Short Duration Fixed Income

Cash SMAs

A TIME-TESTED SOLUTION TO A NEW CHALLENGE

The cash universe has undergone fundamental changes. We believe ongoing developments should benefit investors who leverage the flexibility of Separately Managed Accounts (SMAs).

INCREASED DEMAND FOR CASH...

Unconventional monetary policy has increased global liquidity to record levels and investors are competing for a limited set of safe, liquid options.

Non-Financial corporations have increased cash balances dramatically since the Global Financial Crisis.

The phasing in of Basel III regulations, especially the Liquidity Coverage Ratio (LCR), create structural bank demand for Treasury and Government holdings, either directly via high quality liquid assets (HQLA) or indirectly by pushing LCR-unfriendly deposits into the market – most likely Government Money Market funds.

 

...MEETS LIMITED SUPPLY

  • U.S. Agencies balance sheet wind-downs limit Agency Discount Note supply.
  • Commercial paper supply is stable at lower levels as issuers seek long-term funding.
  • Less favorable rules around accounting treatment of sponsored Asset-Backed Commercial Paper (ABCP) cause limited supply.

The Result: "Safety" and "Liquidity" Become More Expensive

The increased demand for short treasuries should, all else equal, translate into increased value of medium term T-Bills vs. short term T-Bills.

 

Short-Duration (Cash) Investment Strategies

BALANCING THE NEED FOR PRINCIPAL PRESERVATION, LIQUIDITY AND YIELD/RETURNS

SMAs could provide meaningful benefits along the three pillars of cash management

PRINCIPAL PRESERVATION

  • Portfolio customization along the duration and credit risk continuum target principal preservation to help meet your specific objectives over your investment time horizon.
  • SMAs allow for security-by-security accounting, thereby providing flexibility as to the timing of realizing gains or losses when partial liquidation is needed.

LIQUIDITY

  • Liquidity is structured in three tiers: (1) allocation to overnights, (2) maturity ladder and (3) secondary market liquidity.
  • The appropriate allocation to tiers of liquidity provides a structural ability to raise cash when needed.
  • When access to secondary market liquidity is required, our focus on investing only in the most liquid issuers and our network of relationships with broker/dealers seeks to ensure optimal execution, both in speed and cost.

 

YIELD & EXPECTED RETURNS

  • The new supply/demand environment in short term fixed income should offer ongoing fundamental and structural value.
  • Standish’s Short Duration team's expertise and proprietary analytical tools can help you optimize risk-adjusted expected returns given liquidity and principal preservation requirements.
  • Standish’s broad and integrated expertise offers insights into macro developments and supports risk avoidance.
  • Standish’s Global, Credit and Securitized teams provide expert support when required.

Short-Duration (Cash) Investment Strategies

 

Standish's SMA Strategies Matrix

INVESTMENT APPROACH SHORT TERM INVESTMENT STRATEGY
(STIF)
ENHANCED CASH ULTRA SHORT GOVERNMENT/CREDIT 1– 3 YEAR GOVERNMENT/CREDIT
Principal Volatility Lowest Lower Lower Low
Liquidity1 Highest Higher Higher High
DURATION:
Portfolio Target 60 Days 0.5 Years 1 Year 1.9 Years
Duration Range 0-0.25 Years 0.25-0.75 Years 0.65-1.35 Years 1.40-2.30 Years
Maximum Security Maturity

1.5 Years Fixed/
3.1 Years Floating

3.1 Years Fixed/
5.1 Years Floating

3.1 Years Fixed/
5.1 Years Floating

5.1 Years
ALLOWABLE INVESTMENTS:
Treasuries X X X X
U.S. Gvt and Agencies X X X X
Repurchase Agreements X X X X
Commercial Paper X X X X
Certificates of Deposit X X X X
Euro Time Deposits X X X X
Floating Rate Notes X X X X
Corporate Bonds X X X X
Asset-Backed Securities X X X X
Mortgage-Backed Securities X X
Futures (for duration Management purposes) X X
Minimum Credit Quality2,3 A3, P-1 Baa3, P-2 Baa3, P-2 Baa3, P-2
Benchmark 3-Month Treasury Bill 6-Month Treasury Bill

