- A cash management portfolio serves as an alternative to traditional bank deposits, with higher yields whilst still providing investors with a good amount of liquidity.
- There are plenty of products which can serve as building blocks for a cash management portfolio tailor-made to fit your own unique yield requirements.
- Following on from our model SGD-denominated cash management portfolios, we now share some ideas on how investors can craft a USD rendition of such portfolios.
- Across three distinct risk profiles (Conservative, Moderate, Aggressive), our model portfolios are able to offer a net yield of up to 2.1%.
We previously highlighted how investors can create their very own SGD-denominated cash management portfolios in order to beat today’s low deposit rates and high inflation.
For a quick recap, a cash management portfolio is meaningful for investors who have stashed excess cash. It serves as an alternative to traditional bank deposits, with higher yields whilst still providing investors with a good amount of liquidity. The greatest advantage of crafting your own cash management portfolio is the flexibility to tailor it to unique yield requirements.
As some investors may also be holding some excess cash in USD, in this article, we share some ideas on a USD-denominated cash management portfolio.
Customise your own portfolio
Akin to a SGD-denominated cash management portfolio, there are plenty of products which can serve as building blocks to craft a USD rendition of such portfolios. Using the same methodology that we have previously shared, investors can categorise the products into “anchors” and “yield enhancers”.
- Step 1: Choose an anchor
Anchors refer to lower risk funds, which tend to generate reasonable returns with relatively lower volatility, and hence can serve as a stabiliser for your portfolio. But unlike SGD-denominated bond funds, those with USD denomination comes with a platform risk rating of at least 2, in order to account for their foreign currency exposure. We think that short duration bond funds with a platform risk rating of 2 fits the criteria of an “anchor” best, and here are some that we have shortlisted.
Table 1: Anchors
|
Name |
Platform Risk Rating |
Net Yield |
Return |
Volatility |
Payout |
Reinvest |
|
Nikko AM Shenton Short Term |
2 |
1.1% |
1.3% |
1.4% |
N.A. |
|
|
HGIF – Global Short Duration Bond |
2 |
1.1% |
2.5% |
2.9% |
N.A. |
|
|
Net yield does not include platform fees for fixed income UTs Return and volatility are based on 3-year annualised figures, unless otherwise stated Source: Bloomberg Finance L.P., iFAST Compilations Data as of 4 April 2022 |
||||||
- Step 2: Add yield enhancers
On the other hand, yield enhancers refer to funds with exposure to higher credit risk. As the name suggests, they can provide higher yields for your portfolio. We think these can be funds with a platform risk rating of 3, as suggested below.
Table 2: Yield enhancers
|
Name |
Platform Risk Rating |
Net Yield |
Return |
Volatility |
Payout |
Reinvest |
|
Fidelity Enhanced Reserve |
3 |
1.7% |
0.2% |
3.6% |
||
|
ICBC CSOP FTSE Chinese Government Bond Index ETF (SGX:CYB) |
3 |
2.5% |
8.1%* |
4.1%* |
N.A. |
|
|
United SGD Plus Fund USD-H |
3 |
2.9% |
-1.5% |
4.8% |
||
|
HGIF – Singapore Dollar Income Bond USD |
3 |
3.0% |
-0.1% |
5.6% |
N.A. |
|
|
Fullerton Lux – Asian Bonds |
3 |
3.1% |
-1.0% |
7.1% |
||
|
Net yield does not include platform fees for fixed income UTs Return and volatility are based on 3-year annualised figures, unless otherwise stated *Based on 1-year figures Source: Bloomberg Finance L.P., iFAST Compilations Data as of 4 April 2022 |
||||||
- Step 3: Mix and match
Depending on your risk profile and desired yield, mix and match the funds to form the portfolio. As the risk of the portfolio increases, we suggest have a greater variety of underlying products for diversification purposes. There are also idiosyncratic risks relating to each fund manager, hence investors should ideally want to diversify across different fund managers too.
