In the current regulatory environment, banks are being discouraged from taking overnight deposits. Therefore, as liquidity investors, it is necessary to explore as many alternative solutions as possible. For example, the CF Canlife Sterling Liquidity Fund currently has exposure to overnight deposits, gilts, corporate bonds, commercial paper and other money market funds. We invest in this range of assets for good reason. We look to construct a portfolio that provides liquidity and secures price stability, whilst also generating additional yield via adding longer-dated assets and liquid AAA to AA rated government and corporate bonds.
Anticipating and adapting to the changes, over the years we have established firm relationships with a number of banks with whom we can deposit our cash. These are deposits that we believe will remain in place day-after-day – including the all-important quarter and year-ends – and we prefer to maintain stable balances with these companies. However, a question we often get asked is why we use the money market funds (MMFs) of other companies in addition to these overnight deposits?
To put this into context, elsewhere in our on-balance sheet business we use MMFs as a liquidity provision of last resort, preferring to use our ladder of maturing assets to meet liquidity calls. Utilising our long standing relationships and experience in the markets, these MMFs are used when the net daily annualised yield provides an appropriate level of return when compared to alternatives such as UK T-bills or other short-term deposits. However, the situation is slightly different for the CF Canlife Sterling Liquidity Fund.
CF Canlife Sterling Liquidity Fund
We use MMFs in the Fund as a buffer between naturally maturing assets and our overnight deposits. This allows the Fund to function without the need to sell assets or reduce our overnight positions. As a result, we have the ability to provide liquidity, without compromising our ability to generate an additional yield from some of our longer-dated assets. It is key portfolio management tool which – when combined with a well-balanced and diversified portfolio – enables assets to be managed effectively and deliver the best outcome for clients. Currently, the Fund is £256m in size, of which 5% is invested in other MMFs (as at 22/11/17).
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.
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