2012 Issue 2
Issue Features
- Rethinking Cash Portfolios
- Finding Yield in Volatile, Low-Interest Rate Markets
- Younger Adults Face Financial Headwinds
Column: Voices
Departments
Department: Global Megatrends
Today, and over the foreseeable future, a series of events — call them global megatrends — will have a profound impact on the world economy. Each issue of Point of View will share insight into these trends and how the institutional investment community is preparing to address them.
New Climate for Short-Term Investments
In the current low-interest rate, low-yield environment, investors of short-term cash portfolios are facing significant challenges. Yields on traditional short-term vehicles have been declining steadily for years. Changes to the Securities and Exchange Commission's Rule 2a-7 and Europe's Institutional Money Market Fund Association Code of Practice, as well as other industry and regulatory proposals, have further constrained money market funds, another popular type of short-term investment. Overall, there is also a smaller supply of traditional, high-quality short-term securities. As a result, investors might want to consider a mix of investments with longer maturities and/or lower credit quality. This not only provides an opportunity to increase yield, but also broadens the portfolio's diversification.
Short-Term Yields on the Decline
Yields on short-duration instruments have been falling steadily since 2009, and the U.S. Federal Reserve Board has committed to keep rates low through 2014.
[+] Enlarge
Constraints on Money Market Funds
The constraints introduced by a low-yield environment have been further complicated in the United States by more stringent rules governing money market funds. Beyond the changes already implemented in 2010, additional proposals include switching to a floating net asset value, capital set-aside requirements and restrictions on redemptions.
[+] Enlarge
Smaller Supply of Traditional Short-Term Issues
As yields tighten, and regulatory bodies impose rules around liquidity, investors are finding a smaller pool of high-quality, short-duration investments that meet their investment mandates.
[+] Enlarge
© 2013 Northern Trust Corporation
northerntrust.com
Past performance is not necessarily a guide to the future. Index performance returns do not reflect any management fees, transaction costs or expenses. One cannot invest directly in an index. Index performance is based upon information provided by the index providers. There are risks involved with investing, including possible loss of principal. There is no guarantee that the investment objectives of any fund or strategy will be met. Risk controls and asset allocation models do not promise any level of performance or guarantee against loss of principal.
This material is directed to eligible counterparties and professional clients only and should not be relied upon by retail investors. For Asia Pacific markets, it is directed to institutional investors, expert investors and professional investors only and should not be relied upon by retail investors. This information is provided for informational purposes only and does not constitute a recommendation for any investment strategy or product described herein. This information is not intended as investment advice and does not take into account an investor’s individual circumstances. Opinions expressed herein are subject to change at any time without notice. Information has been obtained from sources believed to be reliable, but its accuracy and interpretation are not guaranteed.
Asset management at Northern Trust comprises Northern Trust Investments, Inc., Northern Trust Global Investments Limited, Northern Trust Global Investments Japan, K.K., the investment adviser division of The Northern Trust Company and Northern Trust Company of Connecticut and its subsidiaries to offer investment products and services to personal and institutional markets. Northern Trust Global Investments Japan, K.K. is regulated by the Japan Financial Services Agency. The Northern Trust Company has a branch in China mainly regulated by the China Banking Regulatory Commission, People’s Bank of China and State Administration of Foreign Exchange. The Northern Trust Company of Hong Kong Limited is regulated by the Hong Kong Securities and Futures Commission. In Singapore, Northern Trust Global Investments Limited (NTGIL), Northern Trust Investment, Inc. and Northern Trust Company of Connecticut, Inc. are exempt from the requirement to hold a Financial Adviser’s Licence under the Financial Advisers Act and a Capital Markets Services Licence under the Securities and Futures Act with respect to the provision of financial services. In Australia, NTGIL is exempt from the requirement to hold an Australian Financial Services Licence under the Corporations Act 2001 in respect to the provision of financial services. NTGIL is regulated by the FSA under U.K. laws, which differ from Australian Laws.