Money market funds can provide investors with a better return on capital than a regular savings account, but there’s an even better way: the FlexShares Ready Access Variable Income Fund (RAVI).
Rather than park capital in a money market fund to earn a return, RAVI can open up investors to higher yields and fixed income sources like bonds. More importantly, the fund’s focus is on liquidity and being able to convert assets into cash quickly.
“Investors need liquid assets for many reasons, such as providing an emergency cash reserve or offering a place to temporarily hold funds earmarked for short-term investment needs,” a FlexShares article said. “Prior to the financial crisis of 2008, money market funds offered a stable source of liquidity that still generated acceptable returns. Since then, however, new restrictions have greatly reduced the yields on money market funds. As a result, investors interested in liquid assets that provide higher relative returns have had to look for alternatives in ultra-short-term fixed-income investment vehicles.”
RAVI seeks maximum current income consistent with the preservation of capital and liquidity. The fund seeks to achieve its investment objective by investing at least 80% of its total assets in a non-diversified portfolio of fixed income instruments, including bonds, debt securities and other similar instruments issued by U.S. and non-U.S. public and private sector entities.
The dollar-weighted average portfolio maturity of the fund is normally not expected to exceed two years. It may invest up to 20% of its total assets in fixed income securities and instruments of issuers in emerging markets.
While money market funds can provide stability in terms of preservation of capital, investors willing to accept more risk can achieve greater returns with ETF products. With its active management strategy, RAVI can dynamically get in and out of debt market positions.
“Northern Trust Investments, Inc. (NTI), the investment adviser for FlexShares Funds, actively manages the fund, capitalizing on its deep expertise in corporate bonds and other fixed-income sectors,” the article added. “Because the fund is not constrained by the rules governing conventional money market funds, it invests in a wide range of securities with durations between three months and 1.5 years.”
Holdings are also optimized to reduce interest rate risk, fears of which are circulating the capital markets these days. RAVI invests in debt with maturity dates that don’t exceed a year.
“NTI manages the overall portfolio to maintain an average duration of between 0.25 years and one year, based on its outlook for interest rates,” the article continued. “All the Fund’s investments must be investment-grade at time of purchase, and the portfolio also includes constraints to avoid concentrations in asset-backed securities, single issuers, or debt based in emerging markets.”
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