Insight Getting more out of your cash allocation

Paul Symns
Paul Syms Opens in a new tab • Head of EMEA ETF Fixed Income & Commodity Product Management
28 November 2025
From a distance one young Asian sportive man running in city.

Key takeaways

  • Investors are focusing on their cash allocation amid uncertainty and lower interest rates

  • Cash management ETFs have had the most demand of any fixed income asset in 2025 

  • Invesco’s Overnight Return Swap UCITS ETFs offer potential for enhanced returns

These products involve investment risks such as the use of derivatives for index tracking and synthetic ETF risk. For more information on risks please refer to the legal documents or click here. 

 

In a climate where interest rates are low or falling, every basis point of performance can make a difference when it comes to your cash allocation. Invesco’s new range of Overnight Return Swap UCITS ETFs offer the potential for returns that may exceed those of money market benchmarks.

Interest rates have been falling in the US, Europe and the UK

Sources: Federal Reserve (upper bound of the target range for federal funds rate), ECB (main refinancing operations rate) and Bank of England (Bank rate), as at 30 September 2025

Cash is currently king

Cash management funds have accounted for more than a third of all net new flows into fixed income ETFs this year. Around US$17 billion of assets has been gathered by these funds so far in 2025 more than three times the amount going into European government bonds and four times more than into US Treasuries.

These funds, however, are not all the same. The category encompasses a variety of funds, some holding short-dated bonds issued by governments, while others may hold corporate bonds, bank credit or traditional money market instruments. Because of their holdings, many of these funds introduce duration and/or credit risk into the portfolio.

Another option uses swaps to deliver passive returns of an index and potentially avoid many of the risks inherent with bonds. These innovative ETFs expand the choice available to investors, enabling them to choose a fund that most closely meets their risk and return objectives.

Gaining an advantage with our swap-based model

Invesco’s recently launched Overnight Return Swap UCITS ETFs aim to deliver the performance of currency-specific indices provided by Solactive, which are designed to reflect a daily-reinvested cash deposit at the relevant overnight interest rate.  The funds use the same proven structure and operating model deployed across our market-leading swap-based ETF platform, which currently has over $80 billion of assets under management.

Swap-based ETFs achieve their investment objectives by holding a basket of equities or fixed income securities and simultaneously entering into swap contracts with banks. The two parties agree to swap cash flows – with the ETF delivering the return of the basket in exchange for the precise return of the index being tracked, usually minus a swap fee payable to the bank.

How a swap-based ETF model works

Swap contract

For illustrative purposes only

In this case, however, the ETF structure provides the counterparty banks with a means to finance their equity positions, reducing the banks’ balance sheet costs. This means the banks are willing to provide compelling swap economics to the ETF, which may result in an excess return above the benchmark.

What this means for performance

Outperformance of the index will depend on the swap fee negotiated with the counterparty banks, and this could vary by fund. We’ll use the Invesco EUR Overnight Return Swap UCITS ETF as an example to illustrate what this might look like.

This ETF aims to provide the performance of the Solactive €STR Overnight Total Return Index, “less” the impact of fees. The following chart is an illustration based on simulated performance of an ETF with a positive 40 basis points swap fee, i.e., the ETF receiving the fee from the counterparty banks. 

Simulated performance of Invesco EUR Overnight Return Swap UCITS ETF

Past performance, real or simulated, does not predict future returns

Source: Invesco, as at 30 September 2025. The simulated performance of the Invesco ETF reflects the performance of the Solactive €STR Overnight Total Return Index plus 0.33% (0.43% swap fee minus the ETF’s 0.10% annual management fee).

Managing the risks

The main risk with using swaps is that the counterparty is unable to fulfil its side of the contract. In this scenario, the ETF would be left holding the basket of securities, which may be worth more or less than the value of the index, depending on market movements. With over 15 years’ experience in structuring and managing swap-based ETFs, here’s how we are managing the risk:

  • Multiple swap counterparties to diversify risk and ensure competitive swap pricing;
  • Rigorous risk monitoring prior to and after onboarding, including long-term assessment;
  • Strict rules around basket of securities, including liquidity and concentration limits; and
  • Swaps reset every business day so that both parties clear any outstanding exposures.

Conclusion

The demand for fixed income ETFs has been growing strongly in the past five years due to the need for more targeted solutions but also with innovation and the availability of new exposures. Our new Overnight Return Swap UCITS ETFs are worth considering for investors who want to get more out of their cash allocation without increasing duration risk.

