Royal London Short Term Money Market: October 2026 fund update

• Craig Inches is a seasoned money market investor

• The fund invests in cash or cash-like assets with short periods until maturity

• It’s outperformed peers over the long-term

• The fund does not currently feature on the Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

The Royal London Short Term Money Market fund aims to preserve the value of your investment while generating an income broadly linked to short-term interest rates. It invests in a diversified range of cash and cash-like assets, such as certificates of deposit and treasury bills.

The fund could be used for capital that investors expect to need in the near future, or as a relatively low-risk place to hold capital while deciding where to invest for the longer term. It can be an alternative to cash deposits, but its value can fall and it does not offer the same protections as money held in a bank or building society.

Manager

The fund is co-managed by Tony Cole, Craig Inches and Adeline Derain. The three have varying levels of experience managing money market funds. Inches is Head of Rates and Cash at Royal London. He and Cole began managing this fund at the start of 2016, while Derain became co-manager in February 2025.

The three managers also make use of the wider cash and rates team at Royal London, and work closely with the fixed income team when assessing cash-like assets issued by companies.

While Inches has additional responsibilities as head of the team, Cole and Derain are fully focused on managing money market funds. We view this positively and think the team is suitably resourced to manage their workload.

Process

The managers aim to provide an income broadly linked to short-term interest rates, while preserving the value of investors’ assets and making sure it can be accessed quickly. They do this by investing in a diversified range of high-quality, short-term assets rather than simply holding money in a bank account. These include treasury bills, certificates of deposit and commercial paper. The fund can also invest in bonds issued by governments or companies that have very short periods until maturity.

There are strict rules about what investments the fund can make, particularly to do with the time until the securities mature. For most investments in the fund, the maximum length of time an individual security can have before it matures is 397 days. Additionally, the fund must invest at least 10% into assets that mature within one business day, and 30% into assets that mature within five business days. This helps to ensure that money market funds remain highly liquid so that investors can get their money back quickly if they ask for it.

The fund looks to maximise the returns available while keeping to these limits. The managers seek the best value investments from all over the world to help them achieve this. Most of the fund invests in assets issued by companies within the financials sector, and in particular, by banks.

By comparing assets issued by banks around the world, the managers look for those offering a more attractive return for a similar level of risk. They can also adjust the fund’s exposure to changes in interest rates and to the risk that individual issuers fail to repay their debts. If they expect interest rates to fall, they can increase duration towards the regulatory limits.

Duration shows how much an investment’s price is likely to change when interest rates move. A lower duration means its price is less sensitive to these changes, reducing interest rate risk. Normally duration is measured in years, but for money market funds it’s measured in days because their investments are particularly short term. If interest rates fall, the value of the fund’s investments could rise, supporting short-term performance.

At the end of August 2026, the fund invested 91% into cash and cash instruments, 4.6% in covered bonds, 2.8% in assets issued by supranationals and agencies and 1.6% in treasury bills.

Culture

We believe Royal London’s speciality is in managing fixed income portfolios. Their philosophy is that all well-diversified portfolios should include an element of income. They combine economic analysis and individual security selection to manage their bond funds which has served them well over time.

The managers are rewarded based on the long-term performance of their fund, so their interests are aligned with investors. We think their incentivisation structure is better than most and encourages good behaviour, but it isn’t as long term as in some other groups.

The cash and rates team at Royal London are integrated with the wider bond team. This is different to many other companies where money market fund managers tend to be separate. We think this is a positive for the fund as the managers can make use of the experience of the wider bond team when assessing which bond issuers to invest in.

ESG Integration

The managers consider environmental, social and governance (ESG) factors in their analysis. This helps them identify potential risks that could affect the business’s ability to repay its debts, increase costs or result in future litigation.

All Royal London fund managers have access to ESG ratings and analysis produced by the firm’s central Responsible Investment team. The firm asks that all managers incorporate this into their investment decision making processes, but our meetings with Royal London fund managers suggest the quality of ESG integration from fund to fund is mixed. The firm’s sustainability branded funds fully integrate ESG, with the support of the Responsible Investment team.

While this isn’t one of Royal London’s sustainability branded funds, we think that ESG related risks are suitably considered as part of the security selection process. The fund doesn’t invest in securities issued by companies that generate more than 10% of their revenues from fossil fuels, armaments or tobacco. As most of the fund invests in securities issued by financial institutions, this means it avoids those institutions who in turn generate a large amount of revenue from companies within such industries.

Cost

This fund has an ongoing annual charge of 0.10%. The HL platform fee of up to 0.35% per year also applies, except in the HL Junior ISA, where no platform fee applies.

Both a buy and sell instruction will be subject to HL dealing charges. Find out more about our charges.

Performance

Returns from money market funds are closely linked to short-term interest rates.

Cole and Inches have outperformed both the IA Short Term Money Market sector and the Sterling Overnight Interbank Average (SONIA) since they became managers at the end of 2015. The fund returned 22.3% to the end of August 2026, compared with 18.9% for the sector and 22.0% for SONIA. Past performance is not a guide to the future.

The fund’s short-term investments and strict regulatory limits mean returns are unlikely to differ significantly from SONIA, but careful security selection has helped it add value over time.

Although the fund is relatively low risk, it’s not the same as cash held in a bank account. Its investments can fall in value and investors could get back less than they invest. Their short maturity dates and the fund’s liquidity requirements help limit its sensitivity to changes in interest rates and the financial strength of individual issuers.

At the end of August 2026, the fund had a yield of 3.95%. This indicates the income generated by the portfolio at that point, but yields are variable, not guaranteed and are not a reliable indicator of future income.