ADAPTING TO A LOWER YIELD ENVIRONMENT

THE CHALLENGE

How can I enhance my portfolio yield to meet cash flow requirements?

Recent market uncertainty and stretched valuations have caused many investors to opt to de-risk by increasing their cash allocation.

However, for long-term investors, who are better placed to weather short-term volatility and downside, the risk of holding excess levels of cash can mean losing out on meaningful performance.

THE ACTION

BlackRock could help build customised solutions that manage portfolio risk while achieving a positive yield and avoiding cash drag.

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 May 2020.
For illustrative purpose only. 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

Blending across product types helped demonstrate that, by taking on slightly more credit and/or duration risk, different yield requirements can be met.

WHY INDEXING?

Understanding that not all liquidity was needed on a T+0 basis, the client was able to invest some money in short-duration fixed income ETFs, which increased yield without significantly changing the liquidity profile and without significantly changing the risk profile of the portfolio.

WAYS WE CAN HELP YOU

From case studies to full outsourcing, explore how our portfolio solutions can help you rethink your portfolio.

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