- For institutional cash investors unsure of separately managed
accounts in a rising interest rate environment, our scenario analysis
suggests that a laddered portfolio of agency and corporate
securities with a modest WAM could outperform the government
money market fund proxy with negligible unrealized loss concerns
in a rising rate environment.
- Both agency and corporate portfolios with maximum maturities of
up to 12 months may outperform government money market funds
in up to four interest rate hikes in a 12-month period.
- Moderate spread widening assumptions (10 bps for 1-year
agencies and 20 bps for 1-year corporate securities) did not
materially change the outcome.
- Maximum expected unrealized losses were limited to 0.06% or
less of the portfolio’s value in most scenarios.
- Current financial market volatility significantly altered expected
interest rate increases, paving the way for a moderately longer
- The prime-to-government conversion among money market funds
and fund managers’ defensive positions prior to the reform
deadline of October 2016 may provide a great opportunity for
SMA investors running a moderate portfolio WAM.