FIXED INCOME CASH CONTINUUM

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.

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

THE CHALLENGE

Investor wants to stretch for yield without increasing duration risk when deposits and money market funds (MMFs) yields are deeply negative

THE ACTION

Exposure an ultrashort maturity ETF.

Yield, Duration & Spread duration comparison: EUR MMF and iShares bond ETF

Yield, Duration & Spread duration comparison: EUR MMF and ERNE

Source: BlackRock, as of 29 May 2020.
For illustrative purposes only.

THE OUTCOME

Without extending duration risk materially, iShares bond ETF offers a +0.9% yield pick-up over a EUR MMF. This is reflected in the higher spread duration of iShares bond ETF vs. the MMF. Both iShares bond ETF and the EUR MMF have high average credit ratings (A+/Aa3/A+ and A-/A2/A- respectively based on S&P/Moody’s/Fitch rating agencies).

WHY INDEX MORE

Diamond

Precise, granular exposures available

Trends

Potential yield pick up over MMFs

Sapling

Potential for ESG integration

Risk: There can be no guarantee that the investment strategy can be successful and the value of investments may go down as well as up.

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or financial product or to adopt any investment strategy. The opinions expressed are as of 13 October 2020 and may change as subsequent conditions vary.

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