Cash plus strategies which can outperform traditional cash investments such as Term Deposits are often misunderstood yet deserve more attention in today’s falling interest rate environment, according to boutique fund manager, Prime Value Asset Management.
These strategies are more relevant because they can outperform the cash rate without taking on big risks or sacrificing liquidity, says Matthew Lemke, portfolio manager for the top performing Prime Value Cash Plus Fund. “Cash enhanced vehicles can outperform cash by investing in prime securities on the professional securities market.
“But investors need to understand different cash enhanced vehicles will have different risk profiles.
“It’s possible to keep risk down yet still outperform the rate available on Term Deposits and other cash investments by targeting selective securities issued by major banks and financial institutions, and having a strong focus on capital preservation.”
Mr Lemke said investors across the spectrum are concerned about falling interest rates and looking to enhance their cash positions. “We’re seeing interest in cash plus strategies from high net worth investors, SMSFs, not-for-profit groups, schools, councils and charities.
“This interest will only grow in the next few months due to rate cuts and a fundamental shift in the RBA’s reasoning – the RBA now considers Australian economy’s ‘full employment’, level to be 4%, when it was previously thought to be 5%.
“With unemployment at 5.2% and inflation well below the RBA’s target 2-3% band, the Australian economy had significant spare capacity, warranting the rate cut, with more likely.
“The significance for investors is Australian interest rates will stay lower for far longer than anyone expected. Investors will be under even more pressure to find ways to replace lost income from cash holdings.
“Investors all have one thing in common: a desire to avoid going backwards in traditional cash investments without taking on too much risk, and a desire for a liquid vehicle without costly ‘break’ provisions, as is common with term deposits.”
The Prime Value Cash Plus Fund is currently outperforming its peers across both one year and three year investment periods, since launching in June 2014: The Prime Value Cash Plus Fund has a low risk profile and has delivered a 4.23% return per annum net of fees over the three years to 31 May 2019, and 3.70% net of fees for the 12 months to 31 May 2019. This compares against the RBA’s 1.5% average cash rate over the same three year period.
Boutique manager Prime Value Asset Management is part of an investment group including Shakespeare Property Group, managing more than $1.5 billion across equities, cash plus, direct property and agriculture investment.