1-Year Treasury

1-3 Year Government/
Credit or 1-3 Year Treasury

About Standish

A Dedicated Fixed Income Manager With Short Duration Expertise

Standish is a leading investment management firm dedicated to serving sophisticated fixed income investors. Standish currently offers a wide range of credit-based and specialty bond strategies focusing on the institutional marketplace. Our investment strategies span the wide range of fixed income disciplines and are complemented by a process designed to help provide innovative, effective solutions for satisfying our clients' needs.

Standish traces its roots back to 1933, when its predecessor firm, Standish, Ayer & Wood, Inc., began managing fixed income portfolios for U.S. financial institutions, banks and insurance companies.

Strong Investment Performance Driven By Deep Research and Rigorous Debate

Our team includes credit analysts, economists, and specialists who cover every sector and region of the world. Our analyst teams and portfolio managers meet daily to share ideas, combining macroeconomic views with multiple bottom-up perspectives. This constructive debate enables us to develop well-informed strategies that have consistently delivered strong performance over eight decades of market conditions.

The Value Of Active Portfolio Management With Standish

We believe the value of short duration portfolio management is to deliver a consistent client-specific balance of principal preservation, liquidity and yield.

STANDISH'S Approach & View

  • Seeking consistent outperformance requires both top-down and bottom-up expertise. Cash is about limiting risk; our team of experienced professionals use both quantitative and fundamental methods to identify assets at both the sector and individual security level.
  • The search for the optimal balance of principal preservation, liquidity and return drives the investment process. Seeking to provide a competitive yield on your cash is only one aspect driving our investment process.
  • Balancing principal preservation, liquidity and return is an art. Standish Cash investment professionals partner with you to deliver a strategy best suited for your individual needs.
  • Risk management is key to long-term investment success. We take active risk that is consistent with client objectives, the strategy, and our outlook. We seek to avoid negative surprises by focusing on the implementation processes and governance.

COMPETITIVE ADVANTAGES

1“Liquidity” is a subjective and relative measure. Overall portfolio liquidity is assessed by combining (a) typical allocation to overnight instruments, (b) maturity characteristics of the portfolio, and (c) the secondary market liquidity of the underlying instruments.

2Money market eligible tranches.

3Flexible to meet higher security minimums. Credit ratings reflect those assigned by Moody’s.

Risks

Diversification cannot assure a profit or protect against loss. All investments involve risk including loss of principal. Certain investments involve greater or unique risks that should be considered along with the objectives, fees, and expenses before investing.

Bonds are subject generally to interest-rate, credit, liquidity and market risks, to varying degrees. Generally, all other factors being equal, bond prices are inversely related to interest-rate changes, and rate increases can produce price declines.  Municipal income may be subject to state and local taxes. Some income may be subject to the federal alternative minimum tax for certain investors. Capital gains, if any, are taxable.

BNY Mellon Investment Management is one of the world’s leading asset management organizations, encompassing BNY Mellon’s affiliated investment management firms, wealth management services and global distribution companies. BNY Mellon is the corporate brand for The Bank of New York Mellon Corporation. Standish short duration investment strategies may be offered by certain personnel of the BNY Mellon Fixed Income Division of MBSC Securities Corporation ("MBSC"), acting in their capacity as officers of The Dreyfus Corporation ("Dreyfus"). Standish is an operating division of BNY Mellon Asset Management Corporation ("AMNA"). MBSC is a registered broker dealer and investment adviser. Dreyfus and AMNA are registered investment advisers. MBSC, AMNA and Dreyfus are affiliated BNY Mellon Investment Management companies.

Not FDIC-Insured │ Not Bank-Guaranteed │ May Lose Value

This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular investment, strategy, investment manager or account arrangement. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Please consult a legal, tax or investment advisor in order to determine whether an investment product or service is appropriate for a particular situation. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission.

CIS-23004-2018-02-21