Whitepapers & E-Books

Liquidity risk in cash portfolios

By 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 investor's 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 the 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.

If you would like further information on this topic, a more in-depth version of this paper is available. Please email ampcapitalnz@ampcapital.com if you would like to receive a copy.

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Important notes

This article has been prepared to provide general information and does not constitute 'financial advice' for the purposes of the Financial Advisors Act 2008 (Act). An individual investor should, before making any investment decisions, consider the information available in the relevant Product Disclosure Statement and seek professional advice. While every care has been taken in the preparation of this document, AMP Capital Investors (New Zealand) Limited and the AMP Group (together, 'AMP') make no guarantee that the information supplied is accurate, complete or timely and do not make any warranties or representations in respect of results gained from its use. The information is not intended to infer that current or past returns are indicative of future returns. The views expressed are those of the author and do not necessarily reflect those of AMP. These views are subject to change depending on market conditions and other factors.

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