After a 30-year bull run in credit markets, interest rates reached near zero levels in 2020 resulting in nominal returns on short term funds such as money market funds. Consequently, new cash strategies were developed such as High Interest Savings Account (HISA) ETFs, that offered slightly higher rates of income than typical money market funds and, as a result, became very popular and gathered investors' assets quite quickly.

As the Bank of Canada raised interest rates to combat inflation, yields on short term investments increased and assets in this space are at all-time highs as investors shun long term investments in favour of the safety of short-term cash investments.

Today both the HISA products and money market funds face headwinds that may make them less attractive, lower yielding investments. The Office of the Superintendent of Financial Institutions (OSFI) has recently made a regulatory ruling that, as a result, will have a negative impact on yields for HISA oriented ETFs. Additionally, Money Market funds typically invest a meaningful amount of assets into Bankers' Acceptances (BAs), which are being discontinued as of June 2024. The result of this is currently unknown, however it could very well have a negative impact on liquidity and yields of Money Market ETFs.

Due to these dual headwinds, HISA and Money market ETFs are expected to have lower yields in the future, which suggests that a short-term fixed income option with greater flexibility to invest in a variety of income alternatives was the best option for TD Asset Management Inc. (TDAM) to offer investors. With that, TDAM just launched the TD Cash Management ETF (TCSH) which is designed to provide investors a high level of interest income by investing in high-quality debt securities generally maturing in less than a year. Importantly, it also aims to offer a higher yield than comparable HISA and Money Market ETFs while maintaining a low-risk rating.

Put plainly, TCSH sets itself apart from other cash solutions in that it strives to offer a yield advantage. Because it's not a Money Market or HISA ETF, it can have a slightly longer duration, and by extension higher yield through exposure to corporate bonds, yet with minimal interest rate risk. Moreover, since TCSH is not as exposed to the BA discontinuation due to its slightly longer duration and greater flexibility, it could benefit HISA and Money Market investors if they begin to look elsewhere for higher yield with similar risk and liquidity.

Digging deeper into the holdings, TCSH focuses on investments in the Canadian debt market while taking into consideration global macroeconomic trends. Through a bottom-up approach it utilizes credit analysis to add value and enhance long-term performance. The portfolio consists of high-quality securities generally maturing in less than one year and may include Canadian federal government, provincial and corporate debt, as well as term deposits, Guaranteed Investment Certificates (GICs) and other debt obligations issued by Canadian banks.

For more information on TCSH, please visit our In-Focus Solutions page.

*Source: TD Securities, as of December 31, 2023
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道明资产管理有限公司 (TD Asset Management Inc.) 是道明银行 (The Toronto-Dominion Bank) 的全资拥有附属机构。

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