Optimizing SMAs in a Rising Rate Environment

For corporate cash managers, planning to reallocate investments in an orderly way as money fund reform approaches may be a common goal, but trying to balance decisions on the utility of government money market funds versus the yield opportunities of a separately managed account can be a conundrum. While the Fed’s December interest rate hike provided a positive backdrop for separate-account yields, the wild gyrations in public markets since then have created a lot of uncertainty about where rates will go from here. The Fed has not officially torn up the script for its previously expected series of four rate increases by the end of 2016. But market volatility and ongoing uncertainty about the global economy have made the timing of a second rate hike—which pundits originally said might come as early as this month—anything but a sure thing. And the timeline for possible subsequent increases now is all the more uncertain.

The good news is that with appropriate attention to the weighted average maturities (WAM) of separate account portfolio investments, these dynamics can be managed. The right mix of short-term investments providing liquidity with longer-term investments delivering higher yields may enable managers to have their cake and eat it too in the form of liquidity, safety of principal and return. This month’s white paper—Optimizing Separate Account WAM in a Rising Rate Environment—explores the trade-offs in detail, with several interesting investment scenarios for cash managers to consider. You may be surprised at the possible ways to navigate the volatility and uncertainty of today’s financial markets.

DOWNLOAD FULL REPORT

Best Regards,

Ben Campbell
President & CEO