It’s no secret the average yield on credit union investments has declined, as the chart below demonstrates. And with shares flowing in faster than loans, credit union CFOs and investment managers have an unenviable challenge: Finding solid opportunities that can enhance yield without tying up funds in the long-term.
source: Callahan's Peer-to-Peer
As of December 31, 2010, 47.15% of credit union investments have maturities of less than one year. This reflects an unwillingness to take on interest rate risk by investing in longer-term securities. The strategy makes sense as many economists expect rates to rise over the next year, but there is also an opportunity cost related to keeping your investments short.
Credit unions often overlook the option to utilize short-duration mutual funds as part of their overall portfolio. The ultra-short duration strategy typically includes investments beyond the money market universe, including agency debt, mortgages, and asset-backed securities with maturities greater than one year. Securities in this strategy are AAA-rated, and the portfolio typically targets a nine-month duration. According to Goldman Sachs Asset Management , a fund with the ultra-short duration strategy seeks to enable portfolio managers to capitalize on the higher yielding securities and active trading opportunities that exist further out on the yield curve without sacrificing the price stability or creditworthiness of the overall portfolio.
Another Option to Consider
Options like institutional mutual funds exist to help credit unions manage their investment portfolios through a wide variety of interest rate environments and investment landscapes. They can be used as an integral part of an overall balance sheet strategy or as a supplemental component, complementing other types of investments. Certain types of mutual funds, such as money market portfolios, can help diversify credit unions’ traditional overnight investment options as well.
Want to learn more?
Leading firms such as Goldman Sachs, the investment manager of the Trust for Credit Unions’ (TCU) portfolios, provide ongoing education about the economy and institutional mutual fund investment options through online resources, live webinars, and more. An On-Demand recording of TCU’s Fixed Income University series is available here.
Callahan Financial Services, Inc., has developed a series of educational materials to help credit unions and their Boards understand mutual funds as an investment option. Our “Mutual Fund Investing for Credit Unions” PowerPoint presentation (including speaker’s notes) helps executives explain the potential benefits and risks to Boards while our interactive yield optimizer allows them to view the historical performance of different blends of the three TCU portfolio options. Contact us today at email@example.com or (800)237-5678 to request a copy of the PowerPoint presentation or learn more.
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 us today to learn more or visit www.trustcu.com.
Click here to read Make the Most of Your Investment Options (part 1)
Click here to read Make the Most of Your Investment Options (part 2)
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 Asset Management 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-CFS-5678. 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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