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A low-risk, high yield corporate cash management solution launched

02 Jul 2019

Article

The recently launched Old Mutual Institutional Short Term Interest Fund is managed by Futuregrowth Asset Management on behalf of Old Mutual Unit Trust Managers (RF) (Pty) Ltd. The Fund, which offers corporates an alternative investment opportunity to bank deposits for their surplus cash, has been designed as a solution to three specific risks currently faced by SA corporates, namely, credit, interest rate and liquidity risk.

Offered on a unit trust platform, the Fund aims to achieve superior returns, plus high liquidity and diversification – with low interest rate risk – making it an ideal vehicle for short-term lump sum investments of R20 million or above.

Portfolio Managers, Michael van Rensburg and Nazley Bardien, say that their focal point for the Fund is capital preservation at all costs, while earning a good return for the investor. “With this objective in mind, the Fund is designed to alleviate specific risks that local corporates currently experience,” says Michael.

“Firstly, the Fund invests in only the top five South African banks, government and government-guaranteed paper. These instruments will have a maturity of three years or less. By choosing this Fund, corporates – who undoubtedly already have bank exposure in their own right – are not exposed to any new credit risk, but are provided with better counter-party and instrument diversification than normal bank deposits would provide.

“Secondly, interest rate risk is managed by limiting the term to maturity of fixed-rate notes. Fixed-rate notes, in line with normal money market funds, are limited to 13 months. If fixed-rate notes longer than 13 months are purchased, these are swapped for floating-rate notes, which substantially reduces the interest rate risk,” he explains.

“And lastly, the Fund offers a unique advantage to the corporate treasurer, to get exposure to longer-dated – maximum 3-year maturity – higher-yielding instruments, while still having access to one-day liquidity. This is achieved by having a minimum of 25% of the Fund in three-month or less instruments. This gives the corporate treasurer direct access to this unique investment strategy and addresses liquidity risk.”

Michael adds that the Fund has an official Global Credit Rating (GCR) of AA+ and is priced on a daily basis, using a mark-to-market methodology; hence liquidity is available on a T+1 basis. “Being on a unit trust platform, the Fund also provides ease of accounting to the corporate investor,” he concludes.

 

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