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How cash-like assets perform in a stocks and shares ISA [Members]
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Seems like the new administration thought better of this silly idea, but couldn’t be seen to totally scrap the measure, so have done the next best thing and made it pretty toothless. Good!
As it stands, synthetic swap ETFs like XSTR or CSH2 appear to be outside the scope of the new cash-in-shares-ISA rules anyway, since they’re not MMFs in the regulatory sense (which is the test applied in the draft rules).
But in practice, you might as well still add a small holding of something definitively non-cash-like in the ISA, to sidestep the 100% test as a failsafe.
Great work. Lots of potential to nerd out, but I’ll restrict myself to a couple of comments (as @Dave Hedgehog beat me to one of them – his comment also applies to ERNS which is not swap-based but holds a wider pool of assets than a pure MMF):
– You can actually see the ERNS “you don’t get something for nothing” effect in the chart! There is a tiny dink in the line in early 2020, corresponding with the Covid crash. This is quickly repaired by a more steeply rising line as the instruments mature and are replaced by higher yielding instruments – the benefit of very short-dated paper. Compare the gilts fund with an even shorter lived blip and the MMF with a straight line.
– I appreciate that the purpose of the article is not to compare different ETFs which are basically the same asset class, but the Amundi MMF CSH2 adds an (allegedly “smart”) repo/collateral enhancement overlay which has, in the past, produced returns in excess of XSTR (your example MMF). I’m sure the something-for-nothing effect applies here too, though.
Thanks @TA for another outstanding piece of research. I hadn’t heard that the rules now propose to exempt cash, MMFs, etc. from tax in S&S ISA if <100% allocation. Total numpties but huge sigh of relief. I had been wondering how to tweak the asset allocation but mercifully now no need.
@Kamae (1)
The information on cash-like instruments in S&S ISAs was published on 23 June – so the new PM and his cabinet was not in post then. I think even the old administration had enough of an ear-bashing from the ISA industry and many other informed commentators that they realised they had to row back somewhat.
Yes, agreed, it’s been a massive waste of time. Reeves has added just enough complexity to make it awkward for the layperson, while saving political face, but otherwise very little has changed in practice.
@DavidV (5) – I stand corrected. No need to give credit to the wrong party. Still a silly excursion down a dead end by the Treasury. Glad I expended exactly zero time pondering its implementation, as I had a notion it would have to be watered down to something palatable by the time it was in force. Time perhaps for it to be tinkered with again, but hopefully not.
Thanks @TA. I’d also not heard about the exemptions so glad the changes have turned into a damp squib. I just looked that expression up; I never realised a squib is an old word for firework. Every day’s a school day !