Enhanced Cash Strategies Prevail As The Fed Continues To Hold

With interest rates at historically low levels, more investment managers are exploring ways to enhance the yield on the short-term component of their portfolios.


During the last Federal Open Market Committee (FOMC) meeting in late January, the Committee decided to keep the target range for the federal funds rate between 0% and 1/4%. They also anticipated that this exceptionally low range for the federal funds rate will remain as long as the unemployment rate is above 6.5% and inflation expectations are well anchored. In short, these low rates could still be around for awhile.

Credit unions are experiencing higher loan growth, but still seeing shares flow in at a faster pace. They are also continuing to see investments increase. As of September 30, 2012, total investment dollars in all U.S. credit unions were $383.6 billion — representing more than 36% of the industry’s total assets.


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Finding appropriate investment options for a growing portfolio can be challenging, especially if the institution is looking to optimize yield while remaining liquid. Despite lower investment yields, credit unions are maintaining nearly half of their total investments in short-term funds with maturities that are less than 1-year.



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Implementing An Enhanced Cash Strategy

One investment alternative that is often overlooked is utilizing short or ultra-short duration mutual funds as part of an overall cash management strategy. Often recommended for “seasonal balances” or secondary liquidity, this type of option can complement traditional money market mutual funds or other overnight investment instruments used for primary liquidity needs.

What Is An Ultra-Short Duration Mutual Fund?

The ultra-short duration strategy typically includes investments beyond the money market universe, including agency debt, mortgage 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.

A fund with the ultra-short duration strategy enables 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. A mutual fund in the ultra-short duration strategy seeks to maximize total rate of return while minimizing exposureto interest rate risk and price volatility. Funds in this category generally have experienced NAV fluctuationcomparable to a 9-Month Treasury Bill.

About TRUST, Mutual Funds For and By Credit Unions

Trust mutual funds options keep credit unions always invested, are professionally managed, and are based on the cooperative values of credit unions. The Ultra-Short Duration portfolio is one of three options available through TRUST. Callahan Financial Services, Inc., the distributor of TRUST, provides the resources and information credit unions need to support investment decisions. Contact us (link to info@trustcu.com) today to learn more or visit www.trustcu.com.

Kevin Heal is Vice President of Sales & Business Development for the Trust for Credit Union (TCU) family of mutual funds.

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-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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