With credit union executives continuing to focus on loan growth and rates still at record lows, it is easy for the investment portfolio to become an institution’s red-headed step-child. However, the latest data makes a strong argument for allocating at least a portion of your time to portfolio management. Even if investment analysis is not a labor of love, investments still made up 36% of all credit union assets as of March 31, 2014.
As the chart below shows, credit unions held over $396 billion in investments at the end of the first quarter. Total institutional investments for all U.S. credit unions increased $28 billion from their previous total of $368 billion at year-end 2013.
The total assets of credit unions also increased during this period, by $37 billion, to an all-time high of $1.11 trillion. This increase in assets follows the traditional seasonal pattern of higher share inflows credit unions typically see during the first quarter.
So what exactly comprises credit unions’ investment portfolios? As the chart below shows, Federal Agency Securities (Agency Debt, Mortgage Backed Securities, Collateralized Mortgage Obligations) remain the investment of choice, representing 49% of total credit union investments.
This quarter also showed a large spike in “Cash at Other Financial Institutions” (FED balances) from $56 Billion to $71 Billion and an increase in “Cash at Corporate CU” from $19 Billion to $25 Billion. Are credit unions simply keeping more funds liquid in anticipation of making new loans or just waiting and waiting (and waiting) for higher rates?
More Investment Resources for Your Credit Union
Interested credit unions can download a free copy of TRUST’s full Credit Union Investment Trends Guide for 1stQuarter 2014 here). This quarterly guide includes more detail on the industry’s average yield on investments, composition of investments by maturity, and investment growth trends.
Additionally, a Fundamentals of Fixed Income webinar series is available at no charge through TRUST to assist credit unions with ongoing investment education. These complimentary 30-minute webinars can help introduce newer credit union staff to bond basics or offer a quick refresher for those already involved with their credit union’s investment portfolio. The next live event is Tuesday, June 10that 1pm Eastern/10am Pacific and will focus on Evaluating Mortgage-Backed Securities. Learn more or register here.
Archived versions of our previous Fundamentals of Fixed Incomeevents, which have focused on topics such as Callables, The Importance of the Yield Curve, How a Bond is Priced and more can be viewed online at your convenience here.
Knowing When To Turn To A Professional Manager
In many credit unions, the investment manager function falls within the CFO’s or VP of Finance’s duties. As investment portfolios have become a more significant percentage of total assets, this may be an area that needs more attention. Professionally managed investment options are one alternative to consider.
TRUST helps credit unions succeed in serving their members by providing a professionally managed family of mutual funds --- exclusive to credit unions --- as well as the information and analysis they need to support investment decisions. Created by some of the leading credit unions with oversight by a board of trustees, TRUST’s mutual fund options keep credit unions always invested, are professionally managed, and are based on the cooperative values of credit unions. Today, credit unions have invested $1.25 billion in TRUST’s two portfolios. More information about TRUST’s portfolios can be found at www.trustcu.comor by contacting TCUgroup@callahan.com.
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 & Associates and is the distributor of the TCU mutual funds. Goldman Sachs Asset Management. L.P. is the investment adviser of the TCU mutual funds. To obtain a prospectus that 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.