BUILDING A DEFENSIVE PORTFOLIO

THE CHALLENGE

How can I build a more defensive portfolio without too much cash?

Whether it is to finance derivatives, to de-risk, or simply while waiting for the right investment opportunity, cash is commonly held across portfolios.

When liquidity is not required on a T+0 basis, holding cash can result in an unnecessary drag on performance.

THE ACTION

With the ability to take on slightly more credit and/or duration risk, blending across investment tools and looking beyond money market funds can help to bring portfolios closer to their yield requirements.

Cash and equivalents allocations:

Cash and equivalents allocations

ORIGINAL OPTION 1 OPTION 2 OPTION 3
YIELD -0.48% -0.21% 0.03% 0.09%
CREDIT QUALITY A+ A+ A- A-
SPREAD DURATION 0.1 0.3 0.9 1.3

Source: BlackRock, as at 30 June 2020.
For illustrative purpose only. Currency = EUR. Currency = GBP. Spread duration in 0.1, 0.3, 0.9 and 1.3 years.

Case studies are for illustrative purposes only; they are not meant as a guarantee of any future results or experience, and should not be interpreted as advice or a recommendation.

THE OUTCOME

The growth in the liquidity of the ETF market provided assurance that the client would be able to quickly execute large trade orders when required, without paying a large spread or risking not being able to liquidate.

WHY INDEXING?

The client invested some money in short-duration fixed income ETFs, to help increase net yield without significantly changing their overall risk or liquidity profile.

WAYS WE CAN HELP YOU

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