It’s called a liquidity fund for a reason
When constructing a fund for investors, the first question a fund manager ought to ask is: “How will I account for redemptions from this fund?” As Jack Reacher, from the famous book series, would say: “Monitor your surroundings and always have an exit.” Such advice is most relevant when the fund is named after the strategy, which is why we make liquidity the most important step in our investment process.
I believe some recent high-profile events have highlighted the value of governance: when we say we have liquidity, we mean it. We aim to have 130% of the minimum requirement for overnight deposits as our base level of liquidity, while larger flows over and above the daily maturity of assets are met from holdings in Money Market Funds that we monitor closely. Furthermore, we also maintain exposure to Sovereign, Regions and Agencies (SRAs) and AAA rated covered bonds, as we are not content with only A and AA rated Certificates of Deposits (CDs) and commercial paper providing the next layer of liquidity.
At present, 13% of our holdings are in SRA assets. This includes a 0.5% holding in the £1 bn AAA rated FMS Wertmanagement March 2020 bond, which benefits from an explicit guarantee from the German government yet was bought at 20 bps over gilt yields and in line with AA rated bank returns. Therefore, by purchasing these bonds, we are able to diversify into a deeply liquid short-dated government bond that provides the same yield but less risk for the same price of an A+/AA- bank. We also have been able to capture a great degree of liquidity by holding 12.5% in covered bonds. For example, we bought AAA rated secured bonds of NatWest’s £1.25 bn issuance to gain access to the name, which otherwise would not be possible because of its A- rating, at a yield that was beneficial for fund returns. This strategy is applicable across asset types and names; however, they must match the yield targets and investment profile of the LF Canlife Sterling Liquidity Fund.
Source: Canada Life Investments, 30/06/2019
The LF Canlife Sterling Liquidity Fund is designed to provide institutional investors with a high degree of capital security and daily liquidity with the ultimate aim of delivering enhanced returns relative to short-term bank deposits. It stands out within Canada Life Investments’ well-rounded product range because of its day-to-day active management strategies as well as its AAAf/S1 rating from Fitch Ratings. For more information and the latest factsheet click here
Past performance is not a guide to future performance. The value of investments may fall as well as rise and investors may not get back the amount invested. Income from investments may fluctuate.
The information contained in this document is provided for use by investment professionals and is not for onward distribution to, or to be relied upon by, retail 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 should not be taken as advice, a forecast or a recommendation to buy or sell securities. These views are subject to change at any time without notice. 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. This fund is a UCITS scheme and a standard variable net asset value (VNAV) money market fund (MMF). The MMF is not a guaranteed investment, nor does it receive external support to guarantee its liquidity. Unlike bank deposits, investment in MMFs can fluctuate and investors’ capital is at risk.
Canada Life Investments is the brand for investment management activities undertaken by Canada Life Asset Management Limited, Canada Life Limited and Canada Life European Real Estate Limited. Canada Life Asset Management Limited (no. 03846821), Canada Life Limited (no.00973271) and Canada Life European Real Estate Limited (no. 03846823) are all registered in England and the registered office for all three entities is Canada Life Place, Potters Bar, Hertfordshire EN6 5BA. Canada Life Asset Management is authorised and regulated by the Financial Conduct Authority. Canada Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.
CLI01455 Expiry on 30/09/2019