For any cash that exceeds what might be needed to cover immediate and very near-term liquidity requirements, investors may want to consider AAA CLO UCITS ETFs. These can be an effective complement to Overnight Return Swaps or other cash management tools, offering some of the most attractive yields among highly rated fixed income assets along with having very low duration. Find out more below in “Understanding CLOs: A guide to collateralised loan obligations”.

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  • Footnote

    Source: Bloomberg, Invesco, to 30 September 2025

    Investment risks

    For complete information on risks, refer to the legal documents.

    The value of investments, and any income from them, will fluctuate. This may partly be the result of changes in exchange rates. Investors may not get back the full amount invested.

    The Fund’s ability to track the benchmark’s performance is reliant on the counterparties to continuously deliver the performance of the benchmark in line with the swap agreements and would also be affected by any spread between the pricing of the swaps and the pricing of the benchmark. The insolvency of any institutions providing services such as safekeeping of assets or acting as counterparty to derivatives or other instruments, may expose the Fund to financial loss. The Fund intends to purchase securities that are not contained in the Index and will enter into Swap agreements to exchange the performance of those securities for the performance of the Index. As such, the Fund has exposure to the Index (comprised of a cash deposit) and not to the physical holdings of the Fund (comprising global equity and equity related securities). In very limited circumstances (e.g. if it is not possible for the Fund to enter into Swap agreements) the Fund may, on a temporary basis, have exposure to the physical holdings of the Fund (comprising global equity and equity related securities). The value of equities and equity-related securities can be affected by a number of factors including the activities and results of the issuer, general and regional economies, market conditions and broader economic and political developments. This may result in fluctuations in the value of the Fund and the loss of capital.

    Important information

    Data is as at 1 October 2025 unless stated otherwise.

    This is marketing material and not financial advice. It is not intended as a recommendation to buy or sell any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication.

    Views and opinions are based on current market conditions and are subject to change.

    For information on our funds and the relevant risks, refer to the Key Information Documents/Key Investor Information Documents (local languages) and Prospectus (English, French, German), and the financial reports, available from www.invesco.eu. A summary of investor rights is available in English from www.invesco.com/ie-manco/en/home.html. The management company may terminate marketing arrangements.

    UCITS ETF’s units / shares purchased on the secondary market cannot usually be sold directly back to UCITS ETF. Investors must buy and sell units / shares on a secondary market with the assistance of an intermediary (e.g. a stockbroker) and may incur fees for doing so. In addition, investors may pay more than the current net asset value when buying units / shares and may receive less than the current net asset value when selling them.

    For the full objectives and investment policy please consult the current prospectus.

    Solactive AG is the licensor of the Solactive €STR Overnight Total Return Index, Solactive SONIA T+2 Settlement Daily Total Return Index and Solactive SOFR T+2 Settlement Daily Total Return Index. The financial instruments that are based on the Indices are not sponsored, endorsed, promoted or sold by Solactive in any way and Solactive makes no express or implied representation, guarantee or assurance with regard to: (a) the advisability in investing in the financial instruments; (b) the quality, accuracy and/or completeness of the Indices; and/or (c) the results obtained or to be obtained by any person or entity from the use of the Indices. Solactive reserves the right to change the methods of calculation or publication with respect to the Indices. Solactive shall not be liable for any damages suffered or incurred as a result of the use (or inability to use) of the Indices.

    Belgium: This product is offered in Belgium under the Public Offer Exemption. This material is intended only for professional investors and may not be used for any other purpose nor passed on to any other investor in Belgium.

    Italy: The publication of the supplement in Italy does not imply any judgment by CONSOB on an investment in a product. The list of products listed in Italy, and the offering documents for and the supplement of each product are available: (i) at etf.invesco.com (along with the audited annual report and the unaudited half-year reports); and (ii) on the website of the Italian Stock Exchange borsaitaliana.it.

    Switzerland: Issued by Invesco Asset Management (Schweiz) AG, Talacker 34, 8001 Zurich, Switzerland. The representative and paying agent in Switzerland is BNP PARIBAS, Paris, Zurich Branch, Selnaustrasse 16 8002 Zürich. The Prospectus, Key Information Document, financial reports and articles of incorporation may be obtained free of charge from the Representative. The ETFs are domiciled in Ireland.

     

    UK: Issued by Invesco Asset Management Limited, Perpetual Park, Perpetual Park Drive, Henley-on-Thames, Oxfordshire RG9 1HH, UK. Authorised and regulated by the Financial Conduct Authority. This fund is authorised overseas, not in the UK. The UK Financial Ombudsman Service is unlikely to be able to consider complaints about this fund, its management company, or its depositary. Any losses related to the management company or depositary are unlikely to be covered by the UK Financial Services Compensation Scheme.

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