Squeezing the TurnipFebruary 08, 2010 Posted by: Joe Morgan, CFA
Nothin’ from nothin’ leaves nothin’
You gotta have somethin’
If you wanna be with me
The nothin’ offered in the money market fund world has driven investors to seek other ways to add return. One easy way is to simply pay close attention when deploying funds into the marketplace.
Thinking back over the last 14 months since the last interest rate cut, we can recall several times the argument being made that the Fed needs to take some of the slack out of their efforts by boosting interest rates. Indeed, there are many out there who fear inflation to the point of arguing the Fed needs to lift rates now.
Like most points of view on such slippery topics as economics, this viewpoint has had its 15 minutes — several times, actually.
But the Fed itself has come out several times saying they will keep rates low for an “extended period.” With the outlook set at stable interest rates, investing appropriately turns to focusing on market volatility and attempting not to buy at low yields, while focusing purchases when interest rates rise unnecessarily.
We’ve seen this occur now three times in the last nine months and we’ve developed strategies to take advantage of these opportunities for both our clients who allow active trading and those who do not.
For clients allowing us to actively trade, we have moved in and out of Treasuries, capturing the gains this volatility has offered. These clients understand that if yields continue to rise after we’ve made a purchase, we can always hold the securities to maturity and accrue interest well north of their money fund option.
For clients who do not allow active trading, we have attempted to make our purchases when the market was offering higher yields. Of course, we are not realizing gains for these clients by selling when yields drop, but at the end of the day making our purchases at higher yields has offset the waiting period from funds availability until purchase. This is due to the fact these opportunities have presented themselves fairly regularly over this period.
Will this be the case going forward? I...Read More