Make the Most of Your Investment Options (part 2)

Board education is essential for credit unions that want to enhance their short-term investment yield while maintaining liquidity.


Increased liquidity resulting from a decline in outstanding loans during 2010 has raised the importance of investment management for many credit unions. 

Total Credit Union Investments as of 12.31.10

Source: Callahan's Peer-to-Peer

But finding appropriate investment options can be challenging — especially for credit unions that want to optimize yield without sacrificing liquidity. One often overlooked alternative is to incorporate short or ultra-short duration mutual funds into the 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, 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. 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 exposure to interest rate risk and price volatility. Funds in this category generally have experienced NAV fluctuation comparable to a 9-Month Treasury Bill, according to Goldman Sachs Asset Management.

There is typically some education required, particularly for credit union Board members, to fully understand the option’s potential benefits and risks.

What the Board Needs to Know
If a credit union is considering a mutual fund, its Board of Directors should understand:

  • The credit union’s balance sheet objectives: How does the ultra-short duration strategy fit with the credit union’s overall strategy?
  • Price (net asset value) and yield: How are the two interrelated? What is the total return?
  • What risks are involved: What if rates rise? What if the credit union has liquidity needs? What other risks might the credit union face?
  • Fee structure: What is the expense ratio?  Are they Load or No Load funds?
  • Any limitations: Are there minimum or maximum investment amounts? Is there a limit to the number of withdrawals the credit union can make over a specified time period? 

Information & Training
Providing periodic educational opportunities is important for ongoing Board development, and new requirements are now in place to ensure Boards meet basic financial literacy standards. Fortunately, there are a number of options available to help Board members get the investment education they need. Online investor resources, such as Morningstar’s Investing Classroom, offer free tutorials to ensure everyone understands and can speak the same basic investment language.

Leading firms such as Goldman Sachs, the investment manager of the Trust for Credit Unions’ portfolios, provide ongoing education about the economy through online resources, live webinars (including Callahan’s quarterly Trendwatch, white papers, and more. A recorded version of TCU’s Fixed Income University series is also available for On-Demand viewing.

As a credit union partner, Callahan Financial Services, Inc., has developed a new tool to assist Board education. The “Mutual Fund Investing for Credit Unions” PowerPoint presentation (including speaker’s notes) helps credit unions explain the potential benefits and risks to Boards. Contact TCU today at or (800) 237-5678 for a customized copy.

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

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 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-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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