Check out our model portfolios
Since the last update, we have made some changes to our USD-denominated model portfolios to ensure that they remain current and relevant for investors. Investors can choose a model portfolio that fits their risk profile; those seeking for higher yields will have to take on a higher level of risk. Moreover, we have included fixed income ETFs into the portfolios, as they are able to provide dedicated exposure to a specific bond segment that we like.
Our model portfolios (Table 3) are created with the characteristics of what we believe a cash management solution should have – higher yields than bank deposits, while keeping downside volatility as well as maximum drawdown low.
For a Conservative portfolio, the majority of the fund allocation (e.g. 80%) is in “anchors”, with our preferred fund being the Nikko AM Shenton Short Term Bond which invests in a diversified portfolio of high quality, short-term bonds and money market instruments. Thereafter, we added the Fidelity Enhanced Reserve Fund – a slightly riskier fund in order to enhance the yield of the portfolio. Relative to peers, the fund has demonstrated low volatility with a decent amount of yield, making it ideal as a cash management vehicle.
For a Moderate portfolio, we seek to have a 50/50 allocation between “anchors” and “yield enhancers”. As compared to the Conservative portfolio, an additional yield enhancer was selected in order to increase diversification. We chose the ICBC CSOP FTSE Chinese Government Bond ETF (SGX:CYB), as we believe Chinese government bonds will remain as reliable safe haven assets amidst the volatility in global bonds.
Lastly, for an Aggressive portfolio, we added another yield enhancer. The United SGD Plus Fund USD-H, which invests primarily in debt securities issued in Asia, was included so as to increase diversification and provide opportunities for outperformance on a total return basis. An equal weightage has been given to all funds in this portfolio.
Table 3: Model cash management portfolio under three risk profiles
|
Risk Profile |
Conservative |
Moderate |
Aggressive |
|
Fund Allocation |
80% anchors 20% yield enhancers |
50% anchors 50% yield enhancers |
25% anchors 75% yield enhancers |
|
Product Recommendations |
▪ 80% Nikko AM Shenton Short Term Bond |
▪ 50% Nikko AM Shenton Short Term Bond |
▪ 25% Nikko AM Shenton Short Term Bond ▪ 25% Fidelity Enhanced Reserve Fund |
|
1-year Total Return |
0.3% |
-0.2% |
-2.3% |
|
1-year Volatility |
1.4% |
1.9% |
1.7% |
|
Return / Volatility |
0.2 |
-0.1 |
-1.4 |
|
3-year Annualised Return |
1.1% |
N.A.* |
N.A.* |
|
3-year Annualised Volatility |
1.8% |
N.A* |
N.A* |
|
Historical Max Drawdown |
-2.2% (March 2020) |
-1.0% (March 2022) |
-1.5% (March 2022) |
|
Net Yield** |
1.2% |
1.6% |
2.1% |
|
Average Risk Rating |
2.2 |
2.5 |
2.8 |
|
*ICBC CSOP FTSE Chinese Government Bond ETF was only listed since September 2020 **Does not include platform fees Source: Bloomberg Finance L.P., iFAST Compilations Data as of 4 April 2022 |
|||
The yields offered by the portfolios generally compare well against other cash parking facilities, as shown in Figure 1 below.
Among the three model portfolios, the Conservative portfolio offers the lowest volatility, in line with its risk profile. Meanwhile, the Moderate portfolio seeks to balance between returns and volatility. Lastly, the Aggressive portfolio has the greatest room to outperform on a total return basis, due to higher credit risks. In return, investors will have to accept higher volatility and greater risk of capital loss.
Figure 1: Cash management portfolios can give you higher yields
Time to get higher yields
To reiterate, cash management portfolios present investors with an opportunity to generate higher yields on their idle cash. The number of combinations are aplenty, and a DIY cash management portfolio certainly provides the extra flexibility to tailor it to your own unique yield requirements.
As with the SGD-denominated cash management portfolios, we will also be providing a quarterly update on this series to ensure that the portfolios remain current and relevant for investors.
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