Cash funds not ‘true to label’

John Kavanagh

The Australian Securities and Investments Commission is concerned that funds being marketed to investors as “cash funds” hold assets that are more like bond or diversified funds, and it has told investment managers to ensure their products names align with the underlying assets.

ASIC reported that its surveillance of managed funds found that a majority of funds that used the term “cash” in their branding had confusing or inappropriate labels.

After an initial assessment of 350 funds investing in cash, fixed income, mortgages and property, the regulator reviewed 37 funds operated by 20 responsible entities, with a total of A$21 billion of assets.

While most of the fixed income, mortgage and property funds were labelled appropriately, the cash funds were a different story.

Some exposed investors to significantly higher risk and less liquidity than a traditional cash fund.

On average, funds called “cash enhanced” had more than 70 per cent of their funds invested in assets other than cash and funds called “cash plus” had more than 50 per cent of their funds invested in assets other than cash.

ASIC also warned that redemption terms offered to investors had to be consistent with the underlying liquidity of the fund’s assets.

Since the review, seven responsible entities have changed or proposed to change the names of their funds to better reflect the underlying assets. Other have committed to review their funds or change their asset allocation.