"We thought it was fairer to remaining shareholders to liquidate the fund in an orderly way. The market for mortgage-backed securities (MBS) and asset-backed securities (ABS) became illiquid and we were unable to buy securities which were once an integral part of the investment strategy of the fund. All clients have been advised of the closure."
According to Trustnet data, over one year to 2 October the fund has made total returns of -20 per cent, in contrast to the sector average return of 0.7 per cent. Over three and five years the fund returned -21.8 and -16.2 per cent in contrast to the sector averages of 8 per cent and 14.7 per cent.
Fund vs sector - 1yr
Source: Financial Express Analytics
Threadneedle said in the fund’s latest factsheet: "Please be aware that this fund is in the process of closing. The expected closure date is 14 December."
Meanwhile, in a note to its corporate pensions customers, Zurich said Threadneedle is closing the fund as it has not delivered good performance in recent times and does not expect to see any significant improvement in the performance of the fund. In addition, the fund’s holdings were declining while the fund managers were having difficulty in finding a market for buying or selling floating rate notes.
However, the fund no longer holds any of these assets. According to the August fact sheet 77 per cent of the assets are invested in certificates of deposit/ECP and 22.3 per cent are in cash deposits.
Zurich is among those supporting an orderly closure of funds which wrap the Threadneedle UK Money Securities Fund, as its UK Money Securities EP and UK Money Securities ZP wrap it.
Money market funds have faced some challenges over the past year, mostly because of their exposure to instruments other than cash. These may include floating rate notes and certificates of deposit, where managers have to juggle demands for duration to match the expectations of investors for cash-like returns. Some may have been affected by exposure this way to Icelandic banks or the collapse of Lehman Brothers. It has also been an issue for funds in the ABI Money Market sector.
For unit trusts and OEICs Trustnet data show that over one year the Money Market sector is one of the worst performing with a 0.7 per cent return. It is ranked 31 out of 32 unit trust sectors identified. Over five years it is ranked 28 out of 32 sectors with a 14.7 per cent return.
Other data show that such funds have performed well over the past year, but that they are not necessarily the ones available to UK retail investors currently, unless accessed, for example, via a wrapper arrangement to include offshore based retail funds.
The weakness of sterling that may be a factor in the poorer performance of UK retail funds could in turn be the cause of better returns from funds based in other currencies.