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All Pain, No Gain?

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Abstract

Recent developments in corporate cash investments resulted in portfolios of different risk characteristics having little yield differentiation. Popular cash vehicles, including prime money market funds, FDIC-insured transactional accounts and all-Treasury portfolios, require a fresh look in this new environment. Improving a portfolio’s risk/reward profile may involve diversification among cash vehicles, liquidity and maturity structures, as well as fee considerations. 2012 may be a crucial year for investors to rebalance their risk/reward tradeoffs thanks to a number of current events. A multi-pronged approach, including separately managed account solutions, may help. The window of opportunity may be closing for treasury organizations still without a long-term plan.

Introduction

The financial debacle of 2008 gave birth to a popular catch phrase, “a crisis is a terrible thing to waste.” Yet, few people were prepared for the game of “whack-a-mole” that would plague the world’s debt markets for the next three years. These events taught us to stay on the conservative side of investing cash assets and worry less about yield. But did we calibrate our risk and reward tradeoffs just right? Do we have a Plan B if situations continue to deteriorate in Europe? What can we do to improve our risk/reward profile?
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Please click here for disclosure information: Our research is for personal, non-commercial use only. You may not copy, distribute or modify content contained on this Website without prior written authorization from Capital Advisors Group. By viewing this Website and/or downloading its content, you agree to the Terms of Use & Privacy Policy.

Lance Pan joined Capital Advisors Group in 2003. As Director of Investment Research and Strategy, Lance assesses the risk and relative value of asset classes and credits, creates advanced credit approval and surveillance procedures, issues credit opinions, and provides investment strategy recommendations. Lance oversees Capital Advisors Group’s Credit Committee.

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