Diya Gullapalli in the Wall Street Journal examines the enhanced-cash funds that arose while short term rates were particularly low. However with the rise in short term rates their efficacy is being called into question.
Enhanced-cash mutual funds aim to deliver a higher yield than money-market mutual funds, one of the most popular and safe places for individuals to park their cash. They typically do this by including in their portfolios securities that have slightly longer maturities or that have lower credit ratings, such as mortgage-backed securities and corporate bonds. By contrast, money-market mutual funds hold short-term Treasury securities and commercial paper, or shorter-term corporate IOUs…
Investors can thank the Federal Reserve for enhanced-cash funds’ reduced appeal. The Fed has been pushing up short-term interest rates to head off inflation, even as long-term market rates have remained little changed. Because of that, investors might not benefit much from the longer-term, riskier investments currently offered in enhanced-cash funds. While money-market funds invest mostly in three-to-six-month maturities, enhanced funds focus on maturities of about one year.
Gullpalli notes that one beneficiary of this trend has been the Barclays Global Investors’ iShares Lehman 1-3 Year Treasury Bond Fund (SHY) which has seen its assets double in the past year.
Speaking of cash ControlledGreed.com notes conflicting views on appropriate cash levels from some smart value investors this week. Good advice on how to use this oftentimes conflicting information.
The lesson here is that it’s fun to check public documents and reports to see who owns what. But in the end we each have to understand that our portfolio is our portfolio.
If you just buy everything that, say, Marty Whitman is buying, then just go out and invest in his Third Avenue Value Fund instead. You’ll save yourself a lot of time and expense.
On the other hand, you and I will drive ourselves crazy trying to buy everything that every famed value manager is buying.
We each have to make our own decisions — on what to buy and when to pull the trigger.