growth.

CSOP USD Money Market Fund gives an average 7-days yield of 5.34%. How is this yield compared to current fixed deposit in Singapore banks which is currently at 3.5-3.75% interest rate pa? How do we estimate the fund yield in terms of return rate per annum?

$CSOP USD Money Market Fund (SGXZ96797238.MF)$’s yield is competitive vs. Singapore banks’ deposit rate. More importantly, it provides T+0 settlement on the moomoo platform to Singapore investors. One simple way to estimate the Funds’ yield is to use the Fed fund rate range and projection as the Fund’s yield is expected to be in line with the range.

@emotional Fox_4869

Any chance of establishing cash plus fund with HKD?

CSOP has an HKD money market strategy available in Hong Kong. We may consider HKD cash plus funds in Singapore if we see decent demand.

@errnnnyyyy

Could CSOP USD Money Market Fund extend the end of day cut off time or become T+0?

$CSOP USD Money Market Fund (SGXZ96797238.MF)$ is T+0 available on moomoo platform since its inception.

@toomanyscammers

What was the average yield then for CSOP before this current economic environment of quantitative tightening as I guess that this might be a yield that we can expect in an economic situation of low interest rates? (probably won't be happening right after Fed reduces their rates but if rate cut coupled with recession is severe, we could eventually get there years later too?)

The Fund was incepted on 13 July 2022, so the first annualized 7-day yield available is around 1.6%. Now the Fund’s yield is around 5.3% and is expected to remain stable in the near term amid a “high for longer” environment. The Fed fund rate can be a reference in the future.

As you mentioned, the maturity of your instruments is about 3 months. Could I safely say that is the lead time that we can expect for any drops to occur in CSOP from the time the fed reduces their interest rates?

The Fund’s current average maturity is around 4 months, thus even if the Fed fund rate starts to decline in a meaningful way from now on, the Fund’s yield may only start to see a similar move in 3-6 months of time.

If the US interest rate remains high but somehow, there's a huge outflow of funds from CSOP by investors, how will this affect CSOP USD Money Market Fund?

The Fund has diversified exposure to money market instruments with different maturities. Even in the worst-case scenario (all underlying investors redeem all their money in one day), in addition to daily liquid assets, majority of the Fund’s underlying asset are tradable or with early termination arrangements (mainly for fixed deposits), thus investors could still get their money back. The major risk is the mark-to-market risk as secondary market trading may incur price movements and early termination may lead to loss of interest.

A big shout-out to the mooers for your great questions, and as a reward, you'll each get 500 points!

We also want to thank all the mooers who read and support our Funds Talk column! Your active interest is what keeps us going. We're excited to keep bringing you content that's both fun and informative.

Feel free to contact us with any questions or comments! See you next time!

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