Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.
BUILDING A DEFENSIVE PORTFOLIO
THE CHALLENGE
How can I build a more defensive portfolio without too much cash?
Whether it is to finance derivatives, to de-risk, or simply while waiting for the right investment opportunity, cash is commonly held across portfolios.
When liquidity is not required on a T+0 basis, holding cash can result in an unnecessary drag on performance.
THE ACTION
With the ability to take on slightly more credit and/or duration risk, blending across investment tools and looking beyond money market funds can help to bring portfolios closer to their yield requirements.
Cash and equivalents allocations:
| ORIGINAL | OPTION 1 | OPTION 2 | OPTION 3 | |
|---|---|---|---|---|
| YIELD | -0.48% | -0.21% | 0.03% | 0.09% |
| CREDIT QUALITY | A+ | A+ | A- | A- |
| SPREAD DURATION | 0.1 | 0.3 | 0.9 | 1.3 |
Source: BlackRock, as at 30 June 2020.
For illustrative purpose only. Currency = EUR. Currency = GBP. Spread duration in 0.1, 0.3, 0.9 and 1.3 years.
Case studies are for illustrative purposes only; they are not meant as a guarantee of any future results or experience, and should not be interpreted as advice or a recommendation.
THE OUTCOME
The growth in the liquidity of the ETF market provided assurance that the client would be able to quickly execute large trade orders when required, without paying a large spread or risking not being able to liquidate.
WHY INDEXING?
The client invested some money in short-duration fixed income ETFs, to help increase net yield without significantly changing their overall risk or liquidity profile.
WAYS WE CAN HELP YOU
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