Credit union investment managers have always been limited in terms of their options. And with the industry structure continuing to evolve, it is becoming more important to understand and evaluate all of your investment alternatives.
One such option, currently used by 34 of the top 100 credit unions in the United States, according to fourth quarter 2010 data, is a mutual fund. Mutual funds allow investors to pool their funds and invest in a broader mix of securities. They can be a helpful diversification tool and are used by individual consumers and institutional investors alike.
For credit unions, the benefits of using a mutual fund option that invests in only the types of securities approved for credit unions include:
- Liquidity – The Net Asset Value (NAV or price per share) is set daily and purchases or redemptions can be made at any time for open-end mutual funds.
- Active, professional management – Large investment companies typically manage the funds and utilize in-depth research, economic forecasts, and other tools to make buy and sell decisions.
- Diversification – Unlike purchasing a single government bond or other security, a mutual fund can purchase many different securities, which might help mitigate risk or increase returns over time.
One key performance metric to consider is the total return of a mutual fund. The total return calculation takes both the NAV (price) and yield (income) into account to provide a comprehensive picture of past results.
Shares of a mutual fund are purchased or redeemed according to their NAV, which is calculated daily and can fluctuate. The degree and direction of that fluctuation is largely dependent upon the fund’s investment objectives. The NAV is calculated by adding the current market value of securities in the portfolio to cash on hand, subtracting accrued expenses, and dividing by the number of shares outstanding.
The yield of a mutual fund is also calculated on a daily basis but is standardized across the industry with a 30-day annualized version of the reported yield. The 30-day annualized yield assumes the income generated by the fund over the most recent 30-day period would continue for a full year. This standardization can aid in your comparison of various funds’ past performance but as with any investment cannot guarantee future results.
The Trust for Credit Unions mutual fund family was created specifically for credit unions and offers three portfolio options to match credit unions’ various balance sheet objectives. Contact TCU today to learn more or visit www.trustcu.com to try our “portfolio optimizer” tool. Be sure to check CreditUnions.com this spring for additional articles including tips on sharing mutual fund information with your Board.
Click here to read Make the Most of Your Investment Options (part 2)
Click here to read Make the Most of Your Investment Options (part 3)
The Trust for Credit Unions (TCU) is a family of institutional mutual funds offered exclusively to credit unions. Callahan Financial Services is a wholly-owned subsidiary of Callahan & Associate and is the distributor of the TCU mutual funds. Goldman Sachs & Co is the advisor of the TCU mutual funds. To obtain a prospectus, which contains detailed fund information including investment policies, risk considerations, charges, and expenses, call Callahan Financial Services, Inc. at 800-DIAL-TCU. Please read the prospectus carefully before investing or sending money. Units of the Trust portfolios are not endorsed by, insured by, obligations of, or otherwise supported by the U.S. Government, the NCUSIF, the NCUA, or any other governmental agency. An investment in the portfolios involves risk including possible loss of principal.
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