InvestNow News 3rd Oct – AMP Capital – Liquidity risk in cash portfolios

30th Sep 2019 – Warren Potter – Senior Portfolio Manager New Zealand

“Cash is king”, as the quote goes, refers to the attractive quality of liquidity offered by cash and cash-like securities, especially during periods of volatility in financial markets. AMP Capital’s Cash Fund (and to a lesser extent our fixed interest funds) is a key source of liquidity in an investors’ portfolio. Liquidity means that investors in the funds can convert them to cash in both good and bad times.

Having cash available means an investor has flexibility to use that cash for portfolio redemptions, currency hedging losses, and asset allocation changes. For these reasons, a cash fund usually needs to be cash-like in all market conditions. However, some investors may not require this sort of liquidity and may look to take on more liquidity risk to achieve a higher return.

This summary paper looks at the AMP Capital view of liquidity, the liquidity of our Cash Fund, and finally whether there is an opportunity for investors to trade-off reduced liquidity for a slightly higher return.

Download the whitepaper >