Why does my Lyxor Smart Cash go up and down in value?

General
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I know this is probably a stupid question, but I wondered why my Lyxor Smart Cash https://investengine.com/etfs/lyxor/csh2/ value goes up and down? I thought it was just investing to get close to the bank of England Interest rate, with a risk rating of 1, so I assumed only increases?

I am happy with the progress as it’s going up far more than down, but I was wondering what the small dips each day are? It always is a little less in the morning than it was the night before.

Sorry for the newbie question.

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Although this fund tends to track the UK base rate, Lyxor Smart Cash is a Money Market fund, and if you look at the breakdown at what that invests in, although it’s primarily cash, it does include other slightly more volatile assets.

For instance it also invests in short term high quality bonds and other short term, low risk investments. It’s those that helps drive what should be a slightly better return than cash deposits, but as a result, will mean small amounts of volatility which is what you’re seeing.

Money Market funds are not without risk as a result, and you should check the breakdown of what they invest in as this differs from fund to fund. Whilst nowhere near as volatile as stocks or even bonds, they’re not as safe as cash - but still a good short term place to park money IMO.

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Hi @Clash, I invest in XSTR which is a distributing money market fund. Its value hasn’t declined in value.
Have you been withdrawing from the fund?

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That all makes sense thank you very much. I’m perfectly happy with the small volatility, was just more curious as to what was going on under the hood.

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Hi @Clash , I too have some money in CSH2, so was interested to research. My interpretations follow.
It is a ‘synthetic’ not a ‘physical’ etf - so it doesn’t actually own anything.
Instead Lyxor enters into a loan contract with, currently, Societe Generale.

Basically, our money goes to help fund Societe Generale’s activities, being loaned on a short-term basis. In return, Lyxor gets paid interest on the loan, and Societe Generale puts up a basket of shares in various companies as collateral, if they should fail.

Societe Generale looks to pay as little as they can for using our money for a while. Lyxor asks for the most interest it can get. Both can take their business elsewhere. So, it is a market, and the interest rate in the market will fluctuate with supply and demand.

The overall market for these types of short-term loans will generally have a similar rate. SONIA is an index giving the average of the available rates, so Lyxor can be pretty confident in offering us that return. SONIA will fluctuate with the prevailing rate in the market. CSH2 tracks SONIA not the BoE rate.

Given SONIA has tended to a positive value, linked funds have gone up over time, though at a varying rate. The etf itself is subject to market forces too though, so its price fluctuates around that upward trend. It is an investment so carries some risk though - there are no guarantees that it will always go up.

Regarding end-of-day dips - generally, prices offered for ETFs drop towards the end of the day, because buyers have no time to sell on, so they will carry the overnight risk of a price drop. The reduced price covers their risk somewhat, until they can sell the next day.

There are no stupid questions - it is valid to want to understand your investments and risks.
Fund Information source

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CSH2 is not a money market fund - which is a highly regulated fund, often with a constant NAV.

The underlying NAV of the fund hasn’t gone down since the ETF was started in 2015 - this data can be downloaded from the Amundi website. Share price can deviate from NAV and this variance simply reflects supply and demand.

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@shrimper thank you for your input,
I wondered why the NAV of CSH2 always headed up - but of course it would as long as the interest rate the fund tracks is positive and the fund is accumulating.
ETF price is oscillating around the upward trend - all makes sense. My prior comment updated to align.

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Risk is very low but it is there.

Additionally, there is some bid-ask spread, so you do need to hold for at least a few days and sometimes a couple of weeks to “break even”.