PIMCO says investors can create liquidity tiers in their portfolios in order to enhance yield and match asset duration to cash liabilities. Understanding the actual liquidity needs is the first step to enhancing ones returns for short-term cash allocations.  The first tier is reserved for daily expenditures and other immediate needs; this cash should be kept in money market strategies.

Tier two is for strategic expenditures, such as research and development; tier three is for long-term spending needs. The PIMCO Enhanced Short Maturity Strategy Fund (NYSEArca: MINT), Schneider says, serves the needs of tiers two and three for investors with slightly higher risk tolerance.

“What MINT offers investors is a platform which is actively managed by PIMCO which will earn yields beyond the near 0% return which money market funds are paying right now,” Schneider says.

“Because it’s actively managed, it allows me and our team to think about the way the market develops, and evolve our strategy to find ways to continue providing enhanced returns over money market funds’ lower yield to our investors.”

MINT, can result in a vastly improved yield over that of money markets. In a $100 million corporate cash portfolio, 50% allocation to MINT can result in a 0.38% yield improvement.

Liquidity vs. Yield

Schneider says that there have been shifts in liquidity management in the context of yield management. Before the markets fell apart in 2007, yield was prized above all else.

In this day and age, liquidity is paramount, and MINT helps maintain it while also delivering yield.

“The blur which used to go on between corporate and individual balance sheets has been thrown out the window. Every single investor now must understand their liquidity profile and invest according to their liquidity profile,” says Schneider.  “They must only pay for absolute liquidity when it is necessary, and seek other alternatives like MINT when only near-liquidity is required.”

When the Cash Comes Back

Eventually, corporate cash will be deployed back into the market. At that point, Schneider says, MINT’s strategy will become even more relevant.

“The way MINT is structured, even as rates increase and ‘the New Normal’ plays out and the world is in a better place … in our opinion there will be more of a reason to think about strategies like MINT.”

There are two reasons for this:

1. “Investing cash isn’t a back-office activity anymore,” Schneider says. For that reason, the expertise of managers such as those at PIMCO is needed now more than ever. “Going forward, the ability to access this expertise is what investors are looking for.”

2. Right now, the penalty of being invested in money markets instead of funds like MINT is tens of basis points instead of hundreds. But once interest rates return to normal levels and bond yields come back up, money market yields will still be anemically low relative to alternatives as the structural requirements which 2a7 funds face are going to inhibit returns for that sector.”

“For investors, to be thinking of different ways to invest cash in various liquidity ladders is going to become more important.”