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Our views 17 August 2023

Is cash still king?

5 min read

It’s hard to believe that at the end of 2021, interest rates in the UK were 0.10%, with the possibility that the next move would be into negative territory.

The average investor was facing a near zero return on liquidity and short-term fixed income products and were constantly on the lookout for an inkling of yield. This mindset forced very conservative investors up the risk curve into assets and products that were perhaps not suited to their risk appetite and the ensuing rise in interest rates left many with a poor taste in the mouth after disappointing or in some cases negative absolute returns.

Fast forward to mid-2023 and we now find global markets entering the final phases of the rate hike cycle.

In the UK, interest rates now sit at 5.25% with the Bank of England (BoE) keen to pause rather than hike further as they expect inflation to fall quickly in the second half of the year. The BoE is also of the opinion that the full force of interest rate rises is yet to be felt and this will slow the economy in 2024. This leads Royal London Asset Management to believe that UK rates will peak shortly, although tight labour markets and a robust consumer sector mean we are unlikely to see interest rate cuts in the immediate future.

The next few years will likely continue to be a volatile environment for fixed income, equities and property markets as the full effects of the rate rising cycle unfolds. However, one asset class that is well-positioned for what comes next is Cash. At Royal London Asset Management, we have a range of Liquidity and Short-Term Fixed Income funds that yield between 5.00% and 6.50% (as at 31/07/23). On a risk-adjusted basis we feel that these offer good value in a world where other asset classes are not compensating the investor for duration or inflation premia.

Cash also provides the stability and certainty that no other asset class can provide. Thinking about cash as an asset class doesn’t only provide attractive risk-adjusted returns but also acts as a protection for potential short-term losses in the current volatile environment. Cash as an asset class is also important consideration due to its negative corelation to other asset classes. Utilising a combination of these funds can deliver a very attractive risk-adjusted yield with very high liquidity.

The liquidity laddering

Diagram shows range of four Royal London Asset Management liquidity and short-term fixed income funds with rising investment horizon corresponding with rising yield targets

Monthly liquidity fund updates

RL Sterling Liquidity Money Market Fund
RL Short Term Money Market Fund
RL Short Term Fixed Income Fund
RL Short Term Fixed Income Enhanced Fund

Long live the King

For many years, there was an orthodoxy around the idea that cash is a foundational asset class, that cash was king. Over a decade of ultra-low interest rates has meant that many had started to question whether cash no longer had that status.

Our range of funds at Royal London Asset Management allows an investor to hold a selection of liquidity and short-term fixed income funds which can create, in aggregate, a highly liquid, low volatility product that should be much less likely to suffer significant drawdown with yields well in excess of the Bank of England base rate. These products are an asset class in their own right and at this current juncture of interest rates they offer some of the most attractive risk adjusted returns available for now and beyond… long live the King!


This is a financial promotion and is not investment advice. Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. Portfolio characteristics and holdings are subject to change without notice. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.