Unearthing secure & liquid deposits

How to make your cash work

Although not widely discussed, 2015’s EU Bank Recovery and Resolution Directive (BRRD) has had a big impact on how institutions manage their cash balances. This is because the BRRD gave monetary authorities the ability to ‘bail in’ struggling banks, rather than the bill having to be footed by the taxpayer. Instead, creditors and shareholders are responsible. This has had a significant impact as treasurers must now take this into account when reviewing their positions. As such, the availability of vehicles that are able to access deposits which fall outside the bail-in provision has become increasingly important, particularly given the current uncertain political and economic outlook.

CF Canlife Sterling Liquidity Fund

As a result, institutions are hunting for secure vehicles for their cash deposits. The CF Canlife Sterling Liquidity Fund aims to meet this demand, with the aim of delivering an enhanced return relative to short-term bank deposits, manage cash flow efficiently and securely and maintain the ability to put cash reserves to play in markets strategically. The management team of Steve Matthews and Andy Head have worked together at Canada Life Investments since 2003 and are responsible for c. £5 billion of short bond and liquidity mandates for a number of institutional clients, as well as life and pension money funds, in addition to the £160.5m (as at 17/07/2017) CF Canlife Sterling Liquidity Fund.

Investment process

Steve and Andy draw on their long experience and significant market relationships to construct a portfolio of high quality money market assets with a focus on capital preservation and sustainable returns. 100% of the portfolio will be rated between AAA and A, and it will allocate to between 40 and 80 issuers. The Fund can also hold up to 10% in money market funds as an additional level of liquidity to support overnight deposits and short maturities. They will also be able to draw on the expertise of our credit research team, who monitor and review all counterparties, at least quarterly. The team has in-depth knowledge of individual corporates and sectors, drawing on Canada Life Investment’s long experience in annuity management.

Stock selection

The CF Canlife Sterling Liquidity Fund aims to invest in variety of different securities, each of which contribute to the aims and objectives in different ways. These include:

Provide liquidity. This involves overnight deposits, as well as select holdings in money market funds, allowing T+1 liquidity. The majority of competitors offer only T+2.

Produce yield. We are able to do this by introducing selective longer-dated assets into the portfolio. An example would include a General Electric bond maturing in June 2018 and delivering a money market yield of 0.79%.

Enable further liquidity, by adding AAA to AA rated government and covered bonds.

Secure price stability, through the addition of selective floating rate notes (FRNs). This is only done when rates and maturity dates make sense, such as a security issued by Barclays, maturing in mid-September 2017 and yielding 0.30%.

Create a maturity ladder. There will be gaps in the maturity profile of the Fund that will need to be filled. We aim to do this through secondary commercial paper instruments that are not yield destructive. A current example within the portfolio would be a Legal & General note, with a money market yield of 0.30%.


Important Information

The value of investments may fall as well as rise and investors may not get back the amount invested.

The information contained in this document is provided for use by institutional investors, professional investors and professional advisers and is not for onward distribution to, or to be relied upon by, private investors. No guarantee, warranty or representation (express or implied) is given as to the document’s accuracy or completeness. The views expressed in this document are those of the fund manager at the time of publication and are subject to change at any time without notice. The contents of this article are not intended as investment advice. This document is issued for information only by Canada Life Investments. This document does not constitute a direct offer to anyone, or a solicitation by anyone, to subscribe for shares or buy units in fund(s). Subscription for shares and buying units in the fund(s) must only be made on the basis of the latest Prospectus and the Key Investor Information Document (KIID) available at www.canadalifeinvestments.com.

The Canada Life Investments blog page features images licensed from Getty Images International. These images shall not be downloaded, republished, retransmitted, reproduced or otherwise used in any way. Aside from the above, and unless otherwise stated, Canada Life retains copyright in and/or has a right to use all contents of this website (including text and graphics) and such contents shall not be copied, distributed, extracted or modified without the express prior written consent of Canada Life unless for private, non-commercial use.

CLI00850 Expiry 17 July 2018

Steve Matthews

Steve Matthews

Fund Manager, Liquidity

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