Relationship with Blackrock

Blackrock offers Nedgroup Investments corporate clients with offshore cash the option of investing in a US dollar, short-term money market fund.

The focus is on capital preservation and liquidity and is used by clients in preference to a traditional bank call account. The fund is AAA rated and is classed as a low volatility nav fund, so will always have a nav of one. The fund is domiciled in Dublin, Ireland and is Section 65 approved. The fund has a maximum weighted average maturity of 60 days and the weighted average life would be a maximum of 120 days. In terms of liquidity, the fund holds a minimum of 10% in daily maturing securities with 30% in weekly maturing securities. The holdings are traditional money market securities, typically banks with a minimum rating of 1 by S&P. The fund is very diversified, with a maximum exposure of 5% to any one issuer. The fund has a distributing share class, giving investors same-day access to funds and an accumulating share class, which is next day access. The fund’s current AUM is $41 billion with a net yield of just over 50bps. The fund has performed impeccably well in terms of meeting all redemptions and taking in subscriptions during the crisis.

Unsurprisingly, the current market environment is very impacted by the fallout from Covid-19. The US Federal Reserve has done a number of things to support markets and has recognised that they need to do much more than just adjust policy rates, which they did do very quickly taking the target range to 0 - 0.5%, which are historical lows in the US interest rates. They have also increased asset purchases to support liquidity in the market and to keep rates low. They announced and continue to highlight their support to do more regarding liquidity and credit facilities to ensure efficient market functioning, given the risks around the world and to ensure that support is going directly to business and households who need access to credit. They’ve also alleviated some of the regulatory requirements for banks and other institutions to support their monetary transmission mechanisms. We believe that the interest rate cuts that have been enacted are limited in terms of going further as they don’t believe in a negative interest rate policy, but rather that non-standard tools will be more effective in getting employment and inflation up towards their target levels.

As a result of these changes, the US dollar yields are now approaching historic lows with the 3-month USD LIBOR (London Interbank Offered Rate) level sitting below 40bps from over 1.5% at the end of March. We continue to see pressures on yields coming lower because of this accommodative stance from the Central Bank. The investment yields in which we are investing are also moving lower. We are employing more of the barbell strategy in the funds. This means that we are holding larger amounts of liquidities and have therefore got investments maturing in the one-week space to meet ongoing uncertain liquidity requirements of the underlying investors. We are holding closer to 50%, which we feel is the appropriate positioning in the current environment. The barbell is that we are also balancing that with longer-dated holdings, which are at higher yields and will protect the overall net yields of the funds. As a result of the Central Bank support, we’ve seen a very sharp tightening in credit spreads across the board in the money market space. We believe that macroeconomic risks are still quite high, so continue to be biased towards high quality investments. Almost 20% of the holdings in the fund are in sovereign and sovereign-like investments, very high quality gilt in the current environment. Overall, the duration or weighted average maturity of the portfolio is neutral to focus on maintaining liquidity, which in other crises has proved to be a more successful way of operating. We continue to see flows into prime funds because these yields are very attractive relative to where USD cash investments are generally being offered at this time.

To listen to this conversation, go to Nedgroup Investments Insights on Apple Podcast, Google Podcast and Spotify.