Cash funds come unstuck

INVESTORS in two cash-based managed funds have received an untimely reminder that even ‘low risk’ investments can run into serious problems.

Westpac Financial Services recently closed its Mortgage and Income Fund after it slashed the value of units from $1.00 to 89.09 cents.

Similarly, investors in Invesco’s Enhanced Cash Trust have seen the value of their units fall sharply this year.

The recent troubles are in sharp contrast to the sound long-term performance of both funds. For instance, the Westpac fund returned approximately 10 per cent a year since inception in 1978.

It achieved these returns by investing in a range of money market, mortgage and asset-backed securities. This included some securities in the United States that plunged in value, hence the sharp revaluation.

The Invesco fund also invested in a wide range of interest-bearing securities. Its woes stemmed from liquidity problems with one investment (Loy Yang CPI Indexed annuities) and the collapse of HIH Insur-ance Group.

Invesco says it remains committed to cash-enhanced products, which provide an investment option between standard cash management funds and fixed interest investments